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What is a Dutch Auction?

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  • Written By: Diana Bocco
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 November 2016
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Dutch auction can refer to two very different processes used in the auction world. Originally, a Dutch auction referred specifically to a type of auction that starts with a high price that keeps going down until the item sells. This is the opposite process to regular auctions, where an item starts at a minimum price and bidders wrestle over it by increasing their offers. In a Dutch auction, however, the auctioneer offers the item at a certain price and waits for somebody to agree. If nobody does, then he lowers the price and asks again. This continues until a participant says "yes" and thus wins the item. There are no battles over items in a Dutch auction; the first person to accept the offered price wins the item.

A Dutch auction is common when items are not expected to reach a high price or when something needs to be sold rather quickly. Most auctioneers shy away from Dutch auctions because they believe the final price is always lower than it would be in a regular auction. The US Customs uses Dutch auctions to dispose of unclaimed items that have been in storage for over a year. Many police auctions are also conducted this way. Because the main objective in both cases is to sell these objects quickly in order to make room for new ones, the lower profits generated are secondary.

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Dutch auction can also refer to a type of online auctions that has become popular over the past few years, especially in eBay. In these auctions, several identical items are offered for sale together, and bidders have the option of buying any number of them, from a single unit to any combination they desire. An online Dutch auction gives the seller the opportunity of listing the items only once rather than having to pay for several postings. If there are more items than bidders, then the items are sold at the minimum price. When there are more bidders than items, then the last bid will increase the original price of the item.

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comfyshoes
Post 5

SauteePan- Auctions are emotional experiences that are competitive in nature. The Dutch auction is the exception. Most auctions if you are not careful you will buy into the bidding frenzy and overpay for something just to win.

It is really important that when you go to an auction, you do your homework and determine how much you are willing to pay for the item and stick to it. If you do not do this, you will be overwhelmed at the auction and pay too much for something and later regret it.

It is best to attend a few auctions with no plans on bidding so you can see how the process works. For example, with the bank owned real estate auctions you can attend the auction but you can not bid unless you have a $5,000 cashier’s check for each property you plan on bidding on.

SauteePan
Post 4

Cafe41-I know that they have a reserve price for real estate bank owned auctions. I attended one a few years ago and when I registered online for the auction, I was sent a booklet with all of the homes that were being auctioned off.

All of the homes had a low bid price to start but my realtor told me that there was a reserve price on most of them.

There were a few that did not have a reserve price, but these properties were in really bad shape and all were cash only sales which meant that there was no financing was available.

The thing to keep in mind with a real estate auction is that

you have to inspect the property before bidding. These properties are sold as is, so if you bid on a home and later find out it has toxic mold it is too late. Buying a home in this fashion is not for the faint at heart.
cafe41
Post 3

Cupcake15-I have never attended a modified Dutch auction, but I have attended auctions in general.

Usually before the auction there is a catalog offered to the bidders so that they can become familiar with the items being sold and be able to prepare a bid.

Some products have a reserve bid which means that if the auction does not reach a minimum selling price then the item is not sold. Usually in a merchandise auction, the auctioneer will indicate that the reserve price was not met.

Items with reserve actually take the fun out of attending an auction because everyone attending an auction is looking for a bargain.

cupcake15
Post 2

Anon16993- I did not know that. I wanted to say that I have seen Ebay Dutch auctions. Usually the seller will have multiples of the item and will sell is at a given price.

The price set is usually low in order to get rid of all of the quantities. It is like a modified Dutch auction. I also know that auction sites use Dutch auction software in order to set up a Dutch auction site for goods that need to be liquidated.

For example, seized property that needs to be sold as well as property left behind in storage facilities. Since these items have to be liquidated fast the auctioneers are just trying to find a buyer not necessarily the highest bid buyer.

anon16993
Post 1

The dutch auction is used in the Netherlands on Flower auctions (bloemenveiling in dutch). The flower auctions in the Netherlands are the biggest in the world and the auction is really fast. Dutch flower producers get more money than other producers over the world thereby proving that the auction works and does not drive the price down.

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