Purchasing Assets at Auction: What You Need to Know

Have you ever purchased business assets at an auction? Despite the common portrayal of auctions as confusing and chaotic, they can actually be a very organised and beneficial way to acquire diverse products. Here’s what you need to consider before you buy at auction:

How an Auction Works

An auction is a process of buying and selling goods by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Traditionally, buyers would be on-site for the auction and place bids themselves or use a proxy bidder. However, more recently auction houses have created secure bidding platforms that enable buyers to bid over the internet.

Types of Auctions:

• Open Auctions: Parties come together at a physical venue or online exchange to bid on assets. An interested party is aware of the competing bid amounts and continues to raise their bid until they declare the winner of the auction.
• Closed Auctions: These auctions are conducted in a closed format whereby interested parties submit sealed bids to the seller. These bid amounts are only known by the seller.

Before the Auction

You may need to register in advance with the auction house to attend or bid online. At this point, you may be required to pay a deposit. If this is the case, the deposit for the asset would go towards the cost of the asset. If you do not win an auction, the deposit will be returned to you. Auction houses will usually create an online and hard copy catalogue in advance of the auction date to allow buyers to choose the asset, or assets that they would like to build on.

During the Auction

There are several ways to bid on an asset:

In-person: Attend in person and simply raise your hand to make a bid. Once you have bid for the first time the auctioneer will look for you again if the price increases.

Proxy bidding: Bid by proxy if you can’t attend. In this case, a member of the auction house team will bid on your behalf, up to your maximum amount. You will need to state your interest and your maximum bid in advance of the auction.

Telephone bids: Again, you will need to apply in advance to bid by telephone. With a telephone bid, an auction house employee will talk to you from the auction and follow your instructions on bidding.

After Your Purchase

If you win a bid, you have a legal obligation to buy that asset. It’s essential you understand the terms and conditions involved, and have the funds available or finance in place to pay for your assets.

Things to Consider Before You Place Your Bid

• If you’re purchasing a large asset, do you know how it will be transported to your premises? If you don’t have the means to transport it yourself, you may have to have it collected and shipped by a third party.
• Don’t go with just a single asset in mind. With so many people bidding for each item, you may find yourself walking away empty-handed. Try to have several backup items in mind in case you miss out on the one you want.
• Don’t get carried away. In the heat of the moment, you could be tempted to overspend. Decide on your budget before the auction and stick to it.
• Read and understand the terms and conditions of the auction. Once you’ve won a bid, you will be under a legal obligation to buy the asset.
• Auction houses make a profit through fees. These can be a set figure or a percentage of the final selling price. There may also be a fee payable to the seller. Always read the small print and make sure you budget for fees and other payments.