What is 'Absolute Auction'
An absolute auction is a type of auction where the sale is awarded to the highest bidder. Absolute auctions do not have a reserve price which sets a minimum required bid for the item to be sold. There are many different types of auctions. An absolute auction is the "classic" type of auction where the item is sold to the highest bidder, regardless of the price. Since there is no reserve price, or minimum floor above which bidding must start, the bidding starts at $0 in an absolute auction.
One type of absolute auction relates to foreclosed properties, where the winning bid acquires the foreclosed property. This is opposed to a lender confirmation auction, where the lender must approve the bid in order to complete the transaction.
BREAKING DOWN 'Absolute Auction'
An absolute auction can occur in various venues including the foreclosure marketplace, the online marketplace (such as eBay.com), or live auction events. In this type of auction, the highest bidder "wins" the item, whether it is real estate property or any other type of product. Absolute auctions are often implemented where there is an immediate demand to sell an item.
Example of an Absolute Auction
For example, Bert and Ernie have decided to close their business. They want to immediately liquidate all of the items in the business and do not have a minimum price they are trying to get for any of the items. They hold a live auction where the bidding starts at $0 for the items and the highest bidder wins the item. This is an example of an absolute auction. This is different from a sealed bid auction where people would submit secret bids, or a dutch auction where the auctioneer starts at a high price and decreases it until somebody agrees to buy the item for that price.