Auctions For Dummies: Know Your Auctions

Auctions For Dummies: Know Your Auctions

Do you know the difference between an English Auction and a Dutch Auction? Get a quick run-down of the 5 most popular auction types then test your auction knowledge with our Real Estate Auction Quiz!

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English Auction

This the most common form of auction in use today. Participants bid openly against each other by calling out their bid amounts or submitting the bids electronically. The auction ends when no one is willing to bid higher, at which point the highest pays their bid amount and gets the item. A distinguishing feature of an English auction is that all bidders know other bidders’ bid amounts. English auctions are often used for selling antiques, artwork, collectables and real estate. There must be at least two bidders at an English auction.


Dutch Auction

In a traditional Dutch auction the auctioneer begins with a high asking price and then lowers it until someone accepts the auctioneer’s price. The winning participant pays the last announced prices. Holland is famous for its tulip auctions, which follow this format. Dutch auctions are also sometimes used for perishable commodities such as fish and tobacco.


Sealed first-price auction

In this type of auction all bidders submit sealed bids and the highest named price wins. Each bidder submits only one bid. Sealed first-price auctions are used in tendering for contracts or mining leases.


Vickrey Auction

The procedure is similar to the sealed first-price auction, but the winning bidder pays the second highest bid price rather than their own. This is similar to the proxy bidding system on eBay. Vickrey auctions are quite rare.

Almost anything can be sold at auction. Some typical auction arenas include antique auctions, collectables (stamps, coins, fine art, etc.), wine auctions (rare wines and special vintages), real estate (farms, lots, land), equipment and machinery, commodities, livestock, wool, timber, generating rights, debt auctions and auto auctions.

In environmental auctions, companies bid for licenses or credits to avoid being required to decrease their carbon emissions or otherwise decrease their environmental impact.


Suggested Opening Bid

An auctioneer usually has a rough idea of what an object will fetch and may start the auction action by announcing a suggested opening bid (SOB) that is low enough to be immediately accepted by one of the bidders. Once there is an opening bid, other bids will be submitted. Paradoxically, it has been found that the lower the SOB, the higher the final winning bid will be.


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