Absolute Auction

Key Takeaways

• Absolute auctions involve no reserve price; the highest bidder wins regardless of bid value.
• These auctions are ideal for quick cash sales without complications.
• Absolute auctions can occur live either online or at specific locations.
• They are commonly used for foreclosed properties.
• In a lender confirmation auction, the lender must approve the winning bid.

What Is an Absolute Auction?

An absolute auction is an auction in which the highest bidder for an item wins the item being auctioned. Absolute auctions do not involve reserve prices, which set a minimum required bid for an item to be sold. They are ideal for quick cash sales without complications, such as for farm equipment liquidations. Typically, the bidding starts at $0, attracting numerous bidders.

Absolute auctions are commonly used for foreclosure sales and charity events. They occur at actual locations and online. They are distinct from lender confirmation auctions, where bids need lender approval.

Understanding the Mechanics of Absolute Auctions

There are many different types of auctions. A sealed bid auction, for example, is an auction in which people submit secret bids, while in a Dutch auction, the auctioneer starts at a high price and decreases it until somebody agrees to buy the item for that price.

An absolute auction is the "classic" type of auction where the item—whether real estate or any other type of produce—is sold to the highest bidder, regardless of the price. This is also called an English auction. Since there is no reserve price or minimum floor above which bidding must start, the bidding in an absolute auction starts at $0.1

Absolute auctions can occur in various venues, including the foreclosure marketplace, the online marketplace (such as eBay.com), or live auction events. School foundations and charities, for example, often hold absolute auctions to raise money.

Absolute auctions are often implemented where there is an immediate demand to sell an item.

Comparing Absolute Auctions and Lender Confirmation Auctions

One type of absolute auction relates to foreclosed properties, where the winning bid acquires the foreclosed property. Although it is highly unlikely, if only one person were to show up at an absolute auction, their bid would be accepted, no matter how low the amount of money being bid.

An absolute auction is different from a lender confirmation auction, in which the lender must approve the bid in order to complete the transaction. In real estate, if a foreclosure is sold at a lender confirmation auction, the highest bidder does not necessarily win. The individual with the winning bid must not only have the money to spend but must also be vetted and accepted by whoever is holding the mortgage, be it a bank or the government.

Important

Foreclosed properties are often sold via an absolute auction; potential buyers can find out from the mortgage holder (often a bank) if the property will be sold at an absolute auction or by a lender confirmation auction.

Practical Example: How Absolute Auctions Operate

John and Jane have decided to close their farm equipment business. They want to immediately liquidate all of the items in the business, and do not have a minimum price they are trying to get for any of them. They hold a live auction in which the bidding starts at $0 for the items, and the highest bidder for each piece of equipment wins it. This is an example of an absolute auction.

What Are the 3 Types of Auctions?

The English auction (increasing price), the Dutch auction (open descending price), and the sealed bid auction (sealed envelope or silent auction) are the three types.

How Do I know If an Auction Company Is Legitimate?

Auction companies are generally endorsed, accredited, or have professional affiliations that demonstrate legitimacy.

What Do Auction Houses Do With Unsold Items?

Auction houses generally try to sell unsold items in other auctions because there will be different audiences. These audiences might find the items more attractive than the previous ones did.