Must the seller be at the auction?

We recently wrote about the advantages and disadvantages of the seller being present for the auction: http://mikebrandlyauctioneer.wordpress.com/2012/05/25/should-the-seller-be-at-the-auction/

Today, we explore if the seller can be required or prohibited from attending the auction?

Let’s assume that Francis has hired an auctioneer named Howard to sell her property — inclusive of her antiques and collectibles, and her three-bedroom home on Lilac Street in Napes, Florida.

Here’s a few relevant questions in regard to our topic:

• Is Francis allowed to attend this auction if she wants to?

• Is Francis allowed to go elsewhere that day, and not attend the auction?

• If Francis wants to attend the auction, can Howard prohibit her from attending?

• If Francis wants to go elsewhere that day, can Howard require her to attend the auction?

Let’s take these one at a time:

Is Francis allowed to attend this auction if she wants to?
She is allowed to attend, unless she has agreed by contract with Howard to not attend, or is prohibited by court-order.

Is Francis allowed to go elsewhere that day, and not attend the auction?
She is allowed to go elsewhere that day, unless she has agreed by contract with Howard that she will attend, or is required by court-order.

If Francis wants to attend the auction, can Howard prohibit her from attending?
Strictly, Howard cannot prohibit Francis from attending, but he can make it a term of the contract between himself and Francis. In other words, “If I’m doing your auction, then you agree not to be present.”

If Francis wants to go elsewhere that day, can Howard require her to attend the auction?
Strictly, Howard cannot require Francis to attend, but he can make it a term of the contract between himself and Francis. In other words, “If I’m doing your auction, then you agree to be present.”

This seems simple enough. Yet, I have heard sellers over the years tell me:

• The auctioneer said I wasn’t allowed to attend my auction.

• The auctioneer said I was required to attend my auction.

Both of these statements suggest that the auctioneer was unilaterally dictating his client’s actions — and I would suggest this isn’t included in his authority.

Rather, in a client-auctioneer (Francis-Howard) relationship, Howard is required to follow Francis’ legal directions, and not the other way around.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Fair and square

J.C. Penney believed that customers were yearning for a more fair, honest, straightforward pricing model. This new model would have no coupons, discounts, sales and/or fine print — and rather just tell the customer what the price is.

This new policy required, of course, marketing.

One such advertisement touting the “fair and square” pricing model featured an auctioneer counting down (as auctioneers sometimes do.)

J.C. Penney implied that their new pricing would not include any “pricing games” apparently intrinsic in auction marketing.

Ryan George wrote a comprehensive analysis of this advertising effort and the reaction to it. http://www.ryangeorge.net/adverryting/2011

However, as we look at J.C. Penney’s first quarter financials, it appears their customers (and maybe most all customers) prefer “pricing games.”

J.C. Penney’s first quarter revenue was 20 percent off last years, and customer traffic fell 10 percent.

Analysts concluded that many/most consumers:

• Place value on discounts more than price.
• Purchase on perceived value rather than price.
• Seem indifferent to total price shrouding.

Shrouding is to conceal, or hide from view. A very good research paper on this subject was written by:

Xavier Gabaix
MIT and the National Bureau of Economic Research

David Laibson
Harvard University and the National Bureau of Economic Research

The complete research paper is here, and is worth the read: http://aida.wss.yale.edu/~shiller/behmacro/2003-11/gabaix-laibson.pdf

However, did this J.C. Penney “experiment” uncover something material about auctions and/or auctioneers? It seem so.

Auctions/Auctioneers shroud the total purchase price of property all the time — and discounting and perceived values are regularly promoted. Maybe these are contributing factors in why consumers are drawn to auctions?

What is concealed in the total purchase price at auction? Here’s some common examples …

• Buyer’s premium.
  The auctioneer says, “I have $500 and I would like $550,” when the actual purchase purchase price with a 10% buyer’s premium would be more accurately, “I have $550 and I would like $605.”

• Sales tax.
  The auctioneer says, “I have $500 and I would like $550,” when the actual purchase price with a 7.5% sales tax would be more accurately, “I have $537.50 and I would like $591.25.”

• Buyer’s premium and sales tax.
  The auctioneer says, “I have $500 and I would like $550,” when the actual purchase price with a 10% buyer’s premium and 7.5% sales tax would be more accurately, “I have $591.25 and I would like $650.38.”

Further, do auctioneers suggest your purchase price is a discount? Do auctioneers highlight that you are purchasing at a perceived value, rather than a known price? They sure do …

• Discount.
  The auctioneer says, “I’d like $1,000 to start it out … $1,000! Start me at $200, thank you, and now $225, $225 … $225 bid, now $250 …” Bidders are encouraged to think they might get this $1,000 item for as little as $250 — a $750 discount.

• Perceived value.
  The auctioneer says, “I have you at $500 and I’d like $550, $550 … thank you, Mary that’s $550 now $600; she’s on at $550 and I need $600.” Bidders are reminded that they are bidding just one more bid than what someone else (the market) is willing to pay — their bid is the perceived value of the property rather than a fixed price.

Wouldn’t it have been interesting if the auctioneer in the J.C. Penney advertisement finished the final take of the commercial — and then told J.C. Penney representatives:

“Well, that was fun. But, your new fair and square pricing model isn’t likely to work. As an auctioneer, I can tell you we have known for thousands of years that perception, discounts and shrouding lead to greater bidder participation, and higher prices … now you guys have a great day.”

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Should the seller be at the auction?

Our question today is, “Should the seller be at the auction?”

Auctioneers seem to come to different conclusions regarding this.

Some say the seller should be at the auction, and others say the seller should not be present.

Further, if the auction is available online, should the seller be registered and observe the auction from his computer? If the auction is simulcasted, should the seller watch from his computer?

Here, we’ll primarily deal with a live auction, and the advantages and disadvantages of the seller being in attendance.

Those auctioneers who believe the seller should be at the auction typically say the seller can:

• See the efforts of the auctioneer as his property is sold.
• Be consulted regarding questions about the property.
• See the bidders, and better understand how the market is determining prices.
• Reconsider any nondisclosed reserve amounts — or confirm high bids — if the auction is “with reserve.”
• Bid if proper disclosures are in place and the auction is “with reserve,” or a forced sale.
• Withdraw property from the auction before it is offered — or even after it is offered — depending upon the auction type.

Those auctioneers who believe the seller should not be at the auction typically say the seller can:

• See the efforts of the auctioneer as his property is sold.
• Be consulted regarding questions about the property.
• See the bidders, and better understand how the market is determining prices.
• Reconsider any nondisclosed reserve amounts — or confirm high bids — if the auction is “with reserve.”
• Bid if proper disclosures are in place and the auction is “with reserve,” or a forced sale.
• Withdraw property from the auction before it is offered — or even after it is offered — depending upon the auction type.

Of course, the reasons for the seller being present are the same as the reasons for the seller not being present. Let’s take these one at a time …

• The seller can see the efforts of the auctioneer as his property is sold.
  • Good if the seller likes the effort.
• Bad if the seller doesn’t like the effort.
• The seller can be consulted regarding questions about the property.
  
  • Good if the auctioneer needs to consult the seller.
• Bad if bidders start to consult the seller.
• The seller can see the bidders, and better understand how the market is determining prices.
  
  • Good if the seller likes what he is seeing.
• Bad if the seller doesn’t like what he is seeing.
• The seller can reconsider any nondisclosed reserve amounts — or confirm high bids — if the auction is “with reserve.”
  
  • Good if the seller lowers a reserve or does confirm.
• Bad if the seller raises reserves, or doesn’t confirm.
• The seller can bid if proper disclosures are in place and the auction is “with reserve,” or a forced sale.
  
  • Good if it’s properly managed, and accepted by the bidders.
• Bad if it’s not properly managed or the bidders become irritated.
• The seller can withdraw property from the auction before it is offered — or even after it is offered — depending upon the auction type.
  
  • Good if it’s properly managed, and accepted by the bidders.
• Bad if it’s not properly managed or the bidders become irritated.

Therefore, it seems the benefits of the seller being present rely on the seller truly acting in his own best interest, and not being a distraction to the event. As well, if the seller doesn’t act in his own best interest, or is a distraction to the event, there are benefits of him not being present.

