Charity Auction Basics - Learn Auctions in 15 Minutes

For volunteers and PTA parents running an auction fundraiser for the first time—this guide is for you. 

You won’t need a dozen tutorials or a hundred-page guide that go too in depth for beginners and small nonprofits. We’ll cover what goes on inside an auction in only 15 minutes. 

We’ll answer your questions about what kind of auction is best for you, how bidding works, and what the tax rules are for the U.S. and Canada. We’ve also included a glossary of auction terms to refer back to as you learn more about auctions.

Which Auction Format Is Right for Your Organization?

Live Auction

A live auction is the traditional kind of auction you’re used to seeing on TV. An auctioneer presents items one at a time on stage, while guests raise paddles to bid or bid through their phones.

When to choose a live auction:

• When hosting a gala or formal event.
• When your organization has a large budget.
• When major donors are attending.
• When you can secure a few high-value items.

Silent Auction and Online Silent Auction

At silent auctions, more items are involved and all items are displayed at once (or in groups). Guests browse and bid at their own pace, either using paper bid sheets or mobile bidding software. 

Silent auctions can be hosted fully online. Online auctions run for days, or even an entire week.

When to choose a silent auction: 

• When you have a small team.
• When you have a lower budget.
• When you can secure more items but at lower price points.
• When you want to host fully online.

Hybrid Auction

Hybrid auctions happen in-person and online at the same time. By using an online auction page, guests at your in-person event bid through their phones, while guests from anywhere in the world join in online. 

You can turn both live auctions or silent auctions into a hybrid event.

When to choose a hybrid auction: 

• It’s never a bad decision to go hybrid! Hybrid auctions combine the best of both worlds—the high engagement of in-person events and the convenience of online auctions.

How do Charity Auctions Work?

Got your auction type picked out? Here’s how the process comes together.

How Auctions Raise Money for Your Cause

The way you earn money through an auction is by getting items donated, not by purchasing them. Nonprofits generally reach out to local businesses, artisans, corporations, etc. asking if they can donate exciting items or experiences to auction off. General donors can be contacted as well.

Tip: A great place to start looking for items is board members. They may have connections to businesses you never knew about.

Another way to raise money at an auction is to charge for admission. Some organizations charge for admission, while others allow free entry.

Charity Auction Items

In general, the best kinds of items for charity auctions are not physical items at all. Activities and experiences sell best. Think game passes, a stay in a cabin in the mountains, or even cooking classes.

There are plenty of other auction items you could offer, like gift cards, gift baskets, liquor and wine, artwork from local artists, or signed memorabilia.

How Bidding Works

• First, a starting bid is set for each item. This is the lowest price accepted for the first bid.
• Minimum increments are set, determining how much each subsequent bid can increase by.
• The FMV (Fair Market Value) of each item is shared or posted. This is the real or estimated value of the item.
• Bidding starts.
  • At a live auction: The auctioneer will call out bids. Once no one challenges the highest bid or time runs out, the auctioneer lowers the gavel to announce the winner.
  • At an in-person silent auction: A paper bid sheet is stationed at each item. The first bidder writes down their bid for their item, and each new bidder can add a higher bid to the list. Whoever bids last when time runs out is the winner.

If you’re using auction software, all of this can be set and executed online. Bidders browse items and enter bids on your auction page, which can even be accessed through mobile devices at in-person events. It makes everything convenient!

What are the Charity Auction Tax Rules I Should Know?

Ninety-nine percent of the time, your auction revenue is treated the same as any other fundraising revenue when your organization does its taxes. 

The biggest thing to be aware of is whether your state or province requires a license for certain activities like selling alcohol or running games of chance like raffles at your auction.

It’s also very important to know how tax deductions work for donors. Here’s what you can share with donors:

United States Auction Tax Basics

For item donors: The item donor’s tax deduction is limited to what they originally paid for the item (which is not always the item’s FMV).

For item winners: The item winner’s tax deduction is limited to what they paid above the item’s FMV.

The US doesn’t require the FMV of items to be posted, but it’s highly recommended. Read more about the IRS’ rules or charity auction accounting.

Canada Auction Tax Basics

For item donors: Item donors can deduct the item’s FMV.

For item winners: Item winners can deduct what they paid above the item’s FMV, but only if they paid at least 125% of the FMV. Do not send a donation receipt if this requirement is not met.

Canada requires you to share the FMV of items with donors. Read more about the CRA’s rules.

Auction Glossary: Key Terms You Should Know

As you dive into planning your auction, you’ll come across some specific terms—here’s a quick glossary to help you feel confident using them.

Auctioneer/Emcee: The host who runs a live auction. If they also host the whole gala or event where your auction is featured, they may also be called an emcee.

Bid sheets: During a silent auction, bidders write their bids on these sheets. They can see the previous bids and the most recent bid written at the end of the list, and they can add their own bid to the end of the list.

Bid spotters: Volunteers or staff who bring the auctioneer’s attention to bidders in a crowded venue

FMV: Fair Market Value. It’s the estimated price an item would go for on an open market, AKA the estimated current value of the item.

Starting bid: The minimum amount for an item’s starting bid, which your organization sets before your auction starts.

Bid increments: To keep bidding controlled, your organization can set increments for each next bid on an item. 

Buy now price: A fixed price that lets someone buy an item instantly, removing the option for bidding. Buy now prices can help guarantee an item sells, but removes the potential for high bids.

Reserve price: A hidden minimum price your organization or the donor of the item agrees on. If bidding doesn’t reach this amount, the item won’t sell.

It’s up to your organization to decide if reserve prices will encourage bidding or hurt trust if the reserve price is not met.

Auto bidding/Proxy bidding: Donors set a maximum bid, and the auction software automatically bids for them at the minimum bid increments once they’re outbid, up until their max is reached.

Sniping: When a bidder places a last-second bid right before closing, so that other bidders don’t have time to outbid them.

Popcorn bidding: Extending bidding time if anyone bids right before auction close (sniping), giving a chance for your organization to collect higher bids. This can be set automatically by some software.

Absentee bid: A bid placed in advance by someone who can’t attend live. The absentee bidder wins if live bidding doesn’t reach their bid and live bidders don’t challenge the amount once announced. It’s up to your organization to decide to allow absentee bids.

Staggered closing: Items are categorized into groups, and the bidding on each group closes at different times. This helps guests bidding on multiple items to not get overwhelmed.

Consignment item: An item provided by a company that requires partial payment, but only if the item sells. Always tell bidders if part of their bid will go to the item’s vendor.

Paddle raise/Fund-a-Need/ Live appeal: A live request during an event that lets attendees donate without bidding or any other strings attached.

Next Steps

If you’re looking for more ways to save time with your auction, check out our Charity Auction Quick Setup Guide.

For fast and intuitive onboarding, explore CharityAuctions for free.

Tom Kelly

Tom Kelly, TEDx speaker and CEO of CharityAuctions.com, helps nonprofits raise millions through auctions and AI. He hosts The Million Dollar Nonprofit podcast and inspires leaders to live their legacy, not just leave it.