Auctions have been around for centuries, dating to as far back as 500 B.C. At that time, a tradition began in ancient Babylon to hold an auction every year to arrange a marriage in the community. The auction tradition was used for goods during the time of the Roman Empire when the spoils of war were brought back and sold off to the highest bidder. Auctions were also used in Roman culture to settle debts, with the debtor’s belongings sold to back their creditors.
In Colonial times, auctions were used to procure all types of goods, from property to livestock. It wasn’t until the 1700s that auctions became an integral part of art industry. John Christie, the owner of Christie’s Auctions, was known as a great auctioneer who would dazzle elite crowds, raising large sums of money to sell art masterpieces. It was Christie who elevated auctions to the level that they are today in the world of arts and antiques. Around the same time, auctions became the most popular way to sell off newly acquired land in Australia as well.
While auction houses are definitely still a popular mainstay in the art and auction world, auctions have now become more accessible to the masses with the gradual inclusion of online auctions. Advances in technology have resulted in an increase in online auctions, which are extremely appealing because they allow bidders from all over the world the opportunity to bid on items without having to travel to attend the auction. It also opened the door for auctions of products that might not have been previously featured, mostly due to their presumed value. Online auctions have not only increased the bidding audience, but also have made participating in an auction more available to the mainstream public.
While online auctions have made bidding a little easier and more accessible, the auction process still involves a large amount of industry jargon that has worked its way into the auction process. Many terms date to the various stages in the history of auctioneering. Below, we will examine some of the most common terms used during the auction process to give you a better understanding of what happens.
“As-is” is a term used to describe an item that is being sold in its present condition. This means that the buyer is purchasing the product as-is, and no returns are typically accepted in this situation.
The auctioneer is the individual responsible for running and overseeing an auction. An auctioneer should be licensed, and the most recommended ones have received accreditation and hold membership in the National Auctioneers Association.
Auction marketing is the process by which prospective bidders are notified of upcoming auctions. Auction marketing is important to the success of an auction, because an auction thrives on competitive bidding. This means that not only will marketing have to be compelling enough to draw in bidders, but it will also have to be distributed properly, so you attract a pool of buyers likely to be interested in what is being offered. Success and failure in this area can have a lot to do with the auction’s outcome.
Auction status is information that conveys the current process of the item being auctioned. This usually includes up-to-date bidding information. The status also can indicate whether an auction is still going on or has closed.
The asset location indicates where an item up for auction is currently located, which will typically be an indication of where the buyer will pick up the item or where it’s shipped from. Asset location is often taken into consideration when determining the amount that someone is willing to bid.
A bid during an auction is essentially a price offered by a prospective buyer as to what they wish to pay for the item at auction. Bids will typically be raised in standard increments until a final price is determined to be the winning bid.
Bid history provides information on all the bids that were made either during or at the conclusion of the auction. Bid history can be important when estimating the price of similar items in future auctions.
Sometimes, certain items may attract more interest than others. When this is the case, an auctioneer may choose to allow a bid extension, which means they will allow the bidding to continue in 5-minute increments after the original scheduled closing time of the auction. This starts when a new bid is placed within the last 5 minutes of the original time and extended for 5 minutes each time a new bid is offered.
The price for a product will continually go up until prospective buyers stop bidding. The amount that the auctioneer will increase the bids is known as a “bid increment.” Most often, an auctioneer will use increments to 10 percent of the last price rounded up, though the auctioneer can make an increment anything they choose. In the case of a live auction, the new bid price will be announced. If the auction is online, then it will appear in a prompt on the webpage. It is important to note that bid increments can also happen mid-auction based on the bidding levels and number of bids.
Bid sniping is a term used in online auction platforms that are timed. It involves placing a bid that most likely will exceed the current bid but doing it within just moments of the end of the auction. The practice is done to allow no time for the current bid to place another bid and raise the price.
BIN (Buy It Now Pricing)
BIN is an option for a listing in which sellers can set a purchase price that allows for the product to be purchased immediately. If no one chooses to “Buy it Now,” the auction will continue. Typically, the BIN is set at the seller’s desired sale price. Buyers can also choose this option during the auction, at which point the bidding will stop and the purchase is complete.
A buyer’s premium is an additional amount added to the final bid to allow the buyer to come up with the final purchase price of an item. The buyer’s premium is represented by a percentage. The percentage can vary, but it will always be announced at the beginning of the auction.
