UK Accounting Glossary
A public event where goods or property are sold to the highest bidder.
An auction is a method of asset sale by competitive bidding. An auction is most useful when the potential price of the asset to be sold is uncertain. Different auction formats exist, varying according to how prices are quoted and bids tendered. The most commonly known of these is the English Auction, which is commonly used for artworks and wine. This auction is also called the ascending price or open-outcry auction. The best-known auction houses, Sotheby’s and Christie’s, were founded in the eighteenth century, but written records of auctions go back to ancient times. Economists specializing in game theory have investigated the theory of bidding strategies for an auction, and how these strategies depend upon the rules and procedures of the auction. In the business arena, these experts are sometimes hired as consultants for important auctions, such as when the Unites States government sold wireless spectrum licenses by auction.
An auction is usually a public sale. Individuals (potential purchasers) invariably inspect the assets for sale before deciding on whether, and if so, how much, they’d like to bid.
Auctions are held for residential and commercial properties, antiques, cars and even second-hand endowment policies.
Following the bidding, the asset is sold to the highest bidder, provided a ‘reserve price’ set by the seller has been achieved.
The purchaser will be asked to sign a binding contract after bidding successfully, so it’s necessary to ensure that any valuations, searches etc. are carried out prior to the sale.
If you’re thinking of buying a property or car at auction, be careful. These sales are populated by professionals who know the ropes. You’re more likely than they to overpay for an asset!
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This glossary post was last updated: 4th February 2020.