What Is an Absolute Auction?

One type of auction is known as an absolute auction, and in this kind of auction, the sale is given to the person who placed the highest bid. There is no such thing as a "reserve price" in an absolute auction. A reserve price is a price that must be met before the item can be sold at any price.

• Absolute auctions are a popular type of auction, particularly among individuals who are interested in making a cash sale in a timely manner and without the involvement of any complications.

• A large number of potential buyers will typically participate in an absolute auction if it has been adequately publicized.

• Items of this nature, such as farm machinery and equipment, are typically the kinds of things that are sold at absolute auctions.

How an Absolute Auction Works

There are a wide variety of auction formats to choose from. An example of this would be an auction in which people submit their bids in secret, as in a sealed bid auction. On the other hand, in a Dutch auction, the auctioneer begins with a high price and gradually lowers it until someone is willing to purchase the item at that price.

Absolute auctions are the "classic" form of auctions, in which the item up for sale (which could be a piece of property or some other kind of produce) is sold to the highest bidder regardless of the price at which it is offered. In an absolute auction, there is neither a minimum floor nor a reserve price that must be reached before the bidding can begin; consequently, the bidding begins at $0.

Absolute auctions are able to take place in a variety of settings, including the marketplace for foreclosed homes, the online marketplace (including websites like eBay.com), and live auction events. Auctions with no reserve prices are a common method of fund-raising for organizations like school foundations and charities.

When there is an urgent need to sell an item, absolute auctions are frequently used to facilitate the transaction.

Absolute Auction vs. Lender Confirmation Auction

One subcategory of absolute auctions involves the sale of foreclosed properties to the highest bidder, who then becomes the new owner of the property. If there were only one person present at an absolute auction, their bid would be accepted despite the fact that the amount of money being bid on was extremely low, despite the fact that this scenario is extremely unlikely.

A lender confirmation auction is not the same as an absolute auction. In the latter, the lender has to give their blessing to the bid before the transaction can be finalized. When it comes to transactions involving real estate, a foreclosure that is sold at an auction for lender confirmation does not always go to the highest bidder. The individual who placed the winning bid must not only have the ability to purchase the property with their own funds, but they also have to pass a background check and receive approval from whoever is holding the mortgage, whether it be a bank or the government.

Absolute auctions are frequently used for the sale of foreclosed properties; interested parties can inquire with the mortgage holder (typically a bank) about the method of sale that will be used for the property to determine whether it will be sold at an absolute auction or by a lender confirmation auction.

Example of an Absolute Auction

The brothers Bert and Ernie have made the decision to close their agricultural equipment company. They want to immediately liquidate all of the items in the company's inventory, but they do not have a minimum price in mind for any of the items they are trying to sell. They conduct a live auction for the items, with the bidding beginning at zero dollars for each item, and the winner of each piece of equipment is the person who placed the highest bid. This is an illustration of what an absolute auction looks like.