Recently, I wrote about how auctioneers sometimes sell choice of items to the highest bidder. In that format, the high bidder normally can take 1, 2, 3 or more of whatever items were identified prior, and the price is multiplied by the number chosen for a total price.
That complete blog is here: https://mikebrandlyauctioneer.wordpress.com/2010/01/03/high-bidder-gets-choice/
Many times across the United States, everyday, auctioneers then do something very interesting: They offer the “backup bidder” choice of any remaining items at the same price as the high bidder. In fact, they may then extend this privilege to others in the crowd after the backup bidder is done choosing.
Let me say here, I find this interesting, primarily because it doesn’t constitute selling items at auction (or by auction) at all. Legally, this is private treaty negotiation, with offers extended essentially from the auctioneer (and his seller) to buyers who if they accept the offer, can choose items they desire. On the contrary, selling by auction is made up of offers from buyers, and acceptances by auctioneers (sellers.)
Because this “backup bidder” or “other interested party” tradition is extending offers to non-high-bidders, it is counter to the likely agency agreement most auctioneers have with their clients. Clients normally engage auctioneers to sell their items “at auction” or “by auction” and not simply “at an auction,” via private negotiation. In other words, most auctioneers doing this type of thing are doing it without the express permission of their seller, and therefore are in violation of their fiduciary duties.
The argument is well-founded in tradition that this is proper. If the high bidder is at $75 and chooses 3 pocket knives, and the auctioneer can get $75 from the backup bidder, or anyone else, for one or more pocket knives, that will result in more than if the remainder of the knives were offered again by choice, or sold some other way. I disagree.
If the bidders know that the backup bidder will be offered at the same price (in this case $75), then many bidders will not bid again, such as $80, because they probably will be able to choose a knife or two, after the high bidder, and for $5 less. This happens especially if the backup bidder knows the preferences of the other bidder.
Also, many times the second time choice is offered, prices are higher. Surprised? It happens all the time, as supply decreases from the first choice, and demand is only lessened only a bit. By essentially maintaining demand and lowering supply, prices normally go up. Of course, if the remaining items are not as much in demand, then demand will fall, but it would also result in nobody taking a second choice anyway.
I would be remiss if I didn’t mention that some auctioneers use choice and sell first choice to the high bidder, and then offer the backup bidder, and then offer others by saying “Does anyone else want any?” This last question “Does anyone else …” is an offer and if 7 people accept, and there’s only 6 pocket knives left, what happens? I’ve seen auctioneers say, “I saw you first, and then you, and then you …” Oh really? They claim they sell the next choice to the first person they noted that accepted their offer? When there are 7 hands in the air?
Legally, if an auctioneer offers and 7 people accept, he is in breach of contract with anyone who doesn’t get a knife. In fact, he might be in breach of contract with anyone who doesn’t get the knife they want — as he did say “Does anyone else want any (any knife) …?” Basic contract law suggests that if you offer one item to two people, and they both accept, you better find another item …
What could be better than all this? Sell the remaining knives at auction. Open the bidding again, and auction them off to the high bidder — by choice, or not, and maximize the seller’s return. Sell them by inviting offers and await for offers from buyers. Sell them without running the risk of breach of contract with any buyers (i.e. anyone who accepts the auctioneer’s offers), and sell them within the special agency arrangement that’s likely in place with your client.
I think selling by choice has merits, if used sparingly and properly — which includes not offering remaining items to anyone else, including the backup bidder.
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.