Absolute Auction – A Complete Guide
In an absolute auction, the bidding process starts when the auctioneer opens the floor for bids. Interested buyers then place their bids openly. Each new bid must be higher than the previous one. When no one wants to bid any higher, the auctioneer ends the auction. The item then goes to the person who made the highest bid.
Differences from Reserve Auctions
Unlike reserve auctions, absolute auctions have no minimum price to be met. In a reserve auction, sellers can refuse to sell if bids exceed the minimum price. But in an absolute auction, sellers must sell to the highest bidder, even if the final price is much lower than hoped.
Benefits for Buyers
Absolute auctions create real opportunities for buyers to get good deals. Because there’s no minimum price, buyers might get items for less than their market value. This brings more people to absolute auctions, which can lead to active bidding.
Benefits for Sellers
While selling without a minimum price might seem risky, absolute auctions attract more buyers. More buyers usually mean more competition, which can increase the final price. The promise of a definite sale also brings serious buyers ready to bid. Sellers also save time since the item will sell on auction day.
Common Uses
Absolute auctions work well for many types of sales. Real estate developers use them to sell properties quickly, companies use them to sell extra equipment, governments use them to sell seized items, and farmers often use them to sell livestock or machinery.
Risk Management
Sellers in absolute auctions can still protect themselves. They often advertise well before the auction to attract many buyers. They might also hold the auction when market conditions are good. Some sellers put multiple items in one absolute auction, hoping that strong prices for some items will make up for lower prices on others.
Legal Aspects
The contract in an absolute auction is binding. Once the auctioneer says “sold,” both buyer and seller must follow through with the sale. This makes absolute auctions different from other sales methods where either party can back out under certain conditions.