Cataloging involves putting items into various lots or groups. Once sorted, the item will need to have a description and photographs. The end piece is a comprehensive catalog of what will be up for auction, which the bidders can look at prior to the auction commencing. This will give buyers the opportunity to decide what to bid on, so the more detailed the cataloging, the better.
Once an auction is complete, the buyer will not pay the seller directly. Instead, the money for the bid, plus the buyer’s premium, is held in escrow. Escrow is basically money that is being held until a transfer is completed. In the case of an auction, the escrow company holds the funds until the purchased item is received and approved by the buyer.
The event category is part of the listing process. When listing an auction, you will need to choose from one of the available event categories, for example, “online auction” or “live auction.”
Fair Market Value
Fair market value is a term used by appraisers when determining the value of an item. Simply put, it means that the price an item is sold for should be close to what a buyer is willing to pay for it. Since auctions use a bidding process to determine how much buyers are willing to pay, the sale price of an item at an auction could be considered fair market value.
The hammer price is the amount of the last bid that was placed when the auctioneer’s hammer falls, closing the bidding. It is considered the winning bid and is used along with the buyer’s premium to determine the final sale price.
After winning a bid, you are given an invoice for the item you purchased, which will include the price that you bid, along with any fees.
In some auctions, a prospective buyer can inspect the property before the auction. Typically, inspectable property is available one hour before the auction will begin or by appointment with the auctioneer in the days leading up to the auction date.
Live auctions are real-time auctions that are typically held in a salesroom or auction house. The bidders are a live audience, though oftentimes, remote bidders are allowed to participate by phone.
A lot is a specific item or group of items that are up for bidding.
The lot description will be included in the catalog, and it will provide details about each of the items included in the lot.
The lot title will appear above the lot description in the catalog or on the online auction page; it consists of a brief description of the item or group of items being sold. This will be how the item is referred to during the auction process.
Sellers may list their items with a minimum bid attached to them. This means that this will be the lowest offer that the seller will accept. Oftentimes, this amount will not be disclosed, and although bidding will start below it and a seller can accept a bid below it, they also have the right to pull the item if the minimum is not met.
No Reserve Auction
A “no reserve” auction means that there is no minimum bid requirement in place for the items presented during the auction.
Online auctions are sales sites in the virtual marketplace that allow bidding, where visitors can buy and sell their goods. They are often a popular choice for selling and purchasing because they have a significant amount of traffic and can offer a wide range of items for sale.
The opening bid is the amount at which the auctioneer will start the bidding. The opening bid for an item will usually be based on the value of the item as well as the possible interest. In many cases, the value is what the opening bid will be.
When a person is outbid, it means that another party has placed an offer higher than theirs.
Product categories are groups of like items that are set to be auctioned. When setting up an online auction, you will need to determine which product category you would like your item listed under.
A proxy bid allows you to bid in the lowest possible increment up to your maximum desired price without having to place a bid each time. You will need to determine and enter the highest price that you are willing to pay, and the proxy bidding will allow you to keep bidding against new bids up to the point that your maximum is met.
The term “removal” can have two meanings when it comes to auctions. It can refer to a listing being removed from the auction before the auction begins. It can also mean the terms for the removal of the item by the winning bidder.
The terms “reserve” and “minimum bid” are interchangeable. The reserve price is the lowest price that the seller wishes to accept for the item. Auctions will often start with bids below the reserve price, but once the bid price exceeds it, the auctioneer will have the authority to declare the property officially sold. If the highest bid is less than the reserve, it will be up to the seller whether they wish to accept or reject the bid.
An auction can be a sealed bid auction, which involves having bids submitted to the auctioneer. Everything submitted will be opened at a preset date. The sealed bid can be used as the actual bids or can be used to qualify bidders to participate in a live auction.
Another type of auction is a “tender,” which is essentially a closed, silent auction. The seller will accept sealed-bids from the possible buyers, which will need to be in by a set date. The offers are sealed, and the seller will not be able to accept them until the agreed-upon deadline.
Terms & Conditions
The terms and conditions are the rules that will govern the auction, including how the bidding is handled and how the final purchase will be completed. All potential bidders have to agree to the terms and conditions when they register to participate in the auction.
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