Finally, can the auctioneer either require or prohibit the seller from being present? We’ll discuss that in a future analysis.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Auctioneer disclaimers

Auctioneer disclaimers are as common as actual auctions.

For centuries, auctioneers have “disclaimed” certain responsibilities in their auction terms and conditions.

Certainly the most common used in the auction business is, “All sells as-is and where-is.”

But first, what is a disclaimer?

In tort law, a disclaimer is some statement which seeks to limit responsibility and/or assign responsibility to someone else, in order to avoid liability.

As such, the term “All sells as-is and where-is” means to tell the buyers that their inspection matters and whatever condition the property is in when they purchase it, that’s the condition they will receive. Secondly, once the property is sold, the buyer is responsible for taking possession wherever the property is located.

For instance, if a pottery vase sold and then the buyer discovered it was cracked, he would not have recourse if he purchased it “as-is.” Too, the buyer would have the complete responsibility to remove the vase and take possession of it if he purchased it “where-is.”

Common auctioneer disclaimers found today include:

• All sells as-is and where-is with no guarantee or warranty expressed or implied.

• All information contained in this package and any advertisements was obtained from sources believed to be accurate. However, no warranty or guarantee, expressed or implied.

• We shall not be liable for any errors or the correctness of the information provided in this package or in any advertisements or materials disseminated pertaining to the property.

• We are not responsible for your bidder card and you are responsible for any item sold to your bidder number.

• Not responsible for accidents.

• All announcements made the day of sale take precedence over any and all previously printed matter.

• The auctioneer and agents of the auctioneer make no guarantee or warranty, actual or implied as to the accuracy of the information.

• You are responsible for your purchases; once you buy it, it’s yours.

• We disclaim all other warranties, including any implied warranties of merchantability and fitness.

• These measurements came from reliable sources but cannot be warranted or guaranteed. All drawn property lines and acreage values are approximate.

… and there are many others.

With all these disclaimers, one might wonder what purpose auctioneer disclaimers serve? For the most part it seems to break into two basic premises:

1. It’s sellers who are often attracted to selling at auction due to their desire to not guarantee nor warranty the property they’re selling.
2. Buyers are generally accustomed to these types of disclaimers, and seem to accept them as standard practice. Buyers seem to bid accordingly.

Could an auction be conducted with no disclaimers?

Although that would be very unusual, I suppose it is possible. However, with the lack of disclaiming or assigning responsibility, it might well suggest to the bidders and buyers that the auctioneer (and/or the seller) are responsible … for all kinds of things.

Buyers might buy something and then later say:

• Well, I got it home, and the color just isn’t quite right … so I want to bring it back.
• I changed my mind and … so I need to return the item for a refund.
• Gosh, I thought it would fit in my car, but it won’t … so I need you to deliver it.

Auctioneer disclaimers are a material part of the auction business, and they have been such for thousands of years. They play an important role in the very delicate balance between what the seller wants to receive, and what the buyer is willing to give.

If you are selling or buying at auction, expect both the risks and the benefits of those auctioneer disclaimers.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Selling choice (or a right) in an absolute auction?

About one year ago, we wrote about Selling choice in an absolute auction?.

In essence, we asked if an auctioneer offered the high bidder choice of a group of items in an absolute auction, where that bidder could choose one or more at that high bid price, can the remaining items be withdrawn by the seller?

One might conclude not, due to the UCC 2-328 indicating that in an absolute auction, once an item receives a bid within a reasonable time, it cannot be withdrawn.

Of course, in our case of there being 10 items to choose from, and the high bidder taking 4, have the other 6 “received a bid?” If so, they can’t be withdrawn.

Yet, how do we know?

It seems if the bidding had started at $5.00 and continued to $50.00, that one might conclude the $5.00 bidder would have taken them all … and if so, do we conclude all 10 received a bid?

But, we have no proof of that. In fact, even if the $5.00 bidder said, later, that he would have taken them all, maybe he actually wouldn’t have at the time?

Okay, okay … what if he said at time he bid $5.00 he said, “I’m bidding $5.00 and I’m going to take them all!?” Yet, does he actually take all 10 following the 5, 10 or 15 seconds after his pronouncement and the auctioneer announcing, “Sold!?”

Let’s look at this another way.

What if we considered “selling choice” to mean selling a right to choose, rather than any particular item? In other words, no items are offered — only a right is offered. Then if the high bidder earns the right to choose and chooses 4, the other 6 could indeed be withdrawn since they were never offered?

Assuming this, only one thing is being offered — the right to choose — and that right to choose cannot be withdrawn after receiving a bid within a reasonable time …

However, I’m not convinced.

It appears to me that selling choice is offering all those 10 items … since the high bidder can choose any of the 10. If the high bidder takes 4, and the 6 remaining are withdrawn, it would only take a disgruntled bidder to file suit claiming, “I bid on those other 6, and yet they were withdrawn.”

My recommendation for auctioneers selling items absolute is to not offer any item in any fashion for which the seller wishes to retain the right of withdrawal after any bids are made.

Of course, the seller retains the right of withdrawal if no bid is made within a reasonable time — and we think the emphasis should be on “no bid.”

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Auction photos

Auctioneers — whether selling live and/or online — routinely take pictures of the property offered.

As well, in hopes of limiting liability, many auctioneers are using more pictures, and less accompanying descriptive text.

In this way, a buyer is less able to claim his purchase was, “not as described.” Essentially, this means bidders must rely on photos more and more to make informed decisions.

Sellers too rely on the photos to portray an accurate description of what is being offered in order to maximize their position. Presumably, if a bidder doesn’t feel the pictures are accurate, or don’t provide sufficient information to bid, they won’t.

Here we have a poster, described on an auction site as a “March 8, 1971 Muhammad Ali — Joe Frazier 1st fight large poster in good condition.” Tim is an interested buyer, looking to hang this poster in his media room.

In fact, Tim has been researching these posters for some time. Most all of these March 8, 1971 posters are about 13″ x 19″.

However, only a few were made for the outside of Madison Square Garden in New York, which were nearly 6′ tall, and mounted on a slightly darker brownish background to increase their durability and stability.

As Tim looks at this particular poster, he sees remnants of a brownish background around the edge, and thinks possibly this is one of the 6′ tall posters, rather than one of the many 13″ x 19″ versions.

Yet, the description only notes, “large” as the size. Tim thinks some people consider the 13″ x 19″ posters are large, while he would consider that size to be the “smaller” size, and the 6′ version large.

To complicate Tim’s situation, this poster is being offered in an auction in New York — and Tim is in California.

Despite there being preview opportunities afforded by the auctioneer (Thursday 9:00 a.m. – 5:00 p.m. prior to the start of the online auction) it isn’t particularly practical for Tim to fly to New York for a firsthand inspection.

Tim considers contacting the auctioneer hosting the auction, but wants to get the best deal he can on the poster.

He thinks possibly if he asks the exact size — and this is indeed one of the rare 6′ versions, the site may be updated, and then other bidders would be alerted.

Generally, despite if the auction is online and/or live, there are all too common problems with pictures on auction websites:

• Color — colors are not reproduced exactly in any photograph.

• Detail — the eye can see levels of detail well beyond what a picture can express.

• Focus — photos display a focus on one fixed plane while the eye shifts focus rapidly, seeing objects in real life with various focal points.

• Size — Even if an exact size is noted in the description, a picture can override that description in the mind of a viewer.

• Scale — a 6′ tall poster can look just like a 13″ x 19″ poster, for example.

• Sound — how does that cabinet door sound when opened? Do those speakers have any static? Does that motor run completely smooth?

• Smell — does the wood on that antique chest smell musty? How about traces of smoke, water, paint, mold, glue …?

• Incomplete (Weaknesses) — a damaged corner, bad side or other material defect is not disclosed by leaving out or otherwise not picturing that particular feature.

• Incomplete (Strengths) — a rare mark, intricate carving, serial numbers or just the “wow” factor of the item viewed live can be left out or hard to capture in a picture.

• Photoshop — A term commonly used as a verb as well as a noun. Software is routinely used to alter photographs.

Looking again at this boxing poster, both sides to this issue are apparent:

For Tim:

1. He is uncertain the true size and scale of the poster.
2. It isn’t apparent if or how the poster smells and/or if there are other latent issues.
3. The edges and back of the poster can’t be viewed.
4. It isn’t clear the colors are the same in the picture as they are in real life.

