Are auctions without reserve bad for your health? Case study: make-my-own-house.com

[Clinton]

I've been bidding on this auction at Flippa for make-my-own-house.com. It had no reserve disclosed and no BIN.

Bidding went to about $74K, but the site didn't sell because it didn't meet the reserve. Fair enough. I moved on.

Days later I get an email from the seller saying that he'll sell if he gets $185K. Whoa! That's more than double what the market is telling him his site is worth. And how did he come to that valuation? Answer: He knows someone who's willing to pay him that amount (but, you guessed it, doesn't have the cash in hand to buy right now). So would I like to buy it for that price instead? Yeah, right. After all these years in the business these stories of (phantom) buyers and valuation "experts" who happen to be short on money .... I just shake my head and sigh.

As an aside, I'd like to mention that in an email exchange he threatened that if I use his name, Larry Angell, or his website name in any way on these forums he'll seek "legal redress".

Anyway, if I had known his expectations right at the start it would have saved me bothering to investigate and bid for the bloomin' site. Any suggestions for how to suss this out at the start? Given a non-template site in Flippa and a lack of disclosed reserve, is there a way of judging whether the seller is a reasonable one who'll accept the market price ... or someone with lottery millions flashing in front of his eyes?

The reasons given for sale don't seem to help - it's largely bullsh*t and even when there's some element of truth in there you can bet that it's being dressed up to given the impression that the site needs to be sold (i.e. "I'm willing to accept the best the market can offer"). In this case the listing gave that (somewhat false, to me) impression:

Selling this site will prove to be the dumbest thing I’ve ever done in my life.

The problem is that I have poor health. I had a heart attack 5 years ago and my health has been in a state of decline ever since. My wife, 3 kids and I are moving from our home high in the mountains of Idaho to the Oregon coast where the climate is better. We have a substantial amount of medical bills and back taxes to pay off before we move.

Obviously it's not the case that this site had to sell, it was possibly simply a fishing venture to see if everyone else agreed with him about how valuable his site was.

But are there any signals in an auction listing that the seller is suffering from my-little-baby valuation syndrome? If there are it would save buyers a lot of time as it's not a five minute job to form an opinion about how high to bid on a $xx,xxx site. It's takes a fair bit of research.

[grynge]

Everyone tends to ask what the reserve is, so why not. I never give out my reserve. Could flippa add an expected range? So the seller could put 100k - 175k who knows I know with big ticket live auctions like christies and such they tend to give an "this is expected to fetch $xxx in this market"

[akirk]

I won't bid on anything with an undisclosed reserve or at the least as gyrnge mentions - an estimate range (knowing that the reserve is prob. the lower end of that).
Just not worth the time...

Alasdair

[benitez17]

I won't put in the time required to investigate a site without having an estimate of the reserve. For whatever reason, I've had better luck discussing multiple ranges (i.e. 15x - 18x monthly profit) when talking to tight-lipped sellers than getting people to just come out with the price.

It's also why I would much rather go through the list of just ended auctions on Flippa, buy through a broker, or buy via a direct contact than deal with the Flippa auction process.

[Thomas]

One of the only things I can think of as a common seller variable who would tend to ask for far too much is the a first time Flippa seller with a site that is at least a few years old. Generally it would be a hobby site or the only site in their portfolio, while they hold down a full time job and enjoy the side income. These sellers tend to be far more inclined to massively over value their site and expect a very high EBITDA multiple for their site. Avoid phrases such as "this has been my side income for x years", "I don't want to sell but X makes me need to", "I've never sold a site but an accountant gave me a valuation that I'm hoping for" and "this was my first website" etc...

From a buyer perspective, I tend not to bother bidding/buying sites where the seller isn't clear about a price they would be happy with before I get started. If they can give me a ballpark I'm happy to go with I will tend to dig further. If it's anywhere up to 2x what I would potentially pay I find it's usually worth going further.

[Clinton]

meathead1234, yes, I guess that first time seller with an established site is a warning signal. It is also, unfortunately, a positive signal for a quality site.

When a listing says that the owner has had valuations done that does put me off as the chances are that he's been to the wrong places for his valuation!

I also avoid those sellers who claim to have someone in the shadows who's supposedly interested in the site. In fact, I refuse to negotiate with a seller who makes such a claim and tell them to get back if that other buyer backs out. Funny thing - those other buyers always back out!

Peter, benitez etc., say that a hidden reserve is itself something of a turn off. Is that always the case or are there any exceptions? Are there any types of properties/listings where the non-disclosure of the reserve would still have you bidding? (I ask because when I sell I usually leave the reserve undisclosed)

[akirk]

Peter, benitez etc., say that a hidden reserve is itself something of a turn off. Is that always the case or are there any exceptions? Are there any types of properties/listings where the non-disclosure of the reserve would still have you bidding? (I ask because when I sell I usually leave the reserve undisclosed)

No.

There is a feeling of surreal disjointedness - not knowing whether you are even in the rough same area as the site's owner...

Whatever the product for sale - if I want to buy something I want to feel that the other person is also being serious if I feel that they are withholding information then I feel that they are being neither serious about the business of selling, nor totally above board - it is such a strong negative message that I walk away from it without even looking further... If I happen to feel that I want the item in question then I will contact the seller to ask the reserve, if they won't say, then end of deal...

I do not see a situation where keeping the reserve quiet is good - I can see that the seller might hope that it will encourage people with no chance of hitting the reserve to start bidding, and then that will gradually build the price - but that is not of interest to the purchaser and it is such a negative feeling that it is an instant turn-off.

Alasdair

[drepac]

I have learned this the hard way as well. I remember that I was interested in a site and I spent way too much time researching before even asking the seller what the reserve is. He was unwilling to share the info at first and then when I insisted, he quoted a price that's in the stratosphere. I didn't blame him but I blamed myself for wasting time like that. I guess you live and learn.

Now, the first thing I ask either in a comment or by PM most of the time is the reserve. If the info is given and it's reasonable, only then I start researching otherwise I move on. There are also those guys who are simply trying to fish. They set the reserve at a ridiculous multiple just to have an idea what the market is offering and that costs $19; good for the seller but sucks for the buyers if you ask me.

[ClaytonL]

Why don't people like to disclose their reserve?

[grynge]

In most live auctions no one bids if the reserve is known.
The idea behind an auction is to get buyers excited and continually bidding. If the reserve is out of most peoples range they just won't bid. Which is normally why no-reserve auctions for wanted items are hotly contended.