Auction Terms To Know
- Absentee bid – A procedure that allows a bidder to participate in the bidding process without being physically present. A bidder who cannot attend submits an offer prior to the auction. All arrangements for payment have been made in advance.
- Absolute auction: An auction where the property is sold to the highest bidder. There is not a minimum or reserve price that must be met to complete the auction sale.
- “As is, where is” – The property is being sold without warranty and that there are no contingencies based on the status of the asset being sold. It is a buyer’s responsibility to perform any desired inspections or due diligence prior to bidding.
- Auction – A public sale of property or inventory to the highest bidder by a person licensed or authorized for that purpose.
- Auctioneer – Any individual who engages in the calling for, the recognition of, and the acceptance of competitive bids for the purchase of assets.
- Bidder number – A unique number assigned to a bidder at registration, used for identifying the bidder and the purchases assigned to that bidder.
- Buyer’s premium – An advertised percentage of the high bid or flat fee added onto the high bid to determine the total contract price to be paid by the buyer. It is commonly used in auctions today as a form of payment for the auction company conducting the auction.
- Clear title – Ownership of a property that is free from liens or other encumbrances that would restrict the owner’s ability to legally convey the property to another individual or call into question the owner’s legal ownership of the property. Also often called “clean title” or “merchantable title.”
- Closing – In the context of a real estate transaction, closing is the culmination of the contract at which the buyer exchanges certified funds for a deed of conveyance from the seller. In the context of an online auction, closing means the conclusion of the bidding period.
- Contingency – An event or condition that’s occurrence or failure to occur affects the obligations of the parties to a contract.
- Due diligence – The process of gathering information about the condition and legal status of property being sold.
- High bidder’s choice – A method of sale where multiple properties are offered together and the high bidder wins the right to select their choice property or properties. In the event that the high bidder selects multiple properties, their bid is multiplied times the number of properties selected. After the high bidder’s selection, the property or properties are deleted from the group and the remaining properties are then offered for bidding and so on until all properties are sold.
- No minimum, no reserve – An auction where there is no minimum bid requirement and no reserve amount established by the seller. Instead, the property is sold to the highest bidder at auction regardless of price.
- Property Information Package (PIP) – A package of information and instructions provided by the auction company pertaining to the property being sold (such as a contract, legal description, survey, terms, and disclosure statements).
- Reserve auction: An auction where a price has been set between the seller and the auctioneer that must be met to complete the sale. Reserves are often used to provide the seller with security that they receive a certain amount of money to meet their sale goal.
- Ringman – Member of the auction team who conveys bids back to the auctioneer from the crowd. When bids are received in the crowd, the ringman will yelp to signal the auctioneer that they have received a bid and to increase the bid amount. They also help answer questions you may have while the auction is being conducted.
- Separate and together – A method of sale where multiple properties are offered individually and the high bid is reserved for each property. The high bids for each property are then added together and the properties are offered collectively for the cumulative high bid. If a bidder raises the cumulative high bid, the properties are sold together.
- Subject to seller confirmation – An auction where the seller reserves the right to either accept or reject the highest bid offered at auction.
- Terms and conditions – The rules that govern the particular sale. They include information such as the required earnest money deposit amount, when the transaction must close and other key facts.
Below are frequently asked questions we receive and all of the important information you need to know about auctions.
The auction method of marketing exposes property to a large number of pre-qualified prospects and creates competition among buyers – at times exceeding the price of a negotiated sale. The auction process creates an atmosphere of excitement and competition
No. Auctions can occur for a variety of reasons and they are the primary sales method when selling valuable assets.
Tips for participating in an auction include:
- Understand the type of auction you are participating in (absolute, reserve, etc.)
- Review the complete terms and conditions of the sale
- Arrive early to register for the auction
- Certain auctions (i.e. real estate) may require a cashier’s check or other payment in advance of the auction to qualify you to bid in the auction
If you are attending an auction with a live element, you will want to:
- Bid in sync with the chant
- Listen closely and follow the increasing bids. Remember, the number the auctioneer is repeating where the bid is and what the auctioneer is now accepting.