For the seller:

1. This picture doesn’t materially differentiate between the 13″ x 19″ poster and the 6′ version.
2. The “wow” factor of particularly the 6′ version is lost in this picture.
3. The back and/or edges may well have material issues, although they are not pictured.
4. By hoping to guard against liability, the true nature, size, shape and provenance of this poster is lacking. Is such protection worth the likely reduction in net return?

For one aspect of these auction-picture issues, a live auction is distinctly different than an online-only auction.

• In a live auction, the bidders are actually looking at the item they are bidding on — when they are bidding — and not just a picture.

• An online-only auction forces the bidder — even if they have previewed the item — to bid “by picture.”

Before eBay.com and online-only auctions, pictures were used as merely the “tease” to get people to attend a live auction; pictures were not used as a material part of the contract between seller and buyer, upon “Sold!”

Now, pictures are used in many cases as the only means bidders have to ascertain condition, quality, size, shape, color … and their bidding interest. The picture becomes part of the mutual assent of the contract between seller and buyer.

As such, pictures advertising a live auction are materially different than pictures used for an online-only auction.

The more auctioneers, sellers and buyers rely on pictures, and especially if those pictures become a substitute for actual inspection … the more interesting this subject may become.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Selling at auction: online and live

We previously wrote about Selling at auction: online versus live. Today, we write about selling at auction with both online and live bidding.

Again, we look at a research paper titled “Selling online versus live” which was released as a result of work by,

• Eiichiro Kazumori, PhD (California Institute of Technology)

• John McMillan, PhD (Stanford University)

dealing with the issue of utilizing ascending auction methods.

One particular paragraph from this study deals with today’s topic:

“Online bidders in a live auction are in a no-win situation; the theory says they can expect to pay the item’s full expected value. They can overcome their informational disadvantage by either inspecting the item themselves at the presale exhibition or hiring an agent to do the inspection; but this means incurring the same transaction costs as the live bidders. Rather than providing the best of both worlds, mixing online and live bidding combines the disadvantages of both …”

While many auctioneers utilize live bidding augmented with online bidding, Kazumori and McMillan seem to suggest that:

• If the bidder wants maximum knowledge, they must incur the transaction costs of attending the auction. Therefore online bidding is not prudent.

• If the bidder wants to save transaction costs, they must bid without full knowledge. Therefore live bidding is not prudent.

Kasumori and McMillan’s conclusion is based upon the bidder’s prospective.

If bidders wish to eliminate their lack of knowledge and inspect the item, they may as well attend the auction and bid live. Otherwise, they are at an informational disadvantage by bidding online, but save transactional costs associated with attending.

However, what about the other side of the transaction — from the seller’s perspective?

• Do the online auction costs of additional cataloging, picture-taking, description and the online platform suggest then the additional costs of hosting the auction live may not be prudent?

• Do the live auction costs of tables, chairs, parking, utilities and staff suggest then the additional costs of hosting the auction online may not be prudent?

I wonder if the seller-perspective argument is not at least as strong as the buyer-perspective argument. Ultimately, is it fair to say, “Either have a live auction, or an online auction” but not both?

It is important to note here that not all auctions are alike. For instance:

• Could a live auction with 100 cars benefit from online bidding?

• Could an online auction with 100 cars benefit from live bidding?

For the live auction, it’s probably safe to assume the cars are all lined up with sufficient space between — so how hard would it be to take, say, 10 pictures of each, and upload that to an online auction?

For the online auction, it’s probably safe to assume the cars are all lined up with sufficient space between — so how hard would it be to, say, setup a registration area there at the location, and conduct a live auction?

Many auctioneers talking about (and/or arguing about) the merits of a live auction versus the merits of an online auction seem to tend towards agreement that maybe doing both is the best solution.

However, the research thus far seems to suggest the opposite — that either piece is better than the sum of the parts and/or the whole — far from Aristotle’s thought that the whole is greater than the sum of the parts, and therefore greater than either.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

How many auctions?

Harry graduated from auction school in 1980 and has been an auctioneer for 32 years.

When Harry first graduated, he held only 1-2 auctions per year.

However, about 1985 his name became more famous in auction circles and he started to conduct about one auction per month.

By 1990, Harry was conducting over 50 auctions per year. In 2012, Harry’s company, inclusive of his son Troy and daughter Gail, conducted just over 200 auctions.

200 auctions a year? That would be on average one auction every 1.825 days.

Harry’s story is hardly remarkable. Many auctioneers around the United States conduct 100′s of auctions every year.

Our topic today regards how we count “an auction.” In other words, what makes up an auction? What is an auction?

When we asked Harry, he seemed almost bewildered by our question, but answered nonetheless:

“What’s an auction? You mean, what is it? For us, it’s an event — it starts with registering bidders, and then the opening announcements, and ends when we sell the last item, and the bidders settle-up.

I think last year we had 207 auctions, counting our twice weekly consignment auctions, our Monday car auction and Thursday livestock auction.”

On Monday night following their weekly car auction, Troy is at the office updating their website for their next consignment auction — when the phone rings. It’s a regular buyer at Harry’s Thursday livestock auction who tells Troy that a new auctioneer in town is advertising on his website that he conducted “10,000 auctions last year.”

Troy’s mystified. “You must have misread that, Bill. That would be … I mean, we’re the busiest auctioneers in town, and we don’t do 300 auctions in a year.

For thousand of years, the word, “auction” has meant an “event,” inclusive of all the property for sale contained within. A two-day auction would be an event too big for one day, and extending over a second day. Someone saying the “auction went well” would be referring to the entire auction — from start to finish, rather than describing one item.

Yet, the UCC 2-328 (1) suggests maybe that other auctioneer did conduct 10,000 auctions last year. In particular, it says:

• In a sale by auction if goods are put up in lots each lot is the subject of a separate sale.

As such, each item constitutes a separate sale, and the UCC 2-328 uses the word “sale” as equivalent to “auction” throughout.

So, could an auctioneer argue that he has conducted 10,000 auctions if he sold at auction 10,000 items? It would seem so.

I’ve joked about this interpretation for decades in UCC 2-328 classes I teach. In the last class I taught in Indiana I distinctly remember telling the group there:

“You guys need to run home and update your websites … many of you have done millions of auctions …”

But I was kidding.

Given the common interpretation of the word, “auction” it would be nothing less than misrepresentation for an auctioneer to advertise — or hold himself out as — having conducted 10,000 auctions if he had only sold 10,000 items.

In marketing and advertising, there is what is called “manipulation of unit standards,” where advertises attempt to falsify common measuring units to their advantage.

Such a case involved Fretter Appliance stores claiming “I’ll give you five pounds of coffee if I can’t beat your best deal”. While initially they gave away a true five pounds, they later redefined them as “Fretter pounds,” which were much lighter than standard pounds.

If an auctioneer has sold 10,000 items at auction, it would be more forthright for him (or her) to say so, rather than to portray the 10,000 items as 10,000 auctions.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

The specialty auction

I travel a lot. For the most part, I fly to auction locations, but occasionally I drive.

When driving my “somewhat” older Cadillac, I have the need to stop periodically for gas for it — and coffee for me.

As I finish filling my tank with gas, I almost always walk in to the gas station store for coffee, and note that they are trying to sell me all kinds of things: snacks, drinks, candy, cigarettes, gum, magazines, sunglasses, trinkets … a true immense variety in some stores.

For one such recent trip, I went in for that cup of coffee, and ended up buying a couple batteries and a candy bar.

As we take a look at a specialty auction, I think back to my stop at the gas station, and know that I had no intention of buying those batteries nor candy bar — and in fact, wouldn’t have stopped to buy just them.

However, I was there getting gas and coffee, and ended up buying things I didn’t know I needed until … I saw them.

Homer and Dee Pollack are moving to Arizona and taking very little with them. They have a house-full of furniture, collectibles, tools, antiques … and about 100 collectible cameras including Nikon, Leica, Zeiss and others.

The Pollacks want their auction held live, on-site at their home. They talk to several auctioneers about their auction and seem to get basically two distinct perspectives regarding the best way to market this inventory:

1. The best way to sell this is to separate the camera collection and sell it in a “camera-only” auction, and sell the rest on-site.
2. The best way to sell this is to sell it all on-site, including the camera collection, keeping the entire collection intact for the auction.

