Understanding How Auctions Work
We often hear about auctions in pawnshops, or we might see it in a movie or series that we’re watching, and somehow we already have an idea of how it works. But, to describe it simply, an auction is an event where the seller sells the product or service to the person who bids the highest price.
If we look closely, year by year, the idea of auctions became more common in our country significantly when we shifted physical events to online. It became a door to new sales channels for products and sellers and gave favorable purchasing conditions to buyers. Not to mention the thrill it can give in bidding on something that you want. It offers us the idea of fighting on something we’re interested in buying. Although some might see it as a hassle, some people enjoy the benefits of how it works.
How do auctions work
There are open and close format options in an auction. Bidders are aware of the bids submitted for the specific product or service in an open format. They can see it online, or the seller announces the latest highest bid.
Open format auctions usually happen at a physical venue or online exchange to bid on products. Examples are livestock markets where farmers buy and sell animals, car auctions, or a collection auction of highly-valued and rare items like jewelry and paintings.
In these events, the bidders are aware of competing bids and continue to raise their bids until someone declares the winner. Usually, most of the sellers host it live and conclude the sale right after the event.
On the other hand, in closed format auctions, the bidders are unaware of the bids submitted for the specific product or service. Only the host or the seller knows the offers and will reveal the winner after the given cut-off period.
Close format auctions are common in business transactions like selling a company or assets like repossessed cars and properties. Here, only the seller knows the bid amounts and quantity to emphasize the security.
1. What is the difference between a bid and an auction?
A bid is an offer made by the buyer, trader, or dealer to buy a product or a service in an auction. It shows the amount the buyer is willing to pay and the quantity for the specific product or service.
An auction is an event where buyers can bid either physically or online for purchase. Some call it online bidding to convey that it is a close format auction.
2. What auction type are we using in Security Bank repossessed cars?
We’re using a close format auction in the Bank. Our ROPA team collects bids or offers for used cars and announces the winners weekly. Don’t worry; they’re the only one who knows about the bid amounts and quantity. In case the winner doesn’t pursue the unit, we award it to the next highest bidder in line.
3. Can you bid against your wife or any family member on an online auction?
No. Offers from bidders with up to the first degree of consanguinity, including common-law spouses, shall be considered one offer per unit. This rule applies to any type of auction. Therefore, the Bank will capture only the highest offer from both parties.
4. What will happen if I bid below the minimum bid price?
Technically, it’s invalid. However, as responsible bidders, we should learn how to bid at an auction. We need to understand that the minimum bid price is the starting bid amount for a specific product, not the actual price. Ideally, our bid should have a 20% increase from the minimum bid price to have a higher chance of winning.
5. What are the advantages of online auctions?
Sellers won’t have any overhead costs, sales staff to pay, and a website to maintain during an online event. They can also use any free platforms available online. For buyers, it’s safer to make a bid, especially during a pandemic: easy access and no travel expenses.