How an Auction Works

Before an auction starts, potential buyers can view the items the auction house is selling first. This period is called the preview period and can be anywhere from a few hours before the actual bidding process begins or the evening before. After viewing the items, the buyers go through a registration process.

During registration, the potential buyers register their details with the auctioneer. These details include their full name, address, telephone numbers, and an identification document like an ID, passport, or driver's license. After registration, each buyer is given a bidder's card with a unique number and identifies the participants.

Traditionally, a bell is used to call the auction to start. The auctioneer will focus on one item at a time. He may set the lowest price possible on the item and call for bids from the potential buyers. Alternatively, the seller may set the lowest price for the item under the hammer, and buyers will call out higher bids than the previous ones. The highest bidder gets ownership of the item immediately after making the payment for the offer he made.

Auction Example

Auctions are a pretty common occurrence in buying and selling today. Take, for instance, if you are looking to buy a vehicle from an auction. First, browse any public auction listings for motor vehicles near you via the internet. Many public auctions will have a listing of the items they are selling displayed online.

Browse through these and settle on the one you would like to save. Ensure that you show up early on the day of the auction and take the time to check the car, especially under the hood. Some vehicle auctions may even allow you to take it for a spin before the auction begins.

If you are satisfied, register with the auctioneer and wait for the car you want to buy to come up for bidding. Once it starts, identify the ''ring man'' who is the individual tasked with identifying bidders in your lane. Put in your bid, and don't get carried away; stay within your budget. Remember, there could be other expenses that you may pay for, such as auction fees, over and above the cost of the car.

Types of Auctions

There are four basic auction types. While they may differ in their execution, they still retain the same plan—to sell goods to bidders of the highest or lowest price. These are the main types of auctions that you may encounter from time to time.

The English Auction

This is the most common auction. It is mistakenly referred to as the only type of auction. An auctioneer opens the bid with a reserve price or the lowest price acceptable and invites submissions from the gallery. Once someone places a bid, the auctioneer may raise it by a small percentage and increase further bids on the current price. The bidding goes on at a determined increment until no one is willing to bid further. The auctioned item goes to the highest bidder at the fall of the hammer. This category of auction is also known as the first-price auction.

The Dutch Auction

In this type of auction, the method of bidding is the same, only that the price set by the auctioneer is the highest possible price. Bids are accepted in a descending fashion, with bidders placing the next lowest price after the previous one. The price keeps on decreasing until a bidder calls out ''mine,'' at which point the item is sold. People prefer this auction for its speed of execution. It is used at flower markets in Holland, which is why we call it ''Dutch.''

First-price sealed bid auction

As the name suggests, bidders submit their offers in a sealed envelope. The interested buyers write down a single bid, put it into a sealed envelope, and submit it to the auctioneer. Once the bids are opened and analyzed, the item on sale goes to the highest bidder. This auction type is common in financial-related sales such as foreign exchange or refinancing credit.

Vickrey auction

Also known as the ''second-price sealed-bid auction,'' this type of auction works similarly to the ''first-price sealed bid auction.'' Interested buyers submit a bid in a sealed envelope. The highest bidder gets to buy the item at the second-highest submitted bid price.

History of Auctions

The word ''auction'' is derived from the Latin word, ''actus,'' which means ''increasing'' in English. The first recorded auction was way back in 500 BC in Greece, where women were auctioned off as brides. The Romans quickly jumped onto the auctioning bandwagon in 193 AD as a means of selling off their spoils of war, debtor's assets, and slaves.

Fast forward to the 17th century that saw the rise of candle auctions. The final bid was closed by the burning out of the candle. It made for a long yet thrilling event. The first auction house, the Stockholm Auction House in Sweden, followed by Sotheby's in 1744, remains the world's largest auction house.

The allure of auctions today continues to grow thanks to the fair prices that one can find for rare pieces such as art and memorabilia. Auctions continue to be a haunt for buyers looking for a rare find or collection item. It is also an excellent avenue to buy goods and property that you would not otherwise find elsewhere at competitive prices.