By: Jim DesRoches
Absolute, No Reserve Auctions Vs. Reserve Auctions
Almost every seller that sells something at auction thinks that they want to sell it with a reserve price (a minimum acceptable price that the item would sell at.
Auctioneers understand the secret of selling “absolute” with NO reserve. The purpose of this article is to attempt to explain the difference, and why Absolute auctions are really a preferred method of selling, versus selling with a reserve.
Imagine for a moment that you are driving out of your driveway, and at the house next door, you see a large sign in the yard. This sign says “ This property to be offered at auction subject to reserve”. You may give it a little thought, and then shrug your shoulders, thinking “well, they have been trying to sell that house for almost a year now”. Then you will go back to your normal daily thoughts, of work, and family, etc. You may not even think about the house next door until you return home again and see the sign again. By then the sign is old news.
NOW, let’s say you drive out of your driveway, and you see a sign on the property next door and the sign says “ This Property to be SOLD at ABSOLUTE AUCTION, with NO Reserve”.
All of a sudden you pause, you read the entire sign. “What is the catch?” you wonder. You see the website and the phone number listed on the sign.
You call your spouse from your cell phone and tell them about this. When you get to work, you look the website up. You read everything you can read about this auction. You may even call the phone number and ask about it.
As it turns out, this property IS going to be SOLD with NO reserve, to the highest bidder. You have never really been interested in the house next door, but all of a sudden, you have ideas of owning a rental property possibly, or maybe even having it for family to live in. You envision buying this property for a song.
Funny thing, when the sign would have said “subject to a reserve” you didn’t give it a second thought. But now, it is different, it seems like you can own this property for a song. You even have a number in your mind that you would bid for it.
Here is the secret. EVERYONE thinks that way. Everyone that sees a sign that says “subject to a reserve” barely gives it a second thought. There will be a handful of bidders at a reserve auction. Most of them are just “lookers” that want to see what happens. However,
At an ABSOLUTE, NO RESERVE auction, there will be 10-20 times as many people there to bid. There will be the bottom fishers, there will be the lukewarm people, there will be the speculators, and there will be the serious bidders. Serious bidders rarely come to reserve auctions because they view them as glorified retail sales, designed just to draw attention.
Everyone of these bidders has a place here. It takes the bottom fishers and the lukewarm folks, and the speculators to drive the price up for the serious bidders. If the serious bidders are not there, because you have a reserve auction, who will buy the property?
One other thought about having a reserve auction. If the reserve is the bare minimum the seller will accept, then how will you ever get above it to reach a maximum? In other words, if you are telling the world that “X is how much you will take”, then in a bidders mind, everything above X is not a good deal!
Having been an auctioneer for over 20 years, and having sold many auctions, both live and online, I will tell you that 100 Percent of the time, when you have an ABSOLUTE auction you will get higher prices than you will in a reserve auction. WHY? More bidders, means more bidder participation.
Is there a time and place for a reserve auction?
Of course there is. IF the item being sold has a large lien on it, like a mortgage, and there is a chance that an absolute auction would not cover the loan. (Happens a lot since the real estate boom of recent years)
Or
If the sole purpose of the auction is to use it to draw attention to a subdivision as an example, where maybe one or two of the properties are being sold absolute and the remainder are being sold with reserve. It will create a crowd, and some of the reserve properties will sell.
The courts have long held that true market value is determined at auction with open bidding and no reserve.
If you were going to hold an auction, wouldn’t you like to do it right from the start?
Auctioneers understand the secret of selling “absolute” with NO reserve. The purpose of this article is to attempt to explain the difference, and why Absolute auctions are really a preferred method of selling, versus selling with a reserve.
Imagine for a moment that you are driving out of your driveway, and at the house next door, you see a large sign in the yard. This sign says “ This property to be offered at auction subject to reserve”. You may give it a little thought, and then shrug your shoulders, thinking “well, they have been trying to sell that house for almost a year now”. Then you will go back to your normal daily thoughts, of work, and family, etc. You may not even think about the house next door until you return home again and see the sign again. By then the sign is old news.
NOW, let’s say you drive out of your driveway, and you see a sign on the property next door and the sign says “ This Property to be SOLD at ABSOLUTE AUCTION, with NO Reserve”.
All of a sudden you pause, you read the entire sign. “What is the catch?” you wonder. You see the website and the phone number listed on the sign.
You call your spouse from your cell phone and tell them about this. When you get to work, you look the website up. You read everything you can read about this auction. You may even call the phone number and ask about it.
As it turns out, this property IS going to be SOLD with NO reserve, to the highest bidder. You have never really been interested in the house next door, but all of a sudden, you have ideas of owning a rental property possibly, or maybe even having it for family to live in. You envision buying this property for a song.
Funny thing, when the sign would have said “subject to a reserve” you didn’t give it a second thought. But now, it is different, it seems like you can own this property for a song. You even have a number in your mind that you would bid for it.
Here is the secret. EVERYONE thinks that way. Everyone that sees a sign that says “subject to a reserve” barely gives it a second thought. There will be a handful of bidders at a reserve auction. Most of them are just “lookers” that want to see what happens. However,
At an ABSOLUTE, NO RESERVE auction, there will be 10-20 times as many people there to bid. There will be the bottom fishers, there will be the lukewarm people, there will be the speculators, and there will be the serious bidders. Serious bidders rarely come to reserve auctions because they view them as glorified retail sales, designed just to draw attention.
Everyone of these bidders has a place here. It takes the bottom fishers and the lukewarm folks, and the speculators to drive the price up for the serious bidders. If the serious bidders are not there, because you have a reserve auction, who will buy the property?
One other thought about having a reserve auction. If the reserve is the bare minimum the seller will accept, then how will you ever get above it to reach a maximum? In other words, if you are telling the world that “X is how much you will take”, then in a bidders mind, everything above X is not a good deal!
Having been an auctioneer for over 20 years, and having sold many auctions, both live and online, I will tell you that 100 Percent of the time, when you have an ABSOLUTE auction you will get higher prices than you will in a reserve auction. WHY? More bidders, means more bidder participation.
Is there a time and place for a reserve auction?
Of course there is. IF the item being sold has a large lien on it, like a mortgage, and there is a chance that an absolute auction would not cover the loan. (Happens a lot since the real estate boom of recent years)
Or
If the sole purpose of the auction is to use it to draw attention to a subdivision as an example, where maybe one or two of the properties are being sold absolute and the remainder are being sold with reserve. It will create a crowd, and some of the reserve properties will sell.
The courts have long held that true market value is determined at auction with open bidding and no reserve.
If you were going to hold an auction, wouldn’t you like to do it right from the start?
Entire contents Copyright © 2008 Jim DesRoches Marketing
Jim DesRoches Marketing is a registered trademark of Jim DesRoches Marketing Inc. All Rights Reserved
Jim DesRoches Marketing is a registered trademark of Jim DesRoches Marketing Inc. All Rights Reserved