Auctions: Absolute vs. Reserve

There are basically 2 types of auctions: absolute and not absolute, also called reserve. 

ABSOLUTE auctions mean that the property will sell to the highest bidder regardless of price. The advantages of this method is that absolute auctions traditionally get 10-20% higher prices. Historically more bidders show up to an absolute auction. More bidders means more competition = higher price. There is typically no way to mitigate risk except for the auctioneer to cancel the auction (no or low bidders, inclement weather, tragedy). The downside is that the property may sell for much less than expected/hoped for.   Absolute auctions work great for estate situations where there is no lien and the heirs would prefer timely closure. However we're seeing more and more high end/trophy homes sell via absolute.

RESERVE auctions means that there is a minimum price set. It can also mean that the seller has simply reserved his right to accept or reject the high bid. There are many variations for a reserve auctions. ' 
- Published minimum bid (seller will sell above the published minimum bid to highest bidder). Usually the minimum bid must be 'stupid low' in order to be attractive to lots of bidders.
- Subject to sellers confirmation: seller has the right to accept or reject the high bid. Remember that the seller is typically vested in the process (he's fronted the marketing money) and WANTS to sell. He doesn't have a specific minimum number because he is willing to consider the lowest reasonable offer.
- Opening Bid: different than the minimum bid because it's non-binding on the seller. It's simply a place holder for where the bidding will start. Sometimes auction firms will advertise a 'stupid low' opening bid but the sale is still subject to owner confirmation.

The Absolute concept has been abused in the past - state legislation and the National Association of Realtors have adopted strict guidelines/rules for advertising absolute auctions.

If you have any questions on real estate auctions, or other type of auction, please email me. I'm happy to offer any assistance.