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What Is an Absolute Auction?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 11 September 2014
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An absolute auction in which the individual or company providing the highest bid is the winner and recipient of the auctioned item, upon successfully delivering payment to the seller. Typically, an absolute auction does not have a reserve price that must be met, meaning that none of the bids submitted have to be over a certain amount in order to qualify. This is in contrast to other types of auctions in which a reserve price must be met or the seller has the option of not honoring that highest bid and instead remains in possession of the item.

There are a number of different situations in which an absolute auction may take place. One of the more common has to do with the sale of foreclosed property. In some jurisdictions, owners of foreclosed properties will choose this type of auction as a means attempting to sell the property as soon as possible. By choosing to not designate a reserve or minimum price that bidders must meet in order to have a chance at winning the property, the seller increases the chances of at least recouping some of the losses on the property sooner rather than later. Institutions holding titles to foreclosed properties sometimes use this method when the property has been vacant for an extended period of time and the costs of upkeep are becoming less cost-effective in relation to the actual value of the property itself.

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An absolute auction strategy may also be used with other types of auctions, normally when the focus of the owner is on selling the items without expecting any minimum amount for those items. This approach may be used as a means of selling assets associated with an estate, such as jewelry or artwork. The idea is usually to dispose of the items quickly and generate whatever revenue can be realized, while also allowing the former owner to avoid incurring any more costs related to owing those assets, such as storage fees at a warehouse or the cost of maintaining insurance on the items.

Even online auction sites may be structured to allow for an absolute auction. This is true with sites that do not require sellers to set any type of minimum or reserve price that must be met. When this is the case, even a very low bid will be sufficient to win the item, even if there are no other bidders. Just as with public auction houses that allow clients to go with a reserve price for each auction or dispense with the requirement of a minimum bid, online auction sites are likely to charge some sort of fee to the seller, usually based on the amount of the winning bid.

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