“PROTECTING” ITEMS AT THE AUCTION SALE
Kurt R. Bachman, Esq.
BEERS MALLERS BACKS & SALIN, LLP
108 W. Michigan Street
LaGrange, IN 46761
(260) 463-4949
krbachman@beersmallers.com
I.
II.
INTRODUCTION
A.
As an auctioneer and attorney, I have frequently encountered similar
questions about the propriety of “protecting” the seller’s items at an
auction sale.
B.
It seems that there are a number of methods used throughout the country
to ensure that the seller does not relinquish his or her property for a price
below the established target.
C.
Although there exists numerous methods for “protecting” the seller’s
property at auction, those methods can really be divided into two
categories: those which are ethically and legally sound, and those which
are not.
D.
This discussion is intended to advise auctioneers with regard to the proper
methods for protecting the seller’s property from sale below the targeted
price range.
ABSOLUTE AUCTIONS
A.
Both the auctioneer and the seller seek to avoid a sale of property that is
far below the anticipated return. It is for this reason that absolute auctions,
or auctions “without reserve”, pose special dangers to the seller.
B.
In an absolute auction, each lot is sold to the highest bidder, with no
reserve price and no minimum bid. There is thus a great danger in an
absolute auction that the seller’s property may be auctioned for a price that
is far below his or her expectation. In addition, once the auctioneer calls
for bids, the property may not properly be withdrawn from the sale in an
absolute auction.
C.
Each auctioneer must give appropriate consideration to the risks involved
in an absolute auction, and those dangers should be clearly communicated
to the seller.
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D.
III.
The seller should be asked to acknowledge in writing his or her
understanding and assent to the terms of the absolute auction prior to the
commencement of the sale. In this way, the auctioneer can protect him or
herself from any subsequent claim by the seller that the auctioneer failed
to properly advise the seller of the inherent risks in a sale without reserve.
RESTRICTIONS ON SELLER BIDDING
A.
I have encountered numerous questions in my experience as an auctioneer
and attorney, but few give me more concern than questions concerning
bidding by the seller at his or her own auction sale. This practice is often
referred to as “puffing” or “by-bidding”.
B.
The goal in every auction sale is to obtain the best financial return for the
seller by free and fair competition among bidders. When the seller is
permitted to artificially inflate the demand for his property, such free and
fair competition cannot be assured.
C.
In virtually every state, a seller is prohibited from bidding on his or her
own items unless a proper disclosure of the right to do so is given to all
potential bidders. In some states, seller bidding is not permitted even if a
disclosure is made.
D.
The Uniform Commercial Code, which has been adopted in almost every
state, provides that if the auctioneer knowingly receives a bid on the
seller’s behalf or the seller makes or procures such a bid, and notice has
not been given that liberty for such bidding is reserved, the buyer may at
his or her option either avoid the sale or take the goods at the price of the
last good faith bid prior to the completion of the sale. While the Uniform
Commercial Code only applies to goods and not real estate, the underlying
principles behind the general rule apply equally to auctions of real estate.
E.
Even where bidding by the seller is permissible, the practice will no doubt
be viewed by potential bidders as improper and can reflect poorly on the
auctioneer’s reputation.
F.
Remember that your livelihood is based to a large degree on your
professional reputation as an auctioneer, and permitting practices like
seller bidding at your auction can have a detrimental effect. As such, I
would recommend alternative methods for protecting the seller’s goods,
such as retaining the right to reject all bids and establishing reasonable
reserves.
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IV.
V.
ESTABLISHING RESERVES
A.
The most reliable and safest way to protect the seller’s property from a
lower than intended sale price is to retain the right to reject all bids and to
set reasonable reserve prices. Under the Uniform Commercial Code,
property is presumed to be sold with reserve unless the goods are in
explicit terms put up “without reserve”.
B.
Auctioneers should take the time to discuss the seller’s expectations prior
to the sale. After consulting with the seller, reserve prices should be
established that will both encourage an efficient sale and at the same time
protect the seller from relinquishing his or her property at a price far
below their expectations. By setting reasonable reserves, the auctioneer
can insure that the seller’s property is sold quickly and convenient through
the auction method for a price that he or she can live with.
CONCLUSION
With few exceptions, bidding by the seller is not permitted unless a disclosure is
made to potential bidders. Even in such cases, the practice of allowing seller bidding
may be seen by potential bidders as improper and can often reflect poorly on your
professional reputation. As such, seller bidding should be discouraged. I would
recommend alternative methods for protecting the seller’s goods, such as setting a
reasonable reserve price and reserving in the seller the right to reject all bids. In addition,
the prudent auctioneer must remain cognizant of, and disclose to the seller, the dangers
inherent in placing items for sale “without reserve”. These methods will help protect the
seller without creating an appearance of impropriety, thus leaving all parties satisfied
with the resulting sale.
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