Right of Refusal vs. Reserve Bids

For a variety of reasons, sellers often seek to protect their interests at auction by specifying a predetermined price that bidders must reach before the auctioneer is allowed to sell. Sometimes that price is known to bidders as a minimum opening bid. In other cases, the price is not disclosed to bidders and is known as a reserve bid.

Minimum opening bids have a chilling effect on bidder participation. The whole point of bidding at auction is for the buyer to communicate the prices at which they are willing to buy, not the other way around. If you are selling by online-only auction with a high minimum opening bid, then your auction is basically just a glorified classified ad.

Undisclosed reserve prices are frustrating to bidders as well. They know that there is a minimum selling price, but the auctioneer and seller play coy by deliberately withholding useful information from them. Bidders are discouraged from participating because the playing field is not equal.

Instead of requiring the seller to come up with a predetermined price for their auction item, auctioneers may want to consider giving them the right of refusal instead. In that case, the auctioneer would just include a provision in the terms and conditions of sale that allows the seller to reject the final bid amount. Used selectively, the right of refusal will not discourage bidders from participating to the same extent as minimum bids and reserve prices.

Not only that, but sellers are usually more motivated to sell at the end of the auction than during the contracting stage. They may be willing to accept a much lower price once the auction is over than what they expected at the outset. As such, the right of refusal increases the likelihood of a successful sale.

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