The argument for the separation of this inventory seems to be that the camera collection will sell for more in a “camera auction,” where camera collectors will be more likely to attend. Further, the balance of the inventory will sell for just as much with or without the camera inventory.

The argument for keeping this inventory intact seems to be that people who come to buy cameras may well buy other things (or at least bid on other things) and the people who come to buy non-camera items may well bid on or buy a camera. Further, the camera collectors will participate in this auction no differently than they would a camera auction.

As I leave the gas station with my gas, coffee, batteries and candy bar, it seems most likely the latter argument makes more sense. A prevalent retail store model appears to be: Put as much variety in one store as you can, and keep them in your store.

Retailers such as Walmart, Home Depot, Kroger, Lowes, Meijer and others offer a tremendous variety of products, and seem to profit from people coming in their store to buy one thing, and end up buying other things?

Assuming the right answer for Homer and Dee is keep the inventory intact, is the answer the same if there are 1,000 cameras? What if there are only 20 cameras?

As the inventory grows, in quantity and in importance, it may then be prudent to break-out the cameras for a specialty auction, where other cameras can be added in, and camera collectors would pay more attention.

Further, with only 20 cameras, would it make sense to add those 20 into an auction with over 500 other cameras? Possibly, as the 520 camera auction would undoubtedly attract much interest. Yet, would the other 500 cameras overshadow these 20, or would market saturation negatively impact price?

However, could Homer & Dee’s auction be 1,000 cameras and their other household furnishings? Could it be 20 cameras and their other household furnishings? I think the answer is “Yes” in both cases.

In fact, auctioneers have “specialty auctions” within their other auctions all the time — such as a second auctioneer selling the cameras in another separate ring while the other auctioneer sells the household items.

The benefit of this multiple ring auction seems to be that the household items gain the benefit of camera bidders’ secondary interest, and the cameras gain the benefit of the household item bidders’ secondary interest.

I suppose similarly, the battery and candy bar market was effected by my need for gas and coffee. And I suspect there are customers who go in for a candy bar and end up buying some coffee.

While I’m not opposed to specialty auctions, I think auctioneers should weigh the benefits of such against the benefits of keeping those specialty items intact with other dissimilar items from the same estate in the spirit of maximizing the seller’s position.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

A consignor’s comparision — online vs. live auction

This story is true.

However, we’ve changed the names, city, state and subject item to keep the actual names, city, state and subject item confidential.

All other material information has been verified.

Tim is an auction consignor.

Tim buys returned items from “big-box” stores, large lots in liquidation circumstances, and otherwise procures items to sell in both live and online auctions in order to make a living for himself and his family.

Tim has been buying certain lawn and garden equipment lots. Such equipment will include hand tools, long handled tools, power tools, etc. One such item in his inventory is a “Dead On Professional Flexible Gel Knee Pad” set used for gardening, skating, etc. These knee pad sets retail for about $15.

In Newgrove, Tennessee, there are maybe ten full-time auctioneers, with another ten or so working part-time. Tim consigns to just two auctioneers in Newgrove. These two auctioneers differ basically in only one respect — one conducts only live auctions, where the other only conducts online auctions.

We’ll call our two auctioneers Harry and Denny:

Harry has been an auctioneer for 30 years, and has an auction house in Newgrove. Harry is a member of both the Tennessee Auctioneers Association, and the National Auctioneers Association. He is well-known in Newgrove and the surrounding areas as a good, honest, ethical auctioneer. For the last 10 or so years, Harry has conducted auctions at his facility (auction house) every Thursday at 5:00 p.m. Harry advertises his auctions mostly on www.auctionzip.com and typically gets about 10,000 views for each of his auctions.

Denny has been an auctioneer for 28 years, and has offices and warehouse space in Newgrove. Denny is a member of both the Tennessee Auctioneers Association, and the National Auctioneers Association. He is well-known in Newgrove and the surrounding areas as a good, honest, ethical auctioneer. For the last 10 or so years, Denny has conducted online auctions from his facility (warehouse) beginning every Thursday at 1:00 p.m., ending seven days later. Denny advertises his auctions mostly on www.auctionzip.com and typically gets about 10,000 views for each of his auctions.

For Harry’s April 12 live auction, Tim consigned 41 sets of Dead On Professional Flexible Gel Knee Pads. Harry posted 3 pictures of the sets on www.auctionzip.com and put text in his auction description noting he had:

“20 sets of Dead On Professional Gel Knee Pads.”

For Denny’s April 19 online auction, Tim consigned 41 sets of Dead On Professional Flexible Gel Knee Pads. Denny listed some sets as one “lot” and otherwise arranged groups of 3, 5, 10 and 12 sets in the online auction, with pictures of the knee pad sets and a full description. As well, Denny posted 3 pictures of the sets on www.auctionzip.com and put text in his auction description noting he had:

“20 sets of Dead On Professional Gel Knee Pads.”

For Harry’s April 26 live auction, Tim consigned 41 sets of Dead On Professional Flexible Gel Knee Pads. Harry posted 3 pictures of the sets on www.auctionzip.com and put text in his auction description noting he had:

“20 sets of Dead On Professional Gel Knee Pads.”

The results were as follows:

• For the April 12 live auction, the Dead On Professional Flexible Gel Knee Pad Sets sold for an average of $2.25 each, with some selling as high as $4.00 each, and as low as $1.00 each. Tim’s total consignment of knee pads grossed $92.25 and he netted $69.19.

• For the April 19 online auction, the Dead On Professional Flexible Gel Knee Pad Sets sold for an average of $0.41 each, with some selling as high as $1.22 each, and as low as $0.01 each. Tim’s total consignment of knee pads grossed $16.77 and he netted $12.58.

• For the April 26 live auction, the Dead On Professional Flexible Gel Knee Pad Sets sold for an average of $2.00 each, with some selling as high as $3.00 each, and as low as $1.00 each. Tim’s total consignment of knee pads grossed $82.00 and he netted $61.50.

Conclusions? Actually, several in my opinion:

1. Despite these above results, I don’t believe it is fair to conclude that live auctions always deliver better results than online — any more than it’s fair to conclude that online auctions always deliver better results than live auctions.
   

2. For any one auctioneer to say, “We are getting much better prices with our online-only auction model than we obtained at live auctions at our Auction Center or onsite. We did live auctions for 20 years, and now do only online, and our results are better,” is not a fair comparison. Maybe that auctioneer is better at doing online auctions, than he (or she) was doing live auctions? Maybe this difference is due to different market conditions, different product, different (more) experience and market presence of the auctioneer?
3. The issue is Internet marketing versus no Internet marketing — much more than it is Internet bidding versus no Internet bidding. If an auctioneer did live auctions without Internet marketing for 20 years, and has since done online auctions with Internet presence — of course his (or her) results are better. So too would be an auctioneer who did live auctions without Internet marketing for 20 years and then started to use Internet marketing (www.auctionzip.com for example) for those live auctions.
4. One possible reason Harry’s auction produced better results over Denny’s: People “attending” Harry’s auction on the prospect of buying something else in Harry’s auction noticed these Dead On Professional Flexible Gel Knee Pad Sets and said, “Hey, how about these — I didn’t know they made such a thing … I might buy a set.” In Denny’s auction, there seems to be a less likelihood that a bidder would find other items they knew nothing about, and bid on them, as Denny’s auctions are searched more-so by bidders looking for certain items only.
5. Today, in 2012, there are some very successful online auctions, as well as some very successful live auctions. Too, there are some online auctions producing dismal results, just as there are some live auctions producing dismal results. Neither format holds the exclusive key to maximizing results; nor does either necessarily produce poor results.
6. The issue of whether or not an auction is successful more likely depends upon the auctioneer, the seller, the property presentation, marketing, etc. — rather than if the auction is live or online.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

I won’t take less than … but the bidding starts at?

I was emailed a real property auction flyer the other day. Presumably to see what a great job of marketing the auctioneer did.

In bold print, near the top of the flyer, the following statement caught my attention (I’ve changed the numbers only slightly so to not identify the auctioneer):

Offered with published reserve of only $750,000

Seller directs bidding to commence at $280,000!

What does this mean?

