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absolute auctions, forced sale, right of withdrawal, UCC 2-328, with reserve auctions, without reserve auctions
With so many auctions going on, what are the different types that are encountered? Basically, in the United States and territories, there are two types:
1. With reserve
2. Without reserve
These definitions are derived from the UCC Section 2-328. This section of law has been adopted by 49 states (all except Louisiana) although Louisiana follows this section generally when ruling on auction cases in courts.
The “with reserve” auction can come in several varieties. Sometimes the owner reserves the right to accept or reject the high bid. Other times, the auctioneer and seller agree to publish a minimum bid that the property will not sell below. Sometimes too, the auctioneer and seller have a undisclosed minimum bid which only they know, and is only disclosed if the bid reaches that amount during the auction, or following the auction.
At “with reserve” auctions, the seller may bid if that right is disclosed to the audience to avoid buyer recourse. The seller may withdraw the property from the auction anytime prior to the auctioneer declaring the property “sold.” If the seller bids at a “with reserve” auction, courts have ruled that as a form of withdrawal.
The “without reserve” auction is also known as an “absolute” auction, and there can be no reserve of any kind, including no minimum nor reserve amount. Too, at an absolute auction, someone such as the seller or other party must guarantee that any liens are paid up through the closing of the item (mostly applicable with real estate).
The seller is NOT permitted to bid at a “without reserve” auction, announced or not, unless it is a “forced sale” meaning a sale that is conducted without the consent of the owner (for example, a seller COULD bid on his own car that had been repossessed because the sale of the car is being forced upon the seller without their consent). Otherwise, the seller, nor anyone on the seller’s behalf can bid at a “without reserve” auction as this would constitute a withdrawal of the property.
An interesting difference between “with reserve” auctions and “without reserve” auctions is that in a “without reserve” auction, once the item is put up for sale, and a bid is received within a reasonable time, the item may not be withdrawn.
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.
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Aaron Traffas said:
What if an item is advertised as absolute and a pre-auction Internet bid is received weeks before the event. Would that bid prevent the auction from being postponed or cancelled days prior to the event?
mbrandly said:
The UCC 2-328 speaks somewhat vaguely, but most courts have ruled that the auction can be canceled up until the opening of the auction, and an invitation for bids. So, the question becomes, when was the auction “opened up,” and when was there an “invitation for bids?”
Your question uses the term, “pre-auction,” and so that would suggest prior to the opening of the auction.
Since the UCC 2-328 is about 50 years old, not much precedent either in the original writing, nor in the courts at this point. I would suspect a case is in the near future that settles when the auction opens, and when that invitation is commenced.
So far, the only case I can find held that the auction was not open until the actual day of the auction, and the pre-auction offers were merely offers to make offers … so the actual offers were made day-of.
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David Baker said:
Does a Reserve with an Auctioneers Discretion constitute a Reserve Auction or a Without Reserve?
Seller and Auctioneer agree a Reserve Amount of say $1,000 and additionally seller agrees that during the auction the Auctioneer has the discretion to sell the item at up to say 10% less than the $1,000, ($900). The highest bid on auction day is $920 so Auctioneer exercises his/her discretion and sell at $920.
Mike Brandly, Auctioneer, CAI, AARE said:
That is a “with reserve auction” as there is a reserve and the property isn’t selling to the highest bidder regardless of price.
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