To sell with reserve, or without reserve is a question that is argued by the best minds in the auction industry and considered by everyone selling machine tools at auction.
If you are dealing with a higher ticket item, isn’t it in the Seller’s best interest to have a fair market reserve price? Here are some things to consider while you’re struggling to answer that question:
Let me start by saying that I’ve always been a proponent of reserves as a safety net for sellers. In 2006 my company launched their online machine tool auction platform on our own web site. Bringing the sale process online allows for some really interesting Monday morning quarterbacking around the water cooler and more importantly statistical analysis that is too hard to come by at live events. We do two different types of online machine tool auctions. The first is a “stand alone” where the assets of an entire manufacturing plant are offered at once. The second type is a multi-location, multi-consignor, whereby assets from several different sellers that perhaps don’t have enough for an entire auction are combined into one event. It is typical that companies selling off surplus opt to place a reserve on the items offered.
Our post auction statistical analysis of these events has provided us with some eye-opening facts. When the same machine tools are offered with reserve and without reserve, the items with no reserve sell at higher prices and with more frequency. We see diminished participation when most items in a multi-location are offered with reserve. Why is this? We believe there are two primary reasons. First and foremost, what drives people to participate in auctions is the perception that they will receive a bargain. Auctions without reserve generate more participation, thus more competition. More competition equals better bottom line results! Secondly, I think that buyers simply don’t want to waste their time. The reserve price inhibits bidding because the buyers feel that the seller isn’t serious about selling. Part one of my explanation is provable with a time stamp from our servers showing how many people were actually participating at a particular event. Part two is just my opinion, but one based on twenty years of both live and online machine tool auction experience.
“But, is it not incredibly scary and financially reckless to sell valuable assets without a reserve?” I used to think exactly that….however, the numbers just don’t lie and the numbers say otherwise, (at least about the financially reckless part; I won’t argue on the scary part.) The largest auction company in the world is Richie Brothers. The company, with almost 4 billion in annual sales, built their business on the “absolute” or “no-reserve” auction method. Granted, Richie Brothers works primarily in construction and earth moving equipment, but that basically drives home my point. The price point of the average item they sell is substantially higher than machine tool auctions, and yet they choose the “absolute” method! Their 2012 annual report show sales increased by 11.71% from the previous year, 18% increase in online sales and a 40% increase in web traffic. Ok…I’ll admit it, this Jersey auction girl has size envy! Accelerated would like to be Richie Brothers when we grow up. Who wouldn’t? They’ve made the no reserve model work.
There are other examples of this model working in auction world. Take JP King Auction Company for example. This auction company specializes in luxury real estate, but they do it without reserve. This firm sells some of the most expensive and desirable real estate in America, and it’s all sold “Absolute.”
So why would a retiring machine shop owner or seller of surplus machine tools trust the “no reserve” method of online auctioning? Again, the numbers don’t lie, but in addition I would argue that you’replacing more trust in the marketing expertise of the auction house than anything else. If an auction has been properly marketed to a target audience for a reasonable period of time – the buyers will do their thing, organically. What it takes to get assets in front of a target audience is a fluid thing that is constantly changing. A good auctioneer knows this and keeps up with the times and current technologies and methods.
If you’re consigning assets to a company for sale, you should know exactly how they intend to reach a target market. A vague answer should not win your business. With a well thought out marketing plan and an auctioneer that has a long track record of obtaining the best market driven prices, you might want to consider trying an “absolute” or “no reserve” auction.
The truth about online machine tool auctions is that the “no reserve” auction method is not often used, but savvy Sellers are starting to reconsider. If industry giants like Richie Brothers advocate this method, there has to be something to it.