It says to me that the seller isn’t willing to take any less than $750,000 but the bidders can offer as little as $280,000 and bid against each other … up to either a number less than $750,000, where the property will not sell — or a number equal to or in excess of $750,000, where the property will sell?

We have a really well-educated auction bidder (buyer) community in the United States. Most all prefer and appreciate auction advertising that is straightforward, even if not favorable to their position.

Bidders interested in this property would respond better if either statement was used, but not both, such as:

Offered with published reserve of only $750,000

or

Seller directs bidding to commence at $280,000; reserves right to accept or reject the high bid!

• The first statement says clearly the bidding will start at $750,000. If a bid is made for that amount, the auctioneer will ask for more, and the property will sell. If no bid is made for $750,000 or more, the seller retains title.

• The latter statement says clearly the the auctioneer will require an opening bid of $280,000 will ask for more until a high bid is obtained, with no further bidding. Then, the seller will have the option to accept or reject that high bid. If the seller declines the high bid or nobody opens the bid for $280,000, the seller retains title.

Advertisements such as this one emailed to me attempt to attract bidders to an auction assuming a general naiveté on the part of the potential bidders — and this is no less than condescending and insulting. Bidders respond much better when they are respected and treated with honesty and integrity.

Further, such advertising impairs the ability for other auctioneers to be perceived as honest in their advertising and otherwise — if another auctioneer advertises his real property auction with a minimum bid of $100,000, does a bid of $100,000 buy the property if there are no other bids?

Normally, yes, that’s what a minimum bid auction denotes — however, with other auctioneer advertisements suggesting an opening bid, starting bid or bidding commencement which is below the minimum bid the seller is willing to accept, this complicates the ability for auctioneers as a whole to gain creditability.

Incidentally, the fact that the “Seller directs” the bidding to start below what he is willing to accept further portrays the advertisement as contemptuous. As the seller’s agent, the auctioneer involved in such “seller legal directions” would owe his client the insight that this is ill-advised.

I would guess — more likely — the auctioneer here told his client this low commencement bid would attract bidders thinking they might buy the property for $280,000 that he would work to get them up to the required minimum.

What this auctioneer probably didn’t tell his client is these bidders will not likely allow for that, and that the mere suggestion that the property can be bought for $280,000 will make them feel mislead — and highly uninterested in paying $750,000.

My conclusion? Such advertising is bad for the seller, bad for the bidders, bad for us fellow auctioneers and bad for the auction industry as a whole.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Orderly conduct of the auction process?

For auctioneers across the globe, if there is one phrase used more often than all others — possibly except for the word, “Sold!” — it’s “as-is, where-is.”

Auctioneers use this phrase “as-is, where-is” to denote, generally, two conditions of the sale:

• As-is: The buyers are accepting the property in its present condition, inclusive of all faults and all benefits.

• Where-is: The buyers are accepting the property at its present place on earth, as affixed (or not) to the earth or other attachment.

In other words, for a gold-colored statuary sold at auction, “as-is, where-is,” this means:

The buyer will be in contract, regardless if the gold is gold paint, or 18K gold, and be responsible for moving the statuary from its present location to his own property — even if it’s attached to the ground and weights 1,000 pounds, or is sitting on a table and weights only 7 ounces.

However, the “as-is, where-is” clause only applies to the extent that the auctioneer has not otherwise guaranteed or implied the property is … something.

For instance, an auctioneer says:

“Folks, you’re buying all these cars “as-is, where-is” today. Our first lot is this 1965 Chevrolet Impala.”

After some spirited bidding, the auctioneer says, “Sold!” for $15,800. The buyer and seller are in contract … so long as this is indeed a 1965 Chevrolet Impala. If it’s a 1964, or a 1966, or actually a Chevrolet Belair, and not an Impala, there is no contract because there must be a “meeting of the minds” for a contract to exist.

If the seller is saying he is selling a 1965 Cheverolet Impala, but the buyer receives a 1966 Chevrolet Belair, there is no contract, and therefore no sale.

Which brings me to these statements I found in an auctioneer’s terms and conditions:

1. These items are selling as is where is and no refunds or returns are allowed.
2. The auctioneer, in a catalog, brochure, advertisement, or oral statement, uses his best effort to describe an item and any quantities of that item contained in a particular bid lot. Such description is made only to assist in the orderly conduct of the auction process and does not create any warranty that the item is as described or that a particular lot contains the number of items stated.

I should say that these general conditions are found in thousands of auctioneers terms and conditions; that all is selling “as-is, where-is” and no description or quality expressed creates a warranty or guarantee.

Similar to those signs on the back of gravel trucks noting they are not responsible for broken windshields — when they are actually responsible, auctioneers say that their descriptions and quantity expressions do not create a warranty or guarantee — when they actually do.

The hope of an auctioneer saying “we don’t guarantee our descriptions” even though they describe items, is that the buyer is not astute enough to argue the lack of contract and take the item even though they didn’t get what they were told they were getting.

Nevertheless, what was even more interesting was these particular terms and conditions attempted to explain the need for descriptions and quality expressions beyond bidders reliance (or lack thereof,) noting that they were necessary for the “orderly conduct of the auction process.”

What exactly does the “orderly conduct of the auction process” mean? And, why would that be the reason that inaccurate descriptions and quantities would be enforceable?

Contract law in the United States is very uniform. When a seller says he’s selling a “whatever,” the buyer of that “whatever” is only in contract with the seller if the “whatever” is indeed as described by the seller.

No condition of sale, such as “Well, I know I misrepresented that item, but I had to represent it that way to make the sale of these items today ‘orderly.’”

Well, no more than that gravel truck operator can say he’s not responsible for broken windshields because, “To have my trucks operate in a “orderly” fashion, I didn’t go to the expense of securing that load, so the items flying off my truck aren’t my problem.”

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Auction atmospheres

As the National Auctioneers Association noted in their article about the History of Auctions, records handed down from ancient Greek scribes document auctions occurring as far back as 500 B.C.

Almost all of these auctions, since 500 B.C. — over 2,500 years — have been live auctions. In other words, an auctioneer stands in front of a crowd of bidders and recites the bid he has, and the bid he wants in a rapid fashion. Items may sell in as little as 15 seconds … typically concluded with the word, “Sold!”

Countless auctioneers have been asked over the years by potential clients about the rapid-fire talking (bid calling) that is used at a live auction. I would surmise that a typical answer goes something like this:

“Well, we talk fast so as to keep the bidders attention — get them emotionally involved … the fast talking suggests an urgency, and the message that they need to make a decision quickly.”

Possibly the questioner would even ask a follow-up, such as “So, this helps me? This helps prices?” Most all auctioneers would answer that:

“Definitely. Give people time to think and you know what happens … and if we can’t keep their attention, they start thinking about what they should be doing at home or work, and we’ve lost them. The best situation is when the bidders become almost hypnotized …”

We wrote about Can auctions be hypnotizing? and noted this interesting effect at a live auction:

…Even more fascinating is when someone is in this light hypnotic state, their mind is slowed down a bit, focus is narrowed, breathing is slowed and they are very open to suggestion — up to 200 more times open to suggestion, in fact, as compared to their conscious state …

Since about 1995, the Internet has been used to sell items online in a competitive fashion — at auction. Auctioneers fairly soon after started using the Internet to provide their clients (and bidders) online bidding. Instead of calling or emailing bids to an auctioneer, an online platform could manage those bids.

Our question today is, if we conduct the auction exclusively online instead of live, is that the only thing that changes? Said another way, if we merely change the method of bid delivery, which alters the “auction atmosphere” do we then counter our long-standing argument about the benefits of a live auction?

Let’s take an auction appointment occurring in 1980 with an auctioneer and a potential client. The auctioneer is, of course, describing how the auction atmosphere will be a bit uncomfortable, noisy, high pressure, quick … and how those traits of an auction contribute to higher prices.

However, if this appointment is taking place 30 years later, in 2010, the auctioneer might talk about how the online auction will allow for a more comfortable, quiet, low pressure atmosphere … and how those traits of an online auction contribute to higher prices.

