Whether you are planning to buy something from an auction or work for one, here are the various types of auctions explained by surplus.net and what you need to know about them.
- Absolute Auction
Here, the working principle is that the highest bid wins, no matter the price. As a result, the seller gets more money since there is competitive bidding. At absolute auctions, competition often heats up since bidders understand that they have to beat rivals in the room or online to own the item on auction.
Of course, bidders rely on the same strategy and innermost desire. At absolute auctions, you are likely going to get the most bidding. As a seller, you are likely going to experience a huge risk at an absolute action compared to the other types. However, you may also receive a great reward.
- Minimum Bid Auction
Here, the seller sets a minimum bidding price to start off the auction. As such, bidding must begin at this price before a sale happens. The auctioneer will publish and announce the minimum bid before the auction starts. Sellers at this type of auction will enjoy some level of safety but it may not be attractive to buyers like an absolute auction.
One of the best strategies for this type of auction is for the seller to set a very low minimum bid to attract the interest of buyers. Note that, setting a very high minimum bid will discourage people who are looking to start the bidding process.
- Reserve Auction
Here, the seller is allowed to accept, counter or reject the winning bid for a particular reason. The seller will make this decision before the auction comes to an end. As such, the seller enjoys protection meaning the property will not be sold below the acceptable amount. Note that, potential buyers don’t appreciate reserve auctions. That’s because they understand that their winning bid may be eventually rejected.
- Sealed Bid Auction
Here, the bidders may submit their best offers in a sealed envelope in writing. The auctioneer and seller will open their bids privately and they will not reveal them to any of the participants. The seller can take any of the following courses of action. First, they can accept the best or highest bid. Secondly, they may reject all bids and call for the best and final bid from the top 2 highest bidders. Additionally, they may start serious negotiations with the identified bidders.
These bids are mostly used for properties without a huge appeal or broad market. Also, if the bids are private, then those that are too low to be accepted by the seller will not lead to the property becoming stigmatized or being perceived to have a low value in the marketplace.
- Two-Step (Combo Auction)
Here, sealed bids will be sought from bidders. If the seller doesn’t accept the highest bid, the top 5 bidders will be invited to participate in a live bidding exercise or a reserve or absolute basis to identify the highest bidder.