What is the Difference Between an Auction and a Liquidation?
Liquidations and Auctions – How are they Different?
When companies are faced with the need to recover assets, they have few options. The most common ways to recover assets are with liquidation sales and auction sales. Understanding the distinction between these two types of sales can help a company make the right decision, whether it is looking to sell land, machinery or equipment.
A liquidation sale is the process of selling the assets of a business in an orderly fashion over a period of time in order to achieve values that are close to market value. Liquidation sales are similar to store closings, when a store sells its remaining inventory. In industrial liquidation sales, the seller often reviews offers and negotiates prices. Assets, including land, machinery and equipment, may be sold over the course of weeks, months, and even years
The Benefits of Liquidation Sales Are:
- The main benefit is time: more time to conduct the sale, more time to find the best buyers.
- Longer selling time, giving sellers the time to find the right buyer, which can often result in higher prices.
- Sellers can review multiple offers, taking the time to decide which one works for them.
- Negotiation on the part of the buyer and the seller is the main driving force in determining what an asset sells for.
- Liquidation works better for more specialized or unique equipment, machinery or other assets. Often there are limited buyers, and a liquidation sale gives a seller the time to track down those buyers.
Liquidation Sales Have Drawbacks:
- Equipment and machinery will need to be stored until the sale.
- Mortgage payments for facilities, utility costs, security costs, and property taxes may need to be paid.
- If the sale takes place over months or years, costs can be high.
One interesting aspect of liquidation sales is that they often turn into auction sales. After the larger, more expensive items sell through an orderly liquidation, the smaller pieces of equipment and other items are often sold at auction. This is an effective way to sell off assets from a commercial or industrial business after the larger items have been purchased.
Auctions are often the opposite of liquidation sales, in that they take place very quickly from start to finish. In an auction sale, the land, equipment or machinery is simply sold to the highest bidder.
The Benefits of Auction Sales Are:
- Auction sales are often used when a company has surplus equipment or machinery that they want to sell.
- Auction sales are quick, from start to finish. The auction agreement, the set up of the equipment, the auction itself, and the clean up can take only weeks, or a few months.
- Effective marketing can improve the outcome because it will get potential bidders interested in the asset.
- Online technologies can attract bidders from all over the world.
- Bidder competition can drive up prices.
Auction Sales Have Drawbacks:
Assets might not always sell for the price expected. Competition among bidders is what determines an item’s selling price, but there may not be enough competition to drive a price up.
Deciding Between a Liquidation Sale or Auction Sale
Both types of sale work well to help a company maximize the value of their idle or surplus assets. In choosing which is right for your business, consider what needs you have. If you want to find a specific buyer for your land, machinery or equipment and have time to spare, an orderly liquidation sale might work best for you. If time is of the essence and you need a quick recovery, an auction sale might better fit your needs. Contact Rabin today to explore all the option.