It would seem the online auctioneer and the live auctioneer both argue their atmospheres produce the highest prices. It looks like this:

Online auctioneers say the benefits of their auctions allow for:

• Comfortable environment
• More time to make decisions
• Low pressure
• Easy access to comparables
• Calm, quiet

Live auctioneers say the benefits of their auctions allow for:

• Uncomfortable environment
• Less time to make decisions
• High pressure
• Lack of comparable data
• Chaotic, noisy

Is the auction atmosphere important? Auctioneers have held for over 2,000 years that it is indeed important. However, once the Internet allowed for online bidding, the argument changed seemingly to accommodate the bidding method.

For instance, not giving the bidder a lot of time to think was always a good thing — until we wrote software allowing them more time to bid? Auctioneers have always contended a loud, chaotic-type environment was a good thing — until bidding by computer was quiet and relatively calm, and that became a good thing?

In summary, maybe the question should be: If the auction atmosphere is important, should the atmosphere drive the bidding method, or should the bidding method drive the atmosphere?

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

NAA didn’t change its name, again.

The National Auctioneers Association per its own website:

Founded in 1949, the National Auctioneers Association (NAA) is the world’s largest professional association dedicated to professional auctioneers. The NAA was built by auctioneers, for auctioneers. Headquartered in Overland Park, Kan., the NAA represents the interests of thousands of auctioneers in the U.S., Canada and across the world.

It was then over 50 years later in 2003 and then 2004 and the National Auctioneers Association‘s (NAA) leaders had decided the National Auctioneers Association needed to change its name to the National Auction Marketing Association.

In fact, this measure was to be voted upon by the membership in 2004, and records show the NAA reserved the name “National Auction Marketing Association” on August 9, 2004 citing:

Applicant is contemplating a name change to National Auction Marketing Association; Applicant’s purpose is to promote and advance the auction profession, provide a common organization for professional auctioneers, formulate ethical standards for auctioneers, promote enactment of laws governing auctioneers, and promote the auction business in general.

This effort to change the name was largely rejected by the membership, and the name remained the National Auctioneers Association.

Beginning in 2011 and continuing in 2012, NAA’s leadership again decided that NAA needed to change their name, but this time from the National Auctioneers Association to the National Auction Association, citing:

Any auction professional should be allowed to join the organization as a voting member and one level of membership should be maintained which allows all members to vote.

After much discussion, and input from the membership, the following announcement was made April 24, 2012:

No membership vote will take place on a potential name change for the association. A name change would have required an amendment to the Bylaws and Articles of Incorporation. As some NAA members liked the name change as proposed, and some did not, the Board will continue to ask for feedback and conduct research on the issue so as not to rush into a decision.

Why change the name?

It would seem that the two distinct efforts thus far to change the name of the National Auctioneers Association were based on the perceived need to increase membership.

In both cases, these proposals (2003-2004 and 2011-2012) sought to widen and/or expand the membership to be inclusive of people beyond just auctioneers.

For the most part, these additional members would come from auction support staff and others associated with the auction business.

It seems the current membership — made up of primarily auctioneers — wants the National Auctioneers Association to remain as such, and those auctioneer members want to socialize, network, befriend, and learn from fellow auctioneers rather than others merely associated with the auction business.

Too, it seems there is a concern among the current membership that if the membership is opened up to those associated with the auction business … or anyone who’s interested in the auction business, that the core identity of the organization could change.

Two distinct idioms came to mind during both name change efforts:

• If it ain’t broke, don’t fix it.

• Just because you can — doesn’t mean you should.

Washington, DC-based association management firm Plexus Consulting helps with such association name change projects.

“What you want to come out with a name change is an enthusiasm, an excitement invested in a new name, as opposed to surprising the market with a new name where they would say, ‘Who’s that?’ That would be a disaster,” says Plexus President Steve Worth, whose first name-change project before starting Plexus helped name Deloitte & Touche.

“It’s not a decision to be taken lightly; it’s a major undertaking. If you do it, you have to do it for good reasons,” says Worth. He counts mergers and going global as good reasons for a name change, but he says a desire for a more “fresh, light, zippy, or media-friendly” name as a frivolous reason.

As the April 24, 2012 announcement noted, the NAA Board will “continue to ask for feedback and conduct research on the issue so as not to rush into a decision …” indicating a future name change proposal is likely?

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Live Auctions: Escalation and Competitive Arousal

In July, 2003, with reprints and updates in December, 2004,

Gillian Ku, Department of Organisational Behaviour, London Business School, UK, Negotiation, Organizations, and Markets Unit

Deepak Malhotra, Harvard Business School, Harvard University, USA

J. Keith Murnighan, Department of Management and Organizations, Kellogg School of Management, Northwestern University, USA

authored a study about auctions.

Their study was titled “Towards a competitive arousal model of decision-making: A study of auction fever in live and Internet auctions.

The entire study can be reviewed here: http://users.business.uconn.edu/jgoodman/MGMT%206201%20Assigned%20Readings%202008/6%20Decision%20making%20II/Ku%20et%20al%202005.pdf

In short, the study concluded without any significant doubt whatsoever, that “auction fever” driven by both emotion and arousal as well as “escalation” of commitment drive live auction prices beyond what an Internet (online) auction can produce.

The study’s highlights noted actual as well as theoretical results, with these findings:

Competitive arousal results from:

• Rivalry

• Social facilitation

• Time pressure

• Uniquness of being first

These arousal factors are more present in a live auction than an online auction. These factors drive certain behaviors including:

• Impaired calm, careful decision-making
• Less information processing
• Increased risk taking
• Induces over bidding

Escalation results from:

• Inability to ignore “sunk” costs

• Initial investments drive follow-up justification

• Behavior which equates to not “giving up”

• Resistance to walking-away, or withdraw

These escalation factors are more present in a live auction than an online auction. These factors drive certain behaviors including:

• Need to justify previous bids with additional bids
• Bidding more to promotes a positive self-image
• Winning, even at higher costs to make the investment worthy
• Induces over bidding

This analysis counters two long-standing arguments:

• “Online auctions allow the bidder more information, time to think, tools to research value, bid in their pajamas and at their convenience, which promotes higher prices.”
  Exactly the opposite of what this study points out: By being at the auction live, there is less information, less time and less convenience which actually promotes higher prices due to competitive arousal.

• “Online auctions are better as with such, the bidders only travel to the auction location if they win an item (or have it shipped,) whereas at a live-only event, they must travel first, assuming the risk of not buying anything, and returning home empty-handed.”
  Exactly the opposite of what this study points out: The “sunk” costs of travel promote higher bidding as bidders experience the “escalation” factors. Auctioneers who say the online auction makes it easier for the bidders are exactly right — it makes it easier for them to be less “escalated.”

While I’m not convinced that an online auction cannot contain “competitive arousal” and/or “escalation” I do think the odds are clearly better to have both at a live auction event.

And I’ve said quite publicly — and repeatedly — that more bidders means more money for the seller. I do think that statement is generally true, but more importantly, an auction must have the right bidders, and those bidders must be “housed” in an environment which promotes them to bid as much as possible in order to maximize the seller’s position.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

An online auction company’s marketplace

Vern Miller and his wife Nancy had just got home from an all-day auction for the Estate of Charlie Robinson.

Vern and his two sons sold over 11 hours in three rings to fully liquidate Charlie’s extensive farm equipment, tool and gun collections.

Bidding was fast and furious with over 900 live bidders in attendance. Highlights included a near mint John Deere 4020 which demanded $41,500 and a Winchester Model 62 which brought $2,800.

Vern sat down and turned on the news while Nancy poured them both a cold glass of beer. “That’s just what I needed,” said Vern, and Nancy nodded in agreement.

Just then, reporter Heather Winn for Channel 8 Lighting News began to report on all things, an auction story …

“This is Heather Winn at Youragentbid headquarters near downtown reporting on a significant gathering of auctioneers protesting Youragentbid’s plans to compete with them in the auction business.”

Vern looked over at Nancy as Nancy stared at Vern. “We just used Youragentbid last month for our gun auction and they’re now going to compete against us? This is sure interesting …”

From Heather’s story, it was clear that Youragentbid (Youragentbid.com) who has been providing auctioneers an online platform is now entering the auction business themselves. Heather referenced a prior investigation by the FBI and transcripts which were made available about this plan developed back in 2003.

