When you think of auctions, do you think of using the internet? Hopefully, by the time you are done reading this article you will have a better understanding of how the internet and technology is creating a new world of “online auctions.” Before I explain how online auctions are changing the name of the game from the live auction standpoint, let’s first get Wikipedia’s definition of an auction: “An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. (“Auction,” n.d.)." I like the Webster definition of auction better since I am in real estate and it explains the word auction as “A sale of property to the highest bidder.” (“Auction,” n.d.). With those definitions and the help of the internet, we have “online auctions.” Like many others that are reading this, I myself have always been interested in buying and selling, or just knowing the value of something! Currently, I am writing this article while watching and bidding on three auctions online. I am bidding on a 1935 John Deere Model A tractor in Arizona, while watching a farm sale of equipment line-up in Oregon and a real estate sale in Nebraska, all with the comfort of a cup of coffee.
What are Online Auctions?
When people think of online auctions, most people think of Ebay. Ebay is an auction company in some ways, but when they have the “buy it now” option, that is not an auction because how many other people would like to “buy it now” too. Ebay has set the stage for online auctions in the minds of people that are new to auctions. Also, another thought that people might think of for online auctions is waiting until the last minute to bid. Today, that doesn’t exist as much, and is referred to as “sniper bidding.” The reason it is less popular today is because of the wide reach of the internet giving more and more online bidders stronger signals. Sniper bidding was just someone that had the fastest internet, and if two or more bids were sent in simultaneously with one second left, the bid with the faster internet would overtake the slower internet bid. If you are curious about your internet strength when doing online bidding, go to the website www.fast.com and test your strength of internet there.
A “soft close” is what most online auction companies use today. I will explain these in more detail later in the pro and con section of this article.
There are some basic tips for a new buyer or seller in the auction world, but let’s first look at the history of auctions.
Auction History & Importance
If you are new to the auction world as a buyer and seller, it is important to remember the basics of an auction before heading into a sale. Even though an auction may not be your first choice for shopping, I would urge you to attend an auction to see if you enjoy the atmosphere. Also, by going to an auction and looking at items to buy without having a set price tag, it is quite different compared to normal shopping, not to mention the energy and rush of bidding on something and winning or losing will leave you feeling energized. Besides, you are not going to walk into Wal-Mart and buy an antique decoration or mid-century furniture piece right off the shelf.
Going to a live auction allows a greater understanding of what goes on for an online auction. On Wikipedia, live auctions have a long history, “having been recorded as early as 500 B.C. According to Herodotus, in Babylon auctions of women for marriage were held annually. The auctions began with the woman the auctioneer considered to be the most beautiful and progressed to the least. It was considered illegal to allow a daughter to be sold outside of the auction method.” Today, auctions are held everywhere and for everything. With the help of the internet, a buyer from Mexico can connect and purchase from a seller in Iowa, with just the push of a button. It is definitely a smaller world then we realized. Most auction companies have been around for quite a long time, and have auctioneers that know the value of items, in which that value hasn’t been registered on paper or online.
Live Auctions vs. Online Auctions
Going to school to become an auctioneer was a goal of mine, and to have the world champion chant was in my thoughts. I believe the world champion chant is not calling on the auction block at a live auction, but the brains behind and setup of an online auction, and its’ software. It is good to know how live auctions work, and not just be involved in the technology side of online auctions.
There are many differences between live auctions and online auctions, but a lot of the auction companies are headed more online, with some companies now doing both live and online. One reason for going online vs. live auction is that all buyers have an equal playing field.
Online auctions mainly break down and remove the physical limitations of live auctions such as geography, presence, time, space, and a smaller target audience. Auctions have evolved from live auctions to online auctions with the help of technology.
I heard a week ago that 80% of homeless people have a smart phone, not a flip phone, but a smart phone. I also know that 95% of statistics are made up on the spot, but if even, let’s say, half of that is true, it is still a big number, my point here is “smart phone.” So if 80 percent or 40 percent of homeless people have a smart phone which could give them internet access, then I would think the rest of the population in the United States would have internet by now. Anymore, a live auction is more of a one-day auction focusing on a local area, turning into a social event. I am not saying live auctions are bad or gone forever, but there is a place and time for them and now an option to do a hybrid of online and live. Now with the help of the internet, your potential buyers are everywhere as long as they get approved to bid and have great internet connection. With an online auction, a buyer can go to many auctions on the same day, like I am doing right now, and the quality buyers are online doing their homework.
That brings us to another great point for online vs live auctions. Online auctions are mostly setup 3-4 weeks in advance before the auction closes, so it gives you a significant amount of time to research and do your due diligence before hitting the bid button or putting in a max bid. This is great because on the same date as a live auction, you might have a wedding or a graduation party you are to attend, but you really want to buy that 1969 Chevelle SS that you already test drove or that chunk of land you looked at two weeks ago. There are auctions on just about every day of the year, making them no longer a one-day event. And there are auctions that you can bid on any time of day, and those are online auctions. So, if you are not able to make it to a live auction, go to 3-5 online auctions at the same time and day.
Every auction is different, anywhere from an auto auction to a livestock auction, or a real estate land auction to a local charity auction, or maybe an equipment auction to a storage unit auction. One thing is for sure, and that is, there will be plenty of energy and excitement at a live auction, a silent auction, or even a seal bid auction. People think that there is not as much excitement on an online auction as a live auction, but I assure you, a person can get very carried away doing online auctions as well.
