An auction is a method for selling and buying 'lots' (which may be physical items or less tangible things like a person's time). There are various types of auction, but this Entry will focus on the 'English Auction'. The basic principle of this type of auction is that a seller offers an item for sale and potential buyers bid an amount they are willing to pay for the item - the one who wants the item most offers the most. The item is sold to the person who makes the highest bid.

At time of writing (2023) there are numerous auction houses that offer items for sale via this method. Stockholms Auktionsverk was founded in Stockholm, Sweden in 1674 and also operates auctions in Germany and Finland. Sotheby's was founded in London, England in 1744 and now has sale rooms in various locations including New York, Paris and Hong Kong. Other multi-site auction houses include Christies and Bonhams. There are also smaller, locally-based auction houses in various towns and cities.

The Process

The process for 'English Auctions' at auction houses in the 2020s is generally similar, no matter where in the world the auction is taking place. Items can be viewed before the auction, either via the sales catalogue (which may be printed or online) or by visiting the sale room. The value of the items is assessed before the items are added to the catalogue, and an estimate of how much they are likely to sell for is made. A seller can set a 'reserve' - the lowest amount they will accept for their item. This must be less than or equal to the lowest estimate of the value of the item, but may be higher than the first bid offered.

The auction is overseen by an auctioneer. Bids can either be accepted in advance of the auction (when a maximum bid can be set and the auctioneer will bid on a person's behalf up to that maximum) or during the auction itself (either by people in the sale room, people speaking to sale room staff on the telephone, or people bidding online via an app). The auctioneer stands at a rostrum and takes bids in order. If two people in the room bid the same amount, the one who put their hand up first takes it. If someone in the room bids the same amount as someone who made an advance bid, the advance bidder takes it as they placed their bid first. When it looks like everyone has finished bidding, the auctioneer gives 'fair warning' (just in case someone decides to make a last-minute bid), then 'brings the hammer down' (bangs a gavel on the rostrum) to confirm the winning bid¹.

If the winning bid is less than the reserve price, the lot is not sold. The item might be put up for auction again at the end of the sale, to see if there is any more interest, or the seller might just take the item away. If all the lots sell, the auction may be called a 'White Glove Sale', after the tradition that a white glove would be brought to the auctioneer to confirm that no items had been left unsold in the sale room.

After the sale, the buyer pays for the item (plus a premium to the auction house, and any taxes due). The item is either collected on the day, or delivered to the buyer. The seller receives the remainder of the winning bid (the 'hammer price') after the auction house's commission has been deducted.

Variations

Within the 'English Auction' format, there can be variations. During a 'live auction', advance bids are only revealed during the auction, and people can bid in the sale room, on the telephone or online via an app. Some auctions can be a blend of online and traditional bidding, where people can place bids online and see the value of the highest advance bid before the auction starts in the sale room. Alternatively, the auction might be 'online only'.

'Online only' auctions enable more items to be sold in a shorter period of time than a live auction², as bids can be taken on several items at any one time. For example, items might be scheduled to close at one-minute intervals, but if someone bids within the final 60 seconds then the item stays open for a further two minutes to give other bidders chance to raise their bids. This could happen numerous times for an item, so other items could close in the meantime. A disadvantage is that it could be tricky for buyers interested in items close together in the listings, as they couldn't be sure whether they had won an item before deciding to bid on a second.

Other examples of auctions that are run on the 'English Auction' principle are those offered by the online company eBay. However, unlike eBay, where people can bid what they like including £42.01, auctions run by auction houses generally ask for bids to go up in roughly 10% increments - for example, bids between £20,000 and £30,000 would go up by £2,000 each time.

Sold!

'English Auctions' are a popular choice for selling and buying, as they offer some advantages over the option of simply choosing a price for an item and seeing if someone will pay that price. For a buyer, there is potential to get a bargain, as the hammer price could be lower than the estimate of an item's value. For a seller, there is potential for an item to fetch a higher price than expected, if two or more people are interested and bid against each other to compete for the item. The auction houses also gain advantages from the process, as they receive both the buyer's premium and the seller's commission on the hammer price.