During the auction be sure to:
- Pay attention
- Remember your bidder number
- Keep your paddle with you at all times
- Evaluate the condition of the object you want to buy ahead of time
- Decide BEFORE the item goes on the block how much you are willing to pay
- Use eye contact to indicate that you are interested in bidding
A liquidation sale is the process of selling the assets of a business in an orderly fashion over a longer period of time to achieve higher values that are closer to market value. Whereas, auctions are often the opposite of liquidation sales in that they take place very quickly from start to finish.
Yes, we would encourage people to explore the world of auctions by attending one as a spectator. There is no better way to learn about auctions than to watch one live.
If the Auctioneer is a member of the National Auctioneer Association (NAA) you may a file a complaint in writing and submit it to the NAA Chief Executive Officer. For legal and financial recourse, you will need to file a complaint within the state where the auction company is located and/or where the auction was held. For states that require an auction license, the licensing board is the first place to start. For all states, we recommend contacting the consumer protection division of the attorney general’s office as well as local city, county, and Better Business Bureau offices.
The person you see and hear working amongst the crowd of bidders is known as a ringman. This individual is part of the auction team and is an extension of the auctioneer. The job of the ringman is to convey bids back to the auctioneer from the crowd. When bids are received in the crowd, the ringman will yelp to signal the auctioneer that they have received a bid and to increase the bid amount. These individuals are also there to help answer questions you may have while the auction is being conducted.
The art of perfecting the auctioneer’s cry takes years of practice, but understanding what auctioneers are saying is simple. The auctioneer’s bid call can be broken into two parts:
- Statement (the current bid) – I have five dollars.
- Question (the next bid) – Would you bid 10?
Example: I have five dollars, would you bid 10, would you bid 10? Now 10, I have 10 dollars, would you bid 15…
The cadence and repetition of words and use of “filler words” vary from one auctioneer to another, but the format is usually the same. Always remember that the number the auctioneer keeps repeating is the dollar amount they are wanting.
We hear this misconception a lot! In fact, to bid at an auction or for your bid to be received by the auctioneer, you typically need a bid paddle or bid card. You will receive this bid paddle or card at registration and it will have a number on it. This number allows the auction company to know who is bidding from the list of registered bidders. If you mistakenly bid or the auctioneer misinterprets your movement as a bid, immediately notify either the auctioneer or their staff.
It is important that prospective bidders read all documents regarding the sale prior to auction day. Cash payment is commonly not required at auctions. Auction companies may accept multiple forms of payment (cash, check, or credit card). When attending real estate auctions, auction companies may at times require a specific down payment on-site in the form of a cashier’s check to qualify as a bidder.
This is a major misconception about auctions. The fact is auctions are the primary sales method when selling valuable assets such as vintage vehicles, multi-million dollar homes, and priceless pieces of art. The competitive bidding of an auction and the bidding of prospective bidders sets the price and market value of an asset. The item will not sell for more than the highest bid and will not sell for less than the high bid. You, the consumer, and other bidders determine the market value of an item when you buy at auction.
Absolute Auction: An “absolute auction” is an auction where the property is sold to the highest bidder. There is not a minimum or reserve price that must be met to complete the auction sale.
Reserve Auction: A “reserve” auction means that a price has been set between the seller and the auctioneer that must be met to complete the sale. Reserves are often used to provide the seller with security that they receive a certain amount of money to meet their sale goal.
A buyer’s premium is commonly used in auctions today as a form of payment for the auction company conducting the auction. The buyer’s premium is an advertised percentage of the high bid or flat fee added onto the high bid to determine the total contract price to be paid by the buyer.
One of the most common statements made at auction, “as is, where is,” simply means the property is being sold without warranty and that there are no contingencies based on the status of the asset being sold. It is important that you inspect all auction properties before you bid, both real estate and personal property. Photos may not show all the details or potential faults with the asset and it is your job as a well-informed bidder to thoroughly inspect and know what you are bidding on BEFORE the start of the auction. Once you bid and buy an asset at auction, you are the new owner.
Auction Buyers FAQ
A: First, register with the auction company. To do so, you will be asked to show proper identification and may be required to verify that you have certified funds or cash in your possession. You must register at each auction event. Once registered you will be given a paddle with a bidder number. If at any point during the auction you would like to place a bid on an item, simply lift your paddle in the air and make sure the auctioneer or ringman sees you. If you are ever unsure whether your bid is the high bid, feel free to ask a ringman or auctioneer to confirm this. The auctioneer wants to provide you every opportunity to place your bid and will not allow you to bid against yourself.
A: Yes, we encourage you to inspect the property before auction day to determine its conditions and what is included in the sale. We especially recommend this for an “as is, where is” property. Due diligence on the part of the bidder is important with auctions. Photos may not show all the details or potential faults with the asset and it is your job as a well-informed bidder to thoroughly inspect and know what you are bidding on before the start of the auction. Contact the auction company managing the auction and inquire about times when open houses will take place, as well as any paperwork available on the property.
A: Step 1: Inspect the items or property prior to bidding.
Step 2: Get there early. This enables you to get a good position and helps you see the auctioneer and ensures the auctioneer sees you.
Step 3: Pre-register and get a bidding number.
Step 4: Be clear when making bids. Call out, put your hand up, flash your bidding card, etc.
Step 5: Have transportation ready or be prepared to pay for delivery.
A: Minimum bids are routinely used at auctions to provide prospective buyers with an initial price range of where bidding will begin. If an auction has a “minimum bid” of $50,000, prospective bidders will know that the auction will start with an opening bid of $50,000 and that the asset will not sell for anything less than $50,000. Often times, auctions are advertised with an “opening bid,” but this should not be confused with a “minimum bid.” An “opening bid” simply means a price where the bidding opens.
Auction Sellers FAQ
A: While Saturday remains the most popular day for auctions, new data shows early morning auctions achieve a higher clearance rate than those held later in the day.
A: If it is an absolute auction and there was no reserve on the item, then legally it must be sold or bought back.
A: If absolutely no one shows up or registers for the auction, then all items will be passed on and no sales will occur. As a reputable auction company, we do our due diligence to market to the right prospective buyers.
A: The risk in a private sale is in setting a price. If the price is set too high, the market will not respond. In many cases the property won’t even get an offer. If too low, someone will buy the property and the seller will never know how much was left on the table. The only way for the buyer and seller to know for certain if they will either respectively pay or attain true market value is for the entire marketplace to decide through a competitive bidding process with no artificial restraints. The final price may be higher or lower than anticipated, but if conducted properly, auctions will attain true market value for the buyer and the seller.
A: Some auction firms work under the philosophy that multi-property auctions are wonderful for selling a lot of different properties in a short period of time for much less expense. The owners of the properties usually pay a much smaller advertising budget upfront since the advertisements usually involve all the properties together. The auction usually is conducted in one spot utilizing a slide projector to show the properties on a screen when they are sold. There are a lot of properties sold very fast with relatively little expense.
Other auction firms concentrate on attaining market value. This process takes longer since only one property is sold on a given day at the subject property site with usually all the advertisement in that particular market focused only on that property. Since the auction firm is concentrating on that one auction in this type of sale, there is time to personally solicit the market in addition to the auction advertisements. The advertisement cost is higher, and the time is longer, but the results are usually much different.
A: Some of the advertising expenses associated with auctions include four-color flyers; newspaper advertising and trade publications; direct mailing to specific groups; signage, internet and social media; radio and cable TV; MLS if using a realtor; telemarketing; and press releases.
A: If you are considering an auction for your personal or business assets, consider the following tips:
- Ask for references, attend an auction, and learn about auctions firsthand
- Make sure to fully review all contracts, terms, and conditions of the auction with a legal expert
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