Online Auctions for Beginners: How do They Work?
Even if you’ve never been to an auction before, you’re probably familiar with the basics of how they work thanks to movies. The general gist is that an auctioneer describes an item and prospective buyers raise their paddles to place bids on that item. That’s a very simplified version of how it works. And now that most in-person activities have become virtual, many auctions have also gone 100% online, which changes the nature of the process.
Before we get into how online auctions work, what are the benefits of online auctions? Aside from better deals and only paying what you want for items, there are many benefits. First, there is plenty of variety - auctions usually have a few hundred items in a single catalogue. Second, you don’t need to physically attend in order to participate. Third, buying at auction is eco-friendly. Instead of buying new items, you’re recycling. Read all of the benefits of buying at auction in our blog post about why you should buy furniture, art & jewelry at auction.
So, how does an online auction work? Is it just like eBay or some other eCommerce store?
Today, we’re going to run through the basics of an online auction and tell you how they work.
Understanding the terminology
First and foremost, auction houses have specific terminology that describes different aspects of auctions.
Auctioneer - A trained professional who presides over the auction, initiating the sale of a lot by describing the item and starting the bidding. Once the first bid is made, others may offer higher bids. Bidders may be present in the saleroom, on the phone or online. Auctioneers also place bids on behalf of absentee bidders and finally determine when the highest bid has been made. If a work sells, the auctioneer announces, “sold.” If the item does not meet its reserve or there are no bidders, the auctioneer signifies this with a “pass.”
Catalogue - traditionally, a printed catalogue with all the items in an upcoming auction. Now, this has gone 100% online but is still referred to as an auction catalogue.
Valuation - each item available at auction has gone through the process of valuation. This means that a professional has done investigative research to determine what the value of the item is by looking at a variety of factors like provenance, history, artist, what the item is made of, and many other factors.
Lot - an item offered at auction. Usually shows images, descriptions and a minimum bid amount.
A bid - an amount of money a potential buyer is willing to pay for an item.
Bid increment - the amount by which the auctioneer increases the bidding. The auctioneer will request bids of 10% higher than the previous bid. For instance, if the bidding opens at $1,000, subsequent bids of $1,100. Auction houses are required to show their bid increments table so you can be prepared ahead of time.
Sellers commission fee - a fee paid by the consignor, or the person who wishes to sell something at auction, which goes towards the research, valuation, and promotion of whatever item they wish to sell.
Hammer price - the winning bid of a lot at auction.
Gavel - Another name for the auctioneer’s hammer used to close the bidding.
Fair warning - one last chance to bid before the auctioneer closes bidding on a lot
Buyers premium - buyer's premium refers to a percentage charged by the auction house in addition to the hammer price. The auction house usually charges the buyer for the privilege of buying at auction where prices are typically less than retail. This fee helps cover auction house costs.
Preview period, also known as Exhibition - when auctions were not 100% online, this was the timeframe when potential buyers could inspect the lots in an auction.
Registration
Before the auction begins, you must register ahead of time for the auction. This is an easy process and takes just a few moments. Be prepared to have your name, address, phone number, and payment information ahead of time.
Generally speaking, there are multiple payment options for an online auction. The majority of auction houses accept a wide range of credit cards as well as other forms of payment. You won’t be charged anything until you win an item. Once the auction approves you as a bidder, you can go ahead and start bidding on your favorite lots.
Different types of bids at online auctions
There are two different types of bids you can make at a live online auction. The first is a pre-bid which is a set amount you bid before the date of the live online auction. During this period, other people can bid against you with their pre-bids.
On auction day, the auction goes live. During a live online auction, many auction houses have a capability to allow you to watch or listen in on the live auction. Here at Gray’s, for instance, we live stream via video in the bidder console…
When the auction begins, our auctioneers start the process of explaining what each lot is, and from there, you can make what are called “live” bids. This is done by either pushing a button to increase your bid via your computer or the auction house’s app, or by calling in your bids. The process will keep going until no one else bids, and the auctioneer declares the lot sold. The highest bidder wins the item. If an item isn’t sold, it’s declared a pass.
Mistakes to Avoid in Online Auctions
In order to avoid disappointment and ensure that everyone has a positive auction experience, it’s important to know which mistakes to avoid.
First and foremost, do your research before bidding on an item. The auction house has already come up with the valuation, but in order to make an informed decision, you should do your own research before deciding how much you’re willing to pay for an item.
Bidding tips
Don’t start with your maximum bid, rather, start with the minimum amount you’re willing to pay. When someone outbids you, increase your bid. For pre-bids or absentee bidding (when you won’t be available to join the live auction), put in your maximum.
Never place a bid that you’re not willing to pay. The bid that you place is final and must be paid, which leads us to…
Read the auction houses’ terms and conditions and understand your obligations.
Lastly, have fun during the online auction, but don’t make irrational decisions. Many times, bidders get caught up in bidding wars and place higher bids just for the sake of winning, then experience buyer’s remorse because they overpaid.
Be Wary of Some Online Auctions
“Don’t believe everything you see on the internet,” was what our parents told us years ago. So you should proceed with caution before joining an online auction.
Make sure they are a reputable auction house, gallery, or institution before you register and start bidding on items. See if you can find online reviews or opinions to judge their validity.
Online Auctions at Gray’s
Here at Gray’s, we have been offering auctions and free valuations for 15 years. (Deba has been in the business for more than thirty years). Before 2020, we offered live online and in-person auctions. At this point, we have decided that the safest thing to do is to hold our auctions 100% online. And we always have one right around the corner!
Be sure to register for auction alerts so we can notify you about our upcoming auctions.
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