We wrote about that transcript here, detailing a conversation between Youragentbid’s CEO Devin Jones (Jones) and Chief Technology Officer Nick Gilly (Gilly): http://mikebrandlyauctioneer.wordpress.com/2011/09/15/the-online-auction-company-plan/

Devin Jones told Heather in her report, that his company has begun to focus on locating large pools of assets currently not being sold at auction, and find ways to bring them into their auction marketplace. Devin continued that, “With our extensive database of qualified buyers, we can connect these sellers to our buyers more directly.”

Heather pressed Jones with some of the sentiment the auctioneers were expressing at the protest; here is a transcript of her interview:

HEATHER: So, these new assets and sellers — you would direct those projects to auctioneers rather than internalize them within Youragentbid?

JONES: Youragentbid does not have any specific plans to minimize the auction professionals who have worked so hard to build our business. In fact, we hope that if we secure such large pools of assets, we can help bring this content and opportunity to those already selling within our marketplace today.

HEATHER: You say you have no specific plans? In other words, your plan is to direct these assets to auctioneers?

JONES: As I said, I mean … we don’t intend … rather we plan, or hope to direct …”

HEATHER: And, the auctioneers here today cited your quote that you “hope you can help bring these opportunities to them,” Why use the word, “hope?” You may not be able to?

JONES: Uh, we’re still exploring what will be possible. Our team is poised, uh, we, rather, some of this plan is still being developed, but that’s our hope.

HEATHER: You said earlier today that you hope to “create a larger auction marketplace?” Would you manage that marketplace then; in other words, take over the auction marketplace of all auctioneers?

JONES: We have no specific plans to overtake the entire auction marketplace, but I suppose if that opportunity … I mean, I don’t think that’s likely …

HEATHER: Over 300 auctioneers were outside your offices today. What message do you hope they take away in place of their concern that you intend to compete against them after they — as a group — built your buyer database?

JONES: Any auctioneer is invited to call our offices for a more close-up view of our plans.

HEATHER: You’d rather all 300 call you? Why not tell them all now what your plans are? There are 1,000′s of auctioneers in the United States … you would prefer all of them call you too?

JONES: Again, we have no specific plans to compete with them, and hope we can direct these assets to them.

HEATHER: So nothing more comforting for these concerned auctioneers beyond “no specific plans,” and “we hope we can direct?”

JONES: I have nothing further to say, Heather. Thanks.

Vern sat back in his chair and sat his beer down. “Nancy, when I hear doublespeak I know it. When someone ‘is hoping to do this,’ and ‘has no specific plans to do that,’ and won’t say much more, I think we know what’s going on.”

“Vern, I think you’re right.” said Nancy. “We need to be very careful who we partner with from here on. We need to be asking a lot more questions, and getting much more clear answers.”

* The above account including company names, events, etc. are purely fictional. This scenario has been created solely for educational purposes.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

A curious 1931 Model J Duesenberg

John Straus, R.H. Macy longtime executive and grandson of Macy’s co-founder Isadore Straus (Isadore and his wife Ida died in he sinking of the RMS Titanic) loved art, antiques and cars.

John apparently stored his 1931 Model J Duesenberg automobile (and a Rolls Royce) in a Manhattan storage unit (Windsor Garage) for over 50 years.

As the story goes, John would routinely let his storage rent become past due by several months, only to then make it up with one large payment. Later is life John became stricken with dementia and his payments became more sporadic.

In April, 2005, John apparently owed the storage facility over $22,000 and because of that, and some other issues with the checks going to (or being payable to) the wrong garage, the unit contents were sold per New York lien law procedures; however, records showed the May 27 auction resulted in no bids, or a sale price of $0.

The buyer of the Duesenberg was recorded as “Chapman, LLC” a business owned by the storage unit owners. The Rolls Royce sold to a maintenance worker at the same facility. More interesting, John would continue to receive past due notices into October, 2005, noting that if the past due amount was not settled, the cars would be sold.

In December, 2005 a credit to John’s account for $39,000 was applied — about the same time the Duesenberg was sold to a company owned by Jay Leno for $180,000.

There is some evidence that Jay Leno had spread a story about this car, noting:

“ … I didn’t want to lose it, so I made up a story — no, it was an absolute lie -– that the car couldn’t be removed from its third-floor home because the new elevator that had been installed several years earlier was too small to fit the car …”

New York lien law states basically for tenets of procedures for such sales:

1. Appropriate notice must be given before such sales can take place.
2. The cars must be sold at public auction to the highest bidders.
3. Sale proceeds in excess of the rent due must be paid to the owners.
4. Failure to follow these procedures constitutes conversion (theft.)

Upon the death of John Straus in 2008, his Estate began to question the transactions relating to the Duesenberg and Rolls Royce, and a lawsuit followed known as Wendy Lubin v. Big Dog Productions. A settlement was reached in 2011.

It would appear this entire auction and subsequent sale was a travesty. It seems clear the storage unit owners put their own interests well ahead of the interests of their tenant — John Straus. Yet, the case was settled and so the Estate was presumably compensated.

When storage lien auctions take place, extreme care should be taken to protect the subject property, adequately notice the tenant, properly advertise and conduct the auction, and accurately and completely account for the auction proceeds. It would seem this auction lacked all these important principles.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Auctioneers posting commission rates

As we continue to explore the Sherman Antitrust Act and how it relates to the auction industry, we take a look here at auctioneers posting commission rates on signs, flyers and on their websites … for public view.

Presumably, such a display of commission rates enables potential clients to see what that auctioneer charges, and make judgements about possibly consigning (or not consigning) to that auctioneer.

Yet, by publishing those rates in that fashion, other auctioneers can see those rates as well, and possibly then adjust their rates accordingly.

One of the most common violations of the Sherman Antitrust Act is price fixing. Price fixing is generally considered an agreement to inhibit price competition by raising, depressing, fixing, or stabilizing prices.

A quick search of the Internet produced 100′s (if not 1,000′s) of auctioneers websites with commission rate information. For example:

Our standard commission rates for a seller are:
• 10% for items selling for $10,000 or more
• 15% for items selling between $5,000 and $10,000
• 20% for items selling for less than $5,000 (minimum $50)

Other arrangements can be considered for large or particularily valuable consignments. Please contact us for further details.

Would such a posting on a website be a “per se” violation of the Sherman Antitrust Act? Probably not if we read the act precisely, which requires an “agreement” to charge the same, less, or more …

By an auctioneer posting his rates, he isn’t necessarily agreeing to charge the same as anyone else, but rather, merely publishing his own rates.

However, there might be an issue if the 14 other auctioneers in this same geographic market (such as all in New York,) or same product market (such as all who sell high-end jewelry) suddenly started to charge this same rates.

Such fixing of rates (price fixing) might be done, not by actual fixing or agreeing, but by constructive agreement which may show that “Effectively, the posting of those rates caused the other competitors to change their rates to those same rates, thus fixing prices.” especially if those price changes were increases, thus causing the public to pay more.

I think in such a case of 15 auctioneers in the same market charging the same commission rates, a violation still might be a difficult one to prove. Proving a violation would more likely require evidence of collusion and/or some intentional or express intent to price fix beyond merely posting rates for public view.

But, if 15 auctioneers are charging the exact same rates in the same market, one might conclude that the odds of that would indicate some sort of “agreement” or consensus is beyond likely — and almost a certainty.

No case of consequence where auctioneers were accused of price-fixing has ever been pursued outside of United States v. Sotheby’s Holdings, Inc. Criminal No.: 00 Cr. 1081, Filed: October 5, 2000, Violation: 15 U.S.C. § 1, where the United States held:

1. Beginning at least as early as April 1993 and continuing until at least December 1999, the exact dates being unknown to the United States, Sotheby’s and co-conspirators entered into and participated in a combination and conspiracy to suppress and eliminate competition by fixing auction commission rates charged to sellers (“sellers’ commissions”) in the United States and elsewhere. The combination and conspiracy engaged in by Sotheby’s and co-conspirators was in unreasonable restraint of interstate and foreign trade and commerce in violation of Section 1 of the Sherman Act (15 U.S.C. § 1).
2. The charged combination and conspiracy consisted of a continuing agreement, understanding, and concert of action among Sotheby’s and co-conspirators, the substantial term of which was to fix sellers’ commissions in the United States and elsewhere.
3. For the purpose of forming and carrying out the charged combination and conspiracy, Sotheby’s and co-conspirators did those things that they combined and conspired to do, including, among other things

• participating in meetings and conversations in the United States and elsewhere to discuss sellers’ commissions;
• agreeing to raise pricing by fixing sellers’ commissions;
• agreeing to publish non-negotiable sellers’ commission schedules;
• agreeing to the order in which each co-conspirator would publish its non-negotiable sellers’ commission schedule;
• issuing sellers’ commission schedules in accordance with the agreements reached;
• exchanging customer information for the purpose of monitoring and enforcing adherence to the non-negotiable sellers’ commission schedules;
• agreeing not to make interest-free loans on consignments from sellers; and
• not making charitable contributions as part of the pricing to sellers.

