Minimum Bids & Bid Increments

The following question was submitted by reader, Beth. Many of the points provided in the answer below will apply to auctions other than charity events. Thank you for the question.

Q. My question is how to logically go about minimum bids for silent auction items. I thought the increments should have started at $2 for the lower value items, but there were no lower increments than $5. Would be interested in your opinion and also the formula you mention on your site.

A. Before I provide the formula. Let me explain a couple of things about minimum bids and increments.

First, there are risks associated to minimum bids that are too low and risks associated to minimum bids that are too high. The significance of these risks will vary whether you’re selling an item on ebay, an item at a charity auction or a piece of real estate.

Personally, as a live auctioneer, I always say, “it does not matter where bidding starts, but where it ends.” This said, sometimes practical reasons call for a minimum bid. If I am selling an item on ebay, I start with a very low minimum bid, typically $1. This makes my item of interest to anyone looking for what I’m selling. No one will ignore my item by saying, “he’s starting it too high” or “I would not have spent that much”. The result is more watchers, more bidders and ultimately, the market takes care of me and the item sells as it should.

The same approach would hold true for a sale of real estate… that is provided the seller will and CAN accept whatever the highest bid is. Again, the market will ensure they get the highest value, regardless of where the bidding starts. Most real estate auctions, though, involve property that is secured by a loan and CANNOT be sold below a certain price. In these cases, the property simply cannot be opened for less than the secured amount. In this case a recommended minimum might be the loan payoff.

Now, looking at the charity silent bid question, we’re faced with a different challenge. These auctions occur in a tight time frame (often 1.5 to 2 hours), may involve many conflicting items, and compete with such activities as cocktails, appetizers and socializing. Therefore, if left to the $1 rule, many items would sell too cheap.

So the question is ‘what price will keep values up, while inspiring the first bid?’ I have found the answer to be approx. 30% of true value (the value something is really worth, not the inflated value the donor has provided). If, however, you believe something may be a tough sale, you might consider starting as low as 20%-25% of value. At these levels, most items will generate a bid early into the event. This is key, as once an item has its first bid, it is more likely to receive subsequent bids.

This brings us to part 2 of the question…bid increments.So first lets look at our other scenarios – ebay and a real estate auction. When it comes to ebay, there is no control over increments. When it comes to a real estate auction (or any live auction), increments are typically determined and controlled by the auctioneer. A good auctioneer will read the audience and keep increments hearty enough to keep the value increasing, without scaring off bidders. A property that is currently at a $200,000 bid price but worth $400,000, would justify increments of $25,000 or $50,000….any less might wear down bidders before it reaches full value. Once value is neared, bids could then decrease to $10,000 or perhaps $5,000. This auctioneer would probably not go any lower than that in this example.

Once again, we return to the silent auction question. Once again, time is of the essence in these auctions. Therefore, I use a rather simple rule of thumb. I find that the average number of bids found on a silent auction bid sheet is approx. 6 to 8. Using this as a guide I use increments that will get me to 100% of value within 6 to 8 total bids.For example. If an item is worth $300, I recommend starting the bid at $100 and making the increments $30. This means 7 bids (including the starting bid) will get me to just under full value.Consider a couple of factors here. 1) Silent auctions tend to average 65% of retail value on average (some higher, some lower). This approach is consistent with the fact that some items will only get 3 or 4 bids, but is designed around trying to beat that average. 2) A typical silent auction item will have 2 – 4 competitive bidders, of which most will only return to an item 2 or 3 times max. This approach supports 2 bidders bidding 3 times each or 3 bidders bidding 2 times each, etc.

I hope this helps anyone preparing to sell using a method that supports minimum bids, and specifically those involved in silent auction events.Good luck and keep the questions coming…

Welcome to Gavel Talk!

I am pleased to introduce Gavel Talk – a place to learn about strategies for buying and selling at auction.

I think this is as good of time as any to make a very important clarification about me and this site. While I will address online strategies on this site, this site IS NOT a how-to use ebay site, nor is my experience and qualifications related in anyway to ebay selling.

So that begs the question, who am I and what is this site about?I am a professional auctioneer… yes one of those guys who “talks real fast.” As a matter of fact, that is me in the banner up above doing my thing.I have been in the auction profession for over 20 years and have performed every task possible related to the business. I have owned several companies that have specialized in various asset types and sale methods. I have dropped the gavel over 200,000 times, selling everything from computer equipment to machinery… vehicles to real estate… antiques and collectibles to motion picture making equipment. I have even sold dates with firemen, which raised tens of thousands of dollars for families vitimized by 9/11.

For as many property types I have sold, I have used as many auction strategies, including various iterations of live auctions, sealed bid auctions, bulk sale auctions, online auctions and live webcast auctions. I even earned more than my 15 minutes of fame, selling during a live television broadcast with bids submitted online and by telephone.

With this diversity, you can see why most auctioneers have experience and expertise well beyond the art of the chant. As a matter of fact, to be an effective auctioneer has nothing to do with bid calling and everything to do with being an expert marketer.

Every auction decision made is about catering to the target market. Type of auction (live, online, sealed bid, etc.), advertising approaches, auction venue, merchandising, terms of sale, etc. The reason these things are so important is simple… an auction only work if the market is represented at the sale and is willing and able to participate.

So this site will be dedicated to helping the public understand how and when an auction can be used to (1) sell quickly, (2) establish market value or (3) simply to find the market.Using an auction can be a huge decision and you deserve all of the help and direction you can get.I will also help buyers to participate in auctions with a clearer understanding of the process and more reasonable expectations.

I welcome your questions and will do my best to incorporate what I receive via email into this site, or otherwise respond to you directly.

Feel free to ask about any type of auction (yes, including ebay) and any type of property. If I cannot answer the questions, I’m sure I can direct you to someone that can.