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What is a Liquidation Auction?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 13 November 2016
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A liquidation auction is technically an auction at which goods of a liquidated company are sold with the goal of raising enough funds to satisfy creditors. People may also use the term "liquidation auction" to refer to a surplus auction or to other types of auctions, such as government car auctions. The term is used in this sense to imply that everything must go, with the goal of clearing all of the stock, whether or not the business is closing.

In the case of a closing business, the liquidation auction is one of the steps in the closure. Businesses can voluntarily liquidate or be forced to do so, with the auction being managed by an auction house. As a general rule, funds from the auction go to creditors first, and then are divided among shareholders. The liquidation includes stock, such as goods the company was selling, along with things like office furniture and supplies; essentially, anything the company has which is of value will be sold at a liquidation auction. Sometimes, high value items such as corporate art will be auctioned separately.

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Attending a liquidation auction can be an excellent way to get good deals on goods, products, furniture, and so forth. However, people should be careful. The auction may not allow inspection ahead of time, making it difficult to know if something is a good buy or not, and returns are not accepted, so attendees should make sure that they are positive about a purchase before committing by bidding.

It also sometimes possible for prices to be driven artificially high because there is widespread public interest in the company and the auction; when a prominent company goes bankrupt and a liquidation auction is held, people may buy at the auction to pick up souvenirs, and thus they may assign higher value to goods in the auction.

Usually a liquidation auction is advertised in a newspaper of record to give people notice. It's also possible to get on mailing lists which announce auctions, or to sign up with a specific auction house to be notified when auctions are going to be held. Sometimes advance notice also comes with an invitation to a preview event at which people will be allowed to inspect items which are included in the option. This can give people an opportunity to get an idea of what is in the auction, and to identify pieces of particular interest.

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Mammmood
Post 2

@nony - You can find good deals at auctions, but you have to be reasonable. No, you will not get rich and no one will give away the store, even at liquidation. The seller wants as much for the stuff as they can get, even if the seller happens to be the U.S. government.

In our town there is a car auction held downtown from time to time. I wouldn’t recommend it if you didn’t know what you were doing. But if you’re a mechanic or someone who is just very good with cars, and you're in the market for a new vehicle, it might be a good investment.

nony
Post 1

Years ago I watched a financial guru on television extol the virtues of government auctions. He was, of course, selling an information course on how to get rich through buying stuff dirt cheap at these auctions.

He gave examples of repossessed cars from drug dealers that were selling for mere hundreds of dollars at auction, or office equipment that was selling for pennies on the dollar, you name it.

All you would have to do is buy the stuff dirt cheap, resell it, and you’d be rich.

Well, you know the saying. If it sounds too good to be true, it is. I didn’t buy this guy’s course, but my friend did. Months later I asked how he was doing. To make a long story short, he couldn’t find anything selling for pennies on the dollar. Other buyers were at the auctions as well, driving the prices up.

So my word of advice is, buyer beware.

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