Why absolute real estate auctions are big deals
May 15th, 2008 | by mbhunter |(NOTE: You’re not experiencing deja-vu; I posted this twice by mistake. My internet connection dropped when I posted it the first time and I didn’t think it made it through. But since there are comments on both versions, I’ll see where they both go. This is known as A-B testing. Enjoy! 
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On the way home from town this past weekend, we passed a farm that was going to be sold at auction. My wife saw that the sale was an absolute auction. She asked me what was so great about an absolute auction. When she said that, my ears perked up.
An absolute auction implies that a sale will occur as long as at least one person bids any amount on the item for sale. So if I were the only person to show up for that auction and I bid a dollar, I’d get the whole farm for a dollar. Neither the seller nor the auctioneer could rescind their offer.
Auctions, unless otherwise specified, may have a reserve price, meaning that the auctioneer can refuse to sell an item if the bid price isn’t high enough. Sometimes the auctioneer will state that a particular item has a reserve, but they don’t have to do this.
If the auctioneer has advertised the sale as an absolute auction, though, his hands are tied. He cannot refuse any bids. Now the flip side is that an absolute auction is likely to draw more bidders than an auction that isn’t absolute (that is, one that can have a reserve price), because the bidders know that they won’t be wasting their time by going to an absolute auction. (Basically, I’m not going to be able to get the farm for a dollar. Someone else will outbid me.)
I don’t know what the reason for the sale of the farm is, but the seller is taking a risk by selling it at absolute auction. The farm could go for peanuts. But the seller may not have a choice. There are some reports of foreclosure auctions failing to get any bids because the minimum bid, or else the reserve, is too high. The fact that the seller is giving up the right to refuse low bids is a really big deal.
I suspect that as this housing crisis wears on there will be more absolute auctions: sellers getting whatever they can.
6 Responses to “Why absolute real estate auctions are big deals”
By CouponCodesMall on May 15, 2008 | Reply
Also it works online, when anyone check for ebay last minutes you can get items for a very cheap price. For jewelry items as well you can find on Bidz an auction site.
By Lord on May 15, 2008 | Reply
Often the seller becomes a straw buyer though so it is not as advertised.
By mbhunter on May 16, 2008 | Reply
@Lord: If the auctioneer accepts bids to buy on behalf of the seller, this is a huge no-no. The auctioneer could lose his license for doing this.
By Adonis on May 28, 2008 | Reply
Absolute Auction
By Mike Brandly on Nov 29, 2009 | Reply
Just a few observations on your article:
1. You say, “if I were the only person to show up for that auction and I bid a dollar, I’d get the whole farm for a dollar. Neither the seller nor the auctioneer could rescind their offer.”
Not true, necessarily. An absolute auction can be canceled before it starts, or before there is a solicitation for bids. In the case of only 1 bidder, that’s what most auctioneers would do — cancel the auction.
2. You say, “He cannot refuse any bids.
This isn’t true either. If the auction is opened, and there is a solicitation for bids, and someone bids within “a reasonable time,” the auction cannot be canceled — but that doesn’t mean that the auctioneer can’t refuse the opening bid — it just means he can’t withdraw the property.
3. You say, “don’t know what the reason for the sale of the farm is, but the seller is taking a risk by selling it at absolute auction.”
Actually, the contrary is true — with reserve auctions produce much smaller crowds, and almost always lower prices. Absolute auctions produce much larger crowds and therefore more money.
By mbhunter on Nov 29, 2009 | Reply
Mike, thanks for the corrections.