First, can the auctioneer bid at his or her own auction? In almost all states (one exception being Pennsylvania), the auctioneer is not prohibited in any way from bidding at his own auction. A few states require such bidding be preceded by a disclosure to the auction crowd that the auctioneer reserves the right to bid. As well, some states require (and it is prudent anywhere) the auctioneer have the consent of the seller for such bidding.
Kurt Bachman, a noted attorney at law with Beers, Mallers, Backs & Salin, LLP, practicing in LaGrange, Indiana, and attorney counsel for the National Auctioneers Association disagrees. He says the auctioneer is advised against bidding because of the potential liability of being accused of selling “quickly” to himself or otherwise favoring his own bids more than other bids.
We respectfully disagree, as Mr. Bachman’s argument appears to be based upon the assumption that auctioneers are intrinsically unethical. To suggest such action be avoided, because it will invite those auctioneers litigation completely ignores a simple argument — that by not bidding, there could be equal litigation.
The auctioneer is charged, among other duties, with maximizing the gross proceeds for his client. Let’s say the auctioneer’s client has a wonderful Rolex wristwatch and hires the auctioneer to sell it by auction. The auctioneer is willing to pay up to $15,000 himself to own the watch, and yet doesn’t bid at the auction because he is trying to avoid the appearance of impropriety; the bidding reaches $9,250 and nobody else will bid more, thus the watch sells for $9,250.
The seller just lost out on $5,750 in potential additional gross proceeds. By the auctioneer not bidding, he did not maximize the gross proceeds for his client. By not bidding, he is in breach of his fiduciary duty to his client, and invites a legitimate lawsuit.
Should the auctioneer bid? Our answer is yes, if:
- The seller has knowledge and consent
- The auctioneer wishes to bid
- The buyers are informed of this right to bid
- The governing law does not prohibit it
We well understand that some bidders are suspicious of auctioneers bidding, as they perceive, rightly so in some cases, that the auctioneer is merely “running the bid” against them. Indeed, this does occur, and is all too common in many auction venues. Yet, there is a big difference between the auctioneer bidding for himself and the auctioneer taking bids out of thin air to increase prices. In fact, this is settled law per the United States Supreme Court in Veazie v. Williams, 49 U.S. 8 How. 134 134 (1850)
There is also the argument, made in part by Mr. Bachman, that at an absolute (without reserve) auction, neither the seller, nor an agent for the seller may bid — and therefore, since the auctioneer is an agent for the seller, auctioneers cannot bid at absolute auctions.
Again, we disagree. Agency duties are outlined by clients in different manners. People can be general agents, limited agents and special agents. Each type of agency describes a set of rights the agent can perform on behalf of the client. Auctioneers act as special agents, with a specific set of rights to perform for the client (such as the right to possess, display, advertise, and take bids upon certain items). If the right to bid for the seller is not extended per the agency agreement between the auctioneer and client, then the auctioneer has no right to bid on behalf of the seller. Yet, this hardly prohibits them from bidding for themselves.
Lastly, in real estate auctions, there is the issue of “dual agency” which also plays a part in auctioneers bidding. It is difficult, at best, to maintain neutrality, and keep all information confidential from other parties, when conducting a real estate auction. So, it is my opinion that bidding on a real property while bid calling is likely prohibited by real estate law in most jurisdictions.
We agree with Mr. Bachman that auctioneers must do everything they can to improve on their reputations, and maximize their client’s position. We disagree, however, that auctioneers bidding for their own interest violates this premise if handled in an open, disclosed and fair manner.
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.face book.com/mbauctioneer. He is Executive Director of The Ohio Auction School.