Legal Definitions - absolute auction

An absolute auction, also known as an auction without reserve, is a type of auction where the item being sold will go to the highest bidder, regardless of the price. In this kind of auction, there is no minimum price that must be met for the sale to occur, and the seller cannot withdraw the item once bidding has started. The seller also cannot bid on their own item to drive up the price.

Here are some examples to illustrate this concept:

• Example 1: Commercial Property Sale

  A developer decides to sell a vacant commercial lot through an absolute auction. They advertise that the property will be sold to the highest bidder on auction day, with no minimum bid requirement. On the day of the auction, bidding starts at a low price and gradually increases. Even if the final bid is lower than what the developer initially hoped for, they are legally obligated to sell the lot to that highest bidder because it was an absolute auction.

  This illustrates an absolute auction because the property is guaranteed to sell to the highest bidder, irrespective of the final price, and the seller cannot refuse the sale or withdraw the property once bidding commences.

• Example 2: Estate Liquidation

  Following a death, an estate decides to liquidate a collection of rare books and artwork through an absolute auction. The auction house explicitly states that every item will be sold to the highest bidder, with no reserve prices. A particular painting receives a final bid that is significantly lower than its estimated market value. Despite this, the estate must honor the sale to the highest bidder because the auction was conducted on an absolute basis.

  This demonstrates an absolute auction as the estate committed to selling all items to the highest bidder, without any minimum price conditions or the ability to pull items from the sale if bids were deemed too low.

• Example 3: Government Surplus Auction

  A municipal government holds an absolute auction to sell off old vehicles and equipment from its public works department. They announce that all items, from dump trucks to office furniture, will be sold to the highest bidder, with no reserve. A used snowplow, for example, might only fetch a few hundred dollars, even though its original cost was much higher. The city, having declared it an absolute auction, must accept that final bid and sell the snowplow.

  This is an absolute auction because the government entity has committed to selling the surplus items to whoever offers the highest price, without the option to set a minimum acceptable bid or withdraw an item if the bids are unsatisfactory.