Auction gavel next to a law book

15 Auction Terms You Need to Know

You’re interested in buying or selling a property through an auction. The process can be confusing at times, so you should know several things in the process. For one, there are terms that you may not know about. Here are 15 auction terms you need to know before entering any auctioning process.

  1. Absentee bid
    Usually, an auction is held in a public place where bidders appear in person. However, there are times when someone is not capable of attending an auction site. In this case, an offer is made prior to the bidding process. Each auction company has their own rules, so inquire about these rules before choosing to continue.
  2. Absolute Auction
    These types of auctions may also be called “Without Reserve Auctions.” This is the type of sale that is awarded to the highest bidder. These types of auctions do not have a reserve price, which is a minimum bid required for the item to be sold. This particularly relates to foreclosed properties.
  3. Auction House 
    Also called an auction company, this is a firm that facilitates the buying and selling of assets. This can be works of art, collectables, or properties. It may also refer to the place where an auction is taking place, which is usually in a public setting.
  4. Auction Listing Agreement
    This is a contract between the auctioneer and the seller. The Auction Listing Agreement authorizes the auction of the property as well as defining any terms necessary. This contract will also include each party’s rights and responsibilities toward the property.
  5. Bank Letter of Credit
    This is a letter from the bank which shows you have enough credit to enter an auction. This is generally provided when you aren’t paying with cash or a cashier’s check. Auction houses require cash, a cashier’s check, or proof of credit before you’re allowed into an auction house.
  6. Bidder Package
    This term is sometimes also referred to as a “due diligence package.” This is a packet that contains all the information and instructions you need regarding a property. The documents in the packet may vary based on the requirements set by the individual issuing the bid.
  7. Broker Participation
    This is a commission that is paid by the auction company or the owners of the property toward third-party brokers. These brokers register potential bidders for a property, allowing the auction to run smoothly.
  8. Buyer’s Premium
    This is a premium that is added to the high bid. It will be advertised previously as a percentage or a flat rate. This can help bidders determine the total contract price to be paid by the winner of the auction. This premium goes directly to the auction house and not the seller.
  9. Carrying Charges
    The carrying charges of a property are the total accrued costs of holding it during the auction process. This includes insurance, taxes, maintenance costs, and management of the property. This comes about from stored goods or unoccupied premises.
  10. Caveat Emptor
    This is a Latin term meaning “buyer beware.” Caveat emptor may be used in place of “as-is” for sales that are sold at the current state. This term is frequently used as a legal maxim, implying that the person who purchases the property assumes all risks unless protected by a warranty.
  11. Hammer Price
    This term refers to the price realized or acknowledged by the auctioneer as the final purchasing price. It comes about through auctioneers that use hammers or gavels to signal the conclusion of an auction as well as the winning bid.
  12. Market Value
    Market value is an ideal price of a property. It is used by appraisers to judge if a property is likely to have a willing buyer at an auction. This price is often used to create a competitive edge in an open market, encouraging people to bid on a property.
  13. Minimum Bid Auction
    This type of auction is where a seller guarantees to sell if the price reaches a minimum bid. This bid is usually published before the start of the auction. This allows the bidder to consider their interest early in the auction. A minimum bid auction is the safest method of selling real estate because the owner knows the property will sell for a certain amount.
  14. Stalking Horse Bidding
    This is an initial bid on assets from an interested buyer that has been chosen by the company or seller of the assets. This is usually a person who is chosen by the bankrupt company to make up the first bid for their assets. This allows the seller to avoid low bids on its assets.
  15. With Reserve Auctions
    This is when an auction has a reserve price. A reserved price is a hidden minimum price that the seller is willing to accept for their property or assets. The owner is obligated to sell after the minimum bid exceeds the reserve price. This price can only be lowered, not raised. 
Last Updated: January 18, 2016