In summary …

Does it appear to me that posting rates on websites, flyers and/or signs constitutes a violation of the Sherman Antitrust Act (or other such legislation?) No.

Does it appear to me that all auctioneers in a particular market charging the same rates constitutes a violation of the Sherman Antitrust Act (or other such legislation?) No.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Customer breaks item scheduled in online auction

Bob Morris, Auctioneer has an online auction scheduled to start Tuesday.

Over 300 lots of glassware, china, figurines and other somewhat delicate collectibles are scheduled to sell to the highest bidders on Sunday night at 6:00 p.m.

Wednesday, one day into his online auction, Tiffany Belmonte arrives at Bob’s auction house and asks if she can preview the items he is offering in his online auction. Bob says, “Sure, take a look around,” and Tiffany begins to inspect Bob’s inventory — most notably the Hummel figurines.

Not more than fifteen minutes pass when Bob hears a disturbing sound, and turns to see that Tiffany has dropped one of the Hummel figurines on the floor — breaking it into many pieces.

Bob discusses with Tiffany that this Hummel figurine is listed in his online auction, and described as “perfect” with no cracks or other imperfections — hardly the current condition after falling from Tiffany’s hand.

Tiffany expresses her sincere regret and asks if she can pay for the Hummel figurine. Bob thinks a minute, and says:

“Well, Tiffany, those bidding still think it’s perfect, so why don’t you agree to pay one bid (one increment) over the highest bid on Sunday night, and we’ll accept that as fair compensation?”

Tiffany agrees to Bob’s suggestion, and plans to contact Bob Monday morning after the auction to pay for the Hummel figurine.

Bob registers Tiffany for the online auction and enters a bid of $1,000 on the Hummel figurine in question. Her bid will be executed competitively and since this Hummel figurine has never sold for any more than $300, he feels certain her bid will not exceed $325 or so.

Yet, this $1,000 bid nearly ensures her winning even if some other bidder bids well beyond what Bob feels is current market value.

The online auction continues on Thursday … Friday … Saturday and into Sunday and Bob watches as bidders from throughout the United States and around the world place bids. Bob pays particular attention to “Tiffany’s” Hummel figurine — which by Sunday at 5:00 p.m. was only bid up to $125.

Bob and his wife Florence go to dinner around 5:30 p.m. and watch the auction from Bob’s smartphone. As the bids begin to close around 6:00 p.m., Bob’s phone shows that with 30 seconds left, “Tiffany’s” Hummel figurine is still at $125.

Bob and Florence order dessert and plan to review the auction results after they get back home. They arrive home at about 7:30 p.m. and Bob sits in his office to do just that.

As the screen loads on his laptop, Bob is speechless as “Tiffany’s” Hummel shows a final selling price of $1,050 and a buyer in North Korea.

Unbeknownst to Bob, Tiffany is also watching the auction and sees that she isn’t the buyer on the Hummel figurine she broke. She calls Bob at home to ask what they are to do now?

Bob thinks possibly the best solution will be to contact the buyer in North Korea and inform him that the Hummel is broken and then have Tiffany pay $1,100 for the Hummel, since that would be one bid more than the highest bid.

Tiffany reluctantly agrees, noting that she expected to pay about $200 for the broken Hummel. Nevertheless, Bob calls his client (Tim Summers) to inform him as to what has happened. Bob gets Tim’s voice mail and leaves the following message:

“Tim, Bob Morris, Auctioneer here. Your auction went great with just one hiccup. Lot 127 of the Hummels was broken the Wednesday prior to the close of the auction. The person who broke it agreed to pay one bid more than the highest bid, and we’re going to tell the South Korean online buyer that the Hummel was broken following the auction’s close — no big deal — just wanted to keep you in the loop and we’ll take care of everything; you have a good one!”

About 10 minutes later, Bob’s phone rings but he misses the call. A few minutes later, Bob checks his voice mail:

“Bob, it’s Tim Summers. Say, I got your message, and that Hummel Lot 127 was won by a South Korean bidder? I think that was my brother Gary who lives over there. He always wanted that Hummel and it had our mom’s initials on the bottom of it, where she signed it back in 1949. You say it was broken back on Wednesday? I’m a bit unclear as to why I’m just finding this out … give me a call when you get a chance.”

One can easily see that this auction has evolved into a difficult situation for the seller and Tiffany Belmonte — and a more difficult situation for Bob Morris, Auctioneer. What’s the cause of this difficulty? Bob Morris forgot his fiduciary responsibilities.

As we wrote about several years ago, auctioneers owe their clients certain duties: http://mikebrandlyauctioneer.wordpress.com/2009/11/18/what-do-auctioneers-owe-their-clients/. The particular duty violated here is “Disclosure.”

The instant Tiffany broke that Hummel figurine, she was breaking Tim Summer’s Hummel figurine. Bob had a duty to inform Tim about the damage, and ask (not tell nor mandate) what steps should be taken for Tiffany to compensate Tim. Instead, Bob acted unilaterally and without authority and now has a mess on his hands — a mess he brought on himself.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.

Discussing commissions with competitors

Auctioneers discuss business on various discussion forums and frequently, some auctioneer will ask a question such as this:

“I’ve been an auctioneer selling horses every Friday for nearly 10 years. I just got a call to sell some antique furniture and other collectibles.

Because I’ve never done such an auction, I wonder if others can post what they normally or customarily charge (commission, fees) for such an auction. Thanks!”

Technically, colluding on price amongst competitors, also known as horizontal price fixing, is viewed as a per se violation of the Sherman Antitrust Act regardless of the market impact or alleged efficiency of the action.

Yet, it’s important to note that the United States Supreme Court has consistently ruled that such is not a violation within the context of ethics and/or public safety.

The thought here is that if such collision results in a higher degree of ethical behavior and/or an increase in public safety, then it is indeed permitted activity.

What is a per se violation? A violation that is inherently so. In other words, obvious, and “in itself” a violation.

As a side note — in 2007, the United States Supreme Court ruled that vertical price fixing by a manufacturer and its retailers, also known as retail price maintenance, is not a per se violation.

Nevertheless, we explore here auctioneers discussing commissions with their competitors. Such discussions take place in person, via email, on discussion forums, and otherwise. We suggest two important points here:

• The actual discussion amongst competitors itself is not a violation of the Sherman Antitrust Act.

• Even if such discussion results in collusion, such action is not a violation of the Sherman Antitrust Act if it promotes professionalism and/or ethical behavior.

Our auctioneer here who has sold horses at auction for nearly 10 years has little knowledge of what to charge a potential client for an antiques and collectibles auction. Therefore, he asks his fellow auctioneers on a discussion forum for their help.

What is the potential problem here?

If it was found that because of this post on a discussion forum, seven other auctioneers belonging to this group posted that they charged a certain percentage, and then other auctioneers of this group adjusted their rates to this same percentage — to the detriment of the public, or as the courts have ruled:

If such creates inappropriate economic harm or if it unreasonably harms competition …

… then such postings on a discussion forum might be used to substantiate a violation of the Sherman Antitrust Act.

Or, they might not, especially if the discussion and related postings did not result in economic harm nor harm competition, or the discussions were within the context of ethics and/or public safety.

And, we should note that the issue here isn’t the “discussion forum” itself as such collusion could take place in person, via email, or otherwise. The discussion forum platform gets the most attention because it provides a publicly accessible permanent record of such — different from say a telephone conversation which is typically unrecorded.

Can an auctioneer discuss commissions with competitors? Yes, that is completely permissible and not a violation of the Sherman Antitrust Act; can an auctioneer discuss commissions with competitors with the intent of (or resulting in) economic harm or harm to competition? No, this would be a violation of the Sherman Antitrust Act.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction and. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.