Pros & Cons of Online Auctions
One of the coolest things about bidding on online auctions is that you can bid from the comfort of wherever you are using your desktop computer, laptop, your mobile phone, maybe even a watch. For example, you could be on a fishing boat or a mountain top and also be buying something on your phone. Also, folks are looking online on their phone and going home or to their office to bid on a desktop computer. The percentage of desktop vs mobile bidding is about the same right now. Online auctions are moving more towards mobile or on a watch, to not miss a bid. Once, I was bidding on an online auction and got outbid, however, I was not by my phone, but did get a notification of “you are outbid” on my smart watch. Luckily, because of this new technology, I did bid again on my watch just in time to win the auction. If it wasn’t for the notice of being outbid, I would have lost the deal. Every online auction I have been a part of, will send you a notification of being “outbid” or having the “high bid.”
Another pro of online auctions is you can put a “max bid” and walk away from the auction and it will continue to bid for you up to the max bid you set. For example, the high bid is at $100 and your max bid is $1,000, if someone else bids $200, your max bid will kick in and bid $300. My favorite thing about online auctions is that there is a “soft close” on most online auctions today. Like I mentioned before, the sniper bidding is less and less today. A “soft close” is, as the seconds or minutes are coming to a close and there is a bid right before the closing, it will add more seconds or minutes to the clock, allowing more bids to come in. A buyer should like this because of not ever having an excuse for missing an item. A seller enjoys the soft close because there will never be a missed bid and, in return, will get the best price. It is going to be interesting to see what comes next for bidding.
A lot of auction companies are also charging a buyer's premium on top of the closing price. A buyers premium is an extra charge on top the highest bid and is often a percentage of 2-10 percent. For example, an item sells for $100 plus a 10 percent buyer's premium, equaling a final total of $110. This is a con for buyers and sellers both and only benefits the auction house or company hosting. A lot of times the buyers premium goes to the auction company for marketing/advertising or the use of online software. A potential buyer does not like to see buyers premiums because it is educating them to bid at least one bid less. A seller does not care for this either, making its’ item sell for one bid less, which then makes the value not a true market value. Therefore, an auction value sometimes is not a true number of what something is selling for unless you do some more research on the extra charges like a buyers premium. Today more and more items, especially real estate property are selling on auction. In fact, I bought my home on an online auction (www.auction.com) and had a good experience. Also, the company I work for in real estate, Farmers National Company, did about 1,200 real estate land auctions in the last five years.
Another pro of online auctions is that most of them will allow you to look at items 3-4 weeks before the bidding, enabling you to make a wiser choice and max bid. Having a budget or number in mind before bidding starts is very smart also. It may seem simple to have a budget and say you’ll stick to it, however, when emotions run high and the item or property you want is on the line, it becomes very easy to surpass your budget. A good example of this is buying the neighbors property, because it is next door, but values might be worth more because of location. An online auction is not as bad in that instance, but in the case of not knowing who your neighbor is or could be, might be worth more. Even though most might believe that a con to buying on an online auction is not knowing who you are bidding against, I believe it makes a person have a sharper pencil with a real value. As an auction company, it also takes a lot of time and responsibility to put on a live auction. From renting the fairgrounds to having port-a-potties to insurance to setting up two weeks in advance to buyers picking up their items two weeks after the auction. If attending a live auction, it is good to come early, allowing you to have time to browse the inventory or property longer. After the auction, the buyers pick up their own items, because they are responsible for the logistics. With online auctions, most of the time and responsibility is done before the auction closes.
The Future of Auctions
I believe that the future of auctions is just starting to get good with online auctions, and we are just now in the early stages. With mostly all folks having internet and a smart mobile phone, for the millennials and the next generation to come, it will be second nature for them to bid online for auctions. Auctions are not a last resort anymore for selling, especially now with the help of online auctions. Some used items that sell for new prices include art work, sports memorabilia, and antique items that are now selling for new records thanks to online auctions. Buyers and sellers are more educated and knowledgeable on values today than they have ever been, meaning you are going to be less able to “get a good deal” anymore. What I am saying is, the dealer price and auction price are coming closer together because there are values out there for anyone willing to do a Google search on pretty much everything that is sold. Just look at Facebook, when you sell something on its marketplace, it tells you that it was sold and for what price. Therefore, I don’t think it would be too long before Facebook would have some sort of online auction selling like Ebay, or maybe even the powerhouse of Amazon. If you search #onlineauctions on Instagram, there are only 4,500 times that have been posted, so it is just starting to get into the social media world. Online Auctions are a win-win for both the buyer and the seller making buying and selling simple and quick to get what you would not get anywhere else.
In the end, you will not be disappointed when you find your dream piece of property at the perfect price. Eventually, you will be frequently attending live or online auctions and finding the deals of the day all around you. You can become an expert by being knowledgeable in other fields of life, by simply researching something to buy or sell in an auction. This will be extremely beneficial to your brain and your bank account, and you will fall in love with the wonderful experience, prices, and unique items, causing you to have a better view on how online auctions work. I hope these tips help you to become an avid auction-goer and expert bidder in the auction world, especially with online auctions.
This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners.
About the Author: Rodney McConnell is Real Estate Broker with Farmers National Company in Washington State, serving the Pacific Northwest. Rodney is an active member of RLI, serving on the 2018 Futures Leaders Committee and working on his Accredited Land Consultant (ALC) Designation. Rodney is a Territory Manager with 10X Auction in the Pacific Northwest, providing online auctions.