Sunday, March 31, 2013

Absolute or Reserve? What's the difference?

There's a BIG difference... but let's start with the laws. The UCC, or Uniform Commercial Code specifies what an auction is, what auctioneers can do, and in some cases, what they can't. It clearly defines how auctions work. In 2-328(3), the law spells out that all auctions are "with reserve", unless specifically advertised as "absolute". Simply put, that means all auctions have a minimum price, even if not published or announced. That also means that the auctioneer can accept or reject any bid at his or the seller's discretion. This also means the auctioneer can determine what bid increments he or she is using or willing to accept. For example, if the auctioneer is calling for $1,000 and then $1,100, it's perfectly acceptable to reject a bid at $1,025. However, an absolute auction means the auctioneer MUST sell the item once the bids are opened. There can be no restrictions, no minimums, and no option to reject bids. (There is some question as to the bid increments, and if auctioneers have the right to choose the increment at all). An auctioneer can cancel an absolute auction before it starts, but once the bids open it must sell, regardless of price. That means if the auction brings a really poor crowd, and the bidding is really low, it will have to sell anyway. There is an advantage to using absolute auctions: The guaranty that the asset will sell. This means buyers know they won't be wasting their time. They know their efforts to bid will be worthwhile if they have the high bid. In general, absolute auctions seem to bring higher prices. This also represents a risk to the seller... not getting their expected price. There is a consumer caution we'd like you to know about. Some auctioneers try to get around the rules by saying that the auction is "Absolute, IF...." If we reach a certain bid, if the seller agrees, if, if, if. There are no "if's" in an absolute auction. It MUST sell. Some auctioneers try to be creative and say "ABSOLUTELY will sell if the minimum is met. In our opinion, this is unethical and deceiving. An absolute auction is just that, absolute. At Schur Success, we'll never try to deceive. Almost all of our auctions are reserve, including storage auctions. When we do run absolute auctions, we're very clear. We won't deceive. There won't be any fine print. We'll simply tell you up front. Questions? Give us a call ay (866) 290-2243. We want you to be informed.

No comments: