How is the true value of an item determined
During our lifetime we will be confronted may times with the need to buy major items which will involve the commitment to expend much money. In many cases the item will be displayed with the asking price shown, or maybe the asking price will have to be obtained from the vendor or the vendor’s representative. The question can be asked, “what is the real value of the item as compared to the asking price?”
That is, can I obtain the article at a lower price? ( See article “You can only get what you negotiate”)
This article will describe the auction process and how a true value of an item is determined.
Before an item is sold, a price has to be placed on it which it can be reasonable expected to draw some interest. If the price shown is too high that will not encourage potential buyers to inspect the item. If the price is set to low then money is potentially lost should it is sold at that low price
Everyone who is selling something will wish to sell it at the maximum price that it can be sold at. Let us call this maximum price the dream price. This dream price is 100%. If the vendor believed he could get more than his dreamed price then the 100% would increase by increments depending on the vendor stretching his dream price until the item reached a price that no one was prepared to buy the article. So he has to come back to his dream price to obtain the interest of buyers. However, what is the real value that he could sell me the article at?
SO “”How can I buy a cheap, reliable car?” you may ask.
A Fast Track Car Auction in Action
Taking a real case story of how the second hand car market works in the United Kingdom .
There are many second hand car dealers in the UK each of whom has a second hand car showroom. There are a number of second hand car auctions in the UK. Understanding the difference of these two markets is critical. It should be understood that 70% of cars sold are bought by companies. After 2 years many companies view that it as tax efficient to change the cars for new cars direct from the manufacturer. Accordingly, the car auctions are continuously feed with a supply of 2 year old cars, from companies, that have been well serviced and maintained.
The cars sold at the auctions have to be sold rapidly. Auctions take place at, for example, Blackbushe Car Auction every week and hundreds of cars are sold in hours. Typically, a car is driven in to the auction area and leaves the auction area in minutes having been sold. Each car driven into the auction ring does not have an asking price shown, so for what price is it sold ?
The Bidding Process
The auction commences with a car being driven into the auction “ring”. The auctioneer sets the lowest price at which, he believes, one or more of the gathered second hand car dealers will be interested in. That is, an amount at which one of the many second hand car dealers can buy the car for, at the auction, and sell on from his showroom at a profit. There are a number, typically ten, other second hand car dealers also thinking that they can buy the car that is in the auction ring and sell it on from their own car showroom at a profit. So, one car dealer will start the bid, say £1000 and then another will bid £1200 followed by another bidding £1300. This bidding process proceeds until all the bidders have reached their own budgeted limit leaving one second hand car dealer to secure the car at the price he last bid.
In this process, ten people each wish to buy an article with the intent to sell the article as soon as possible for a profit. The maximum price the second hand car has been bought at is the true value of the car as it has been subjected to the auction process
The happy second hand car dealer continues his bidding for other cars and at the end of the auction he may have five or six cars he has bought. These cars are paid for by the second hand car dealer and he then arranges all the cars he has bought to be transported to his second hand car showroom. (To Part 2)