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Auctions are all about getting bids … from bidders. Yet, it hardly takes any effort these days to find an auction where the auctioneer is advertising an “opