Pages

Saturday, May 20, 2006

How Do Reserves Work?

It seems everyone has their own idea how an auction is suppose
to work. We had this man tell us that, he felt that if an item had
a dollar bid, then it should be sold for a dollar. As we talked for
a while, he indicated that he might want to consign some things
to our auction... I asked him if we could sell his stuff for a dollar?
Of course, he said "NO!"... well, I think he finally understood.

In the State of Texas, ALL auctions are automatically considered
to be "WITH RESERVE", unless specifically stated that it is an
Absolute (without reserve). If there is only 1 item in an auction
with a reserve, then the auction can NOT be advertised as "absolute".

Now... I had another person tell me that she didn't like it when
there were bids on an item, but the item was "Passed" anyway.
The reason the item was Passed, was because the bidding didn't
reach the reserve price. Then she said that we shouldn't drop
below the reserve price. Well, as the saying goes "It doesn't
matter where it starts, it's where it ends that counts"... She felt
that we should announce the reserve. However, that isn't fair
to the consignor. Often, people don't know what something is worth,
but in a true market, it is worth "what a willing buyer is willing to
pay"... and "what a willing seller is willing to sell for". So, the seller
sets a reserve (minimum) that they are willing to accept, with the
hopes that there is 2 or more people that are willing to pay more.
The winning bidder has only paid one bid higher than someone else.
This is the fair way for an auction to work. However, if the reserve
is announced, then it may give a perceived value and it may not go
any higher, even though it's actual value may be much more...
hence, it is not fair to the seller.

This same lady told me that she goes to other auctions and they don't
Pass items... it appears that EVERYTHING is SOLD!
Did you notice that I said "appears"? The reason for this is that
most auction houses use one or more "House Numbers". If the
item doesn't reach the reserve price, it is sold back to a House
Number. This is completely legal, as long as it's announced that
the seller is allowed to bid and the "house number" is basically
used as a consignor bidder number. Then you say... but it's not
there at the next auction... true, because the auction house may
require the consignor to pick up their stuff that didn't sell after
the auction or it's sent out to another auction somewhere else or
possibly stored away for a while.

We don't always require our consignors to pick up their goods if
they don't sell. That means it might possibly be there at the next
auction (if the consignor so desires). So, if it doesn't meet the
reserve, we will "Pass" it.

We normally don't accept Reserves, except for expensive items.
However, we will only accept "reasonable" reserves. What do we
consider reasonable? That often depends on the particular item.
But, remember... this is an auction! It is NOT a means of getting
Full Retail Value. It is a means of moving items quickly and without
the hassles of "dickering", reducing the "holding costs" and advertising
costs normally associated with selling an item. These costs add up and
you may find that your actual profit is drastically reduced when you
add up these costs. In the normal market, a seller asks a price and
the buyer usually tries to negotiate a lower price. At the auction, the
bidders determine what they are willing to pay on a given day... the
bidding starts at whatever point the bidders wish to start the bidding
and it goes UP! until the last successful bid WINS!

We encourage people to ask questions at our auctions. If you don't
understand, we'll be glad to explain it to you... don't be afraid to ask.
I hope this helps to enlighten everyone, so that the auction experience
is FUN!

If you have any questions, contact us through the Texas-National
Auctioneers website at http://www.t-na.com