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Real Estate News Releases
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(EMAILWIRE.COM, January 07, 2009 ) I’ve got something embarrassing to own up to. Well, lots actually. But I’m not that stupid as to write it all down on here. I’ll own up to one though – I had never heard of Dutch auctions before this week…
Named after the famous auctions of Dutch tulip bulbs in the 17th Century, Dutch auctions are in effect, property auctions in reverse.
Instead of a traditional auction, in which bidders are all competing against each other and raising the price until one person wins and ends up paying the highest bid price; Dutch auctions begin with a high asking price which is then lowered until a participant is willing to accept the auctioneerÂ’s price or a predetermined reserve price (the sellerÂ’s minimum acceptable price) is reached.
The winning person then pays the last announced price.
Dutch auctions are convenient when it is important to auction goods quickly, since a sale never requires more than one bid. Theoretically, the bidding strategy and results of this auction are equivalent to those in a sealed first-price auction.
Whilst you may think that a seller could be losing money by using Dutch property auctions opposed to a traditional one where the price goes up, the reality is that they generally make more than they would with a more traditional ascending-price auction.
With an ascending-price auction, the bidders do raise the price but rarely will they raise it above the itemÂ’s actual value.
They have no reason to act fast because they know exactly when the auction will end, and they can always sneak in at the last second with a slightly higher bid.
In a Dutch auction, however, bidders must act fast because they have no idea when the auction may be over. So even though the price is being lowered instead of increased, bidders will end up paying at or even above the item's value.
The descending-price structure of these auctions increases competition among bidders and makes acting fast a necessity.
The Dutch auction process is also used in the stocks and shares market. Companies use the process to find an optimal market price for the stock, the lowest price at which an issuing company can sell all of the available shares.
An alternative to the traditional negotiated pricing process used by underwriters to set Initial Public Offering prices, it was most recently employed by search engine Google and is used for US Treasury auctions.
One of the only problems with Dutch auctions has nothing to do with the auction logic itself but with a common area of confusion.
The financial world and some third-party auction sites use the term ‘Dutch auction’ when they refer to second price auction properties.
In truth, there is a huge difference between the two types of auctions. Second-price auctions are auctions in which the winner pays either the price of the lowest winning bidder or the price of the highest losing bidder.
The confusion in the terms can be problematic for individuals interested in getting involved in either type of auction, so it is important to clarify which type of logic will be used before participating.
Check out TheMoveChannelÂ’s news story of Thursday, December 11th, which shows how a Dutch auction was used to sell a beautiful old New Zealand mansion that was proving hard to shift.
For more information on auction properties and the market in general, please visit http://auctions.themovechannel.com/
-ENDS-
Notes to editors:
TheMoveChannel.com is a property website that was founded in 1999 as an online resource for buying, selling and learning about property. It now receives as many as 300,000 visits per month and advertises over 50,000 properties in nearly 90 countries, which are listed by over 500 partner organisations.
For further information as well as images and interview possibilities, please contact:
Dan Johnson
Managing Director
http://auctions.themovechannel.com/
0207 952 7650
TheMoveChannel.com
Jon Moore
020 7952 7658
j.moore@themovechannel.com 
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