The first auctions date back to 500 B.C. However, since then, they have significantly changed. The earliest modern era of auctions began in the 16th century. Today, traditional offline auctions are gradually losing their share of auctions organized in the virtual space.
Regardless of the epoch, the idea behind auctions remains the same. Goods, services, or assets are sold to a buyer with the highest bid. How does an auction work? That’s the main question that we answer in this article. Moreover, we will share practical tips for those who want to launch their own platform for conducting auctions.
The Online Auction Industry Today: Quick Overview
In 2023, the online auction market size was valued at around $562.39 billion. By 2032, it is expected to reach $1150.12 billion. These figures show that the CAGR during the forecast period from 2024 to 2032 will be 8.4%.
With online shopping, people can shop anytime, anywhere, without being limited by the work hours of stores or locations. They can easily compare prices, reviews, and features across multiple platforms. Annually, more and more consumers join this online shopping game.
In 2023, the share of e-commerce in retail sales worldwide was over 19%. All this is happening in parallel with the increasing penetration of mobile devices and advancements in this space. A lot of people today are accustomed to buying online. That’s why it is quite natural that they prefer joining bidding in this format instead of participating in offline events.
Increasing interest in used and refurbished goods
Online auctions provide a platform for individuals who want to buy or sell a wide range of used and refurbished goods: devices, clothes, furniture, cars, etc. Such items are often available at very competitive prices, but their quality can be high.
According to statistics, shopping on auction websites like eBay lets users save 40%-70% compared to the cost of purchasing new items.
Expansion of international trade
Another factor is the increase in international trade. The signed international agreements introduced over the recent decades facilitate trading, certification, and product quality standardization. Moreover, the transportation and cargo industry has dramatically evolved. Thanks to all this, sellers can send their products to other countries. Online auctions also benefit from such changes.
Technological advancements
Tech advancements also have significantly boosted the online auction market. They help to enhance user experience, security, and accessibility and make all the related processes much more manageable. For example, the real-time bidding technology ensures instantaneous updates to bids, which creates a more engaging auction environment. All reliable modern platforms now integrate secure payment solutions. This reduces the risk of fraud for buyers and sellers and helps eliminate major users’ concerns regarding protecting their finances.
Moreover, the functionality of many auction platforms today is augmented with AI tools. For example, they can analyze user behavior to suggest relevant items and optimize bidding strategies.
Auctions can be classified based on structure, bidding process, purpose, and offered items. To better understand the specificity of this domain and find answers to questions like “How does an online property auction work?”, it will be helpful to consider the most popular of their types.
Auction types by organization approach
Online auction. It is conducted on digital platforms where bidders participate remotely.
Live auction. It is organized in real-time by an auctioneer, often with in-person participation. It may also allow phone or online bids.
Hybrid auction. It can combine elements of live and online auctions or multiple formats. Bidders can participate in person or remotely.
Auction types by format
English auction. Bidding starts at a low price. Participants increase their bids incrementally. The auction ends when no higher bids are placed, and the highest bidder wins. This type is often applied to selling art, antiques, collectibles, and real estate.
Dutch auction. The auction starts with a high price that decreases incrementally until a buyer accepts the current price. Today, this format is typically used at flower markets in the Netherlands. Moreover, it can also be applied for IPO (initial public offering) share allocation.
Reverse auction. Sellers compete to offer the lowest price for a buyer’s specified need. The buyer selects the seller with the most favorable terms. This auction format is popular in procurement, services, and freelance platforms.
Sealed-bid auction. All bidders submit their bids privately without knowing what others are offering. The highest bid wins. If it is a reverse auction, the lowest bid will be considered winning.
Vickrey auction. A Vickrey auction is also known as a second-price sealed-bid auction. This format also presupposes that participants submit bids privately. The highest bidder wins, but their price is the second-highest bid rather than their own.
Silent auction. Bidders write their bids privately. All bids are reviewed at the end. The highest bid wins without real-time competition. Such auctions are held at charity events and during fundraising rounds.
Reserve auction. The seller sets a minimum reserve price. The item is sold only if bids meet or exceed it. The application of such rules makes sense in those cases when sellers offer high-value goods.
Absolute auction. In this case, there is no reserve price. The property is sold to the highest bidder regardless of the bid amount. It is a commonly used format for real estate and liquidation sales.
Auction by tender. Buyers are expected to submit sealed bids by a set deadline. The seller reviews all bids and selects the most favorable. Real estate and large-scale government or corporate sales are organized in this format.
Auction types by offered items
Real estate auctions. They include selling residential properties, commercial buildings, or land. Such events can be organized in different formats using the principles of absolute or reserve auctions.
Art and collectibles auctions. They cover fine art, antiques, jewelry, rare books, coins, stamps, and historical memorabilia. These events are typically held by famous auction houses like Sotheby’s and Christie’s.
Vehicle auctions. What products are traditionally offered? Cars, motorcycles, trucks, boats, airplanes, and other vehicles. While there are public auto auctions where individual buyers can participate, there are also dealer-only events. These are wholesale transactions for licensed car dealers.
Industrial and machinery auctions. In this case, sellers can offer heavy equipment, construction machinery, factory equipment, and various tools. Very often, businesses turn to this format in the case of going bankrupt.
Technology and electronics auctions. Buyers can find excellent deals for computers, smartphones, gaming consoles, and audio/video equipment at such auctions. Platforms like eBay are widely used for selling new, refurbished, or used gadgets via auctions.
Fashion and luxury goods auctions. Designer clothing, handbags, watches, and accessories can also be listed for bidding.
Livestock and agriculture auctions. Cattle, sheep, horses, crops, and agricultural equipment are sold at such events. Traditional in-person bidding takes place at farms or fairs, while specialized platforms like CattleUSA exist. They enable remote bidding.
Auction types by purpose
Commercial auctions. They facilitate buying and selling of goods and services for profit. Their typical examples are wholesale auctions and consumer goods auctions.
Bankruptcy and liquidation auctions. Businesses can organize them to sell assets quickly to pay off creditors. Items are often sold at discounted prices to the highest bidder.
Charity auction. Products or services are auctioned to raise money for a charity. These can be event tickets, unique items, or memorabilia.
Government and police auctions. The key purposes of such events are to dispose of surplus or confiscated goods and generate revenue for government agencies. For example, police can hold seized property auctions and offer for sale various items acquired through legal forfeiture.
Marketing and promotion auctions. They help to increase brand awareness or customer engagement through bidding events. Often, they can become part of promotional campaigns when brands auction exclusive products or experiences. Apart from this, they can be used to attract more potential customers.
Experimental or research auctions. Organizing these events mainly aims to study economic behavior or test auction models. Academics use mock auctions to study bidding behavior or to test new auction algorithms.
How Does an Online Auction Work?
Here is a step-by-step explanation of how the online auction process works.
Step 1. Item listing
Discover how an administrator can add an auction item in this demonstration of a customizable auction platform. This video showcases the functional possibilities of an online auction platform that can be tailored to meet client-specific requirements.
Egor Zablotski
Director of Engineering at Geomotiv
Sellers need to list their items on the chosen platforms. Listing should include descriptions, photos, and starting bids. Some auctions may presuppose the necessity to set a reserve price. It is a minimum amount that the seller is ready to accept.
Step 2. Auction start
An auction can begin at the time indicated in the listing or immediately upon posting.
As for the timeframes, there are no strict rules. Sometimes, platforms have their guidelines regarding the maximum duration. That’s why if you are planning to list your items, it is always necessary to study the requirements introduced by each platform attentively.
Step 3. Bidding process
How does bidding work at an auction? To place bids, users need to create their accounts on the platform. Once done, they can submit offers that should be higher than the current bid.
Some modern platforms provide tools such as incremental bidding. It can automatically raise your bid by a preset amount if somebody outbids you.
Thanks to real-time updates, participants can receive instant notifications about competing bids and decide whether they are ready to offer a higher amount.
Step 4. Completion of the auction
When do auctions typically end? The auction can end when the time expires or no higher bids are placed for a set duration.
The highest bidder wins. However, if the reserve price is set, the winning bid should meet or exceed it.
Step 5. Payment and item delivery
The winning bidder must pay through the platform’s transaction system. Very often, platforms allow users to pay for goods using credit cards, PayPal, or digital wallets.
Then, the item should be sent to the winner. Whether the seller or buyer pays for delivery and what delivery method will be used depends on the terms and conditions of each auction.
Tips for Launching Your Online Auction Platform
If you are planning to build a platform for conducting online auctions, our practical recommendations will help you:
Understand your target market. First of all, you need to identify the types of products or services you plan to auction and define the demographics and preferences of your potential audience.
Choose the right auction model. Then, you should decide on the type of auctions you will offer, tailor the model to your target market’s needs, and choose how long each auction will run.
Prioritize user experience. It’s necessary to ensure that your platform is easy to navigate and that it has clear categories and search functionality. Moreover, it is recommended that your platform be mobile-friendly or that you consider developing a separate app for a seamless mobile experience.
Provide excellent customer support. It will be helpful to offer live chat, email, or phone support to assist buyers and sellers with any issues during the auction process. Moreover, set up a process for resolving disputes between buyers and sellers. For example, think about introducing mediation or facilitating returns.
Ensure legal and compliance aspects. We recommend you familiarize yourself with local and international auction laws and regulations. Ensure your platform complies with data protection regulations like GDPR or CCPA to protect your users’ personal information.
Key Trends of Online Auctions
Modern auction platforms are often enriched with emerging technologies and advanced functionality that can change how users interact with this software. Let’s have a look at the key trends that will be shaping the market soon.
Integration of AI and ML. AI can provide highly personalized recommendations to users based on the analysis of their preferences. This will improve the bidding process for potential buyers by suggesting relevant auctions based on their past behavior. ML algorithms can help users make more informed bidding decisions. Apart from this, AI can support the development of dynamic auction formats. This technology can enable automatic price adjustments and more responsive bidding rounds.
Blockchain implementation. The use of blockchain can significantly enhance the security of transactions. Blockchain technology ensures all auction transactions are transparent, verifiable, and tamper-proof. This will increase buyer and seller confidence, especially in high-value auctions. Moreover, smart contracts can automate multiple processes like payment release and delivery. Thanks to this, it will be easier to ensure that auction conditions are met before the exchange of goods and money occurs. As a result, the risk of fraud will be significantly reduced.
AR and VR in auction viewing. Augmented and virtual reality will allow bidders to engage in immersive auction experiences. This can be particularly valuable in the art, antiques, and real estate segments. Bidders can view products in 3D or explore items in virtual spaces before placing bids. The technologies can also be used to create virtual auction rooms. Bidders may interact with others while placing bids in real-time. Such functionality will simulate the atmosphere of in-person auctions.
Mobile-first bidding solutions. With the active use of smartphones, online auction platforms will increasingly prioritize mobile experiences. This includes faster, more responsive apps for real-time bidding, instant notifications, and mobile-optimized user interfaces. Real-time alerts will allow bidders to be updated on changes, outbids, and upcoming auction deadlines so they won’t miss any good opportunities.
5G connection use. 5G networks can allow for even faster data transmission. This enables smoother real-time bidding experiences, especially for high-demand auctions where speed is crucial. Moreover, with this connection type, providing an improved quality of video streams is possible.
Final Word
Auctions are a highly popular format for buying and selling a wide range of goods and services. Modern online platforms have been introduced as an excellent alternative to traditional in-person events and can provide participants with competitive pricing and unique items in a convenient format. Online bidding has won popularity across various industries, including real estate, art, vehicles, and consumer goods. If you are thinking about creating your solution for online auctions, it is high time to do it, given consumers' growing interest in buying goods via bidding.
To purchase a house at auction, potential buyers must research properties, secure financing, and register for the auction. After making the highest bid that won, it will be necessary to make a payment and complete the paperwork.
How does an auction sale work?
Most auction types presuppose that goods, services, or properties are sold to the highest bidder in this process. The auctioneer announces a starting bid, and buyers can make their offers.
How does an absolute auction work?
In an absolute auction, there are no minimum price or bidding restrictions. Once the bidding begins, the owner cannot withdraw the item, reject any offers, or participate in the bidding process.
How does an auto auction work?
Auto auctions are a trading format where vehicles are sold to the highest bidder. These events cater to various participants, from dealers to private buyers, and feature multiple vehicle types. Here is an online auction platform guide on how to participate in a car auction.
How does an auction house work?
An auction house is an organization that facilitates the sale of goods, property, or other assets through auctions. It is an intermediary between sellers and buyers and provides all the required infrastructure for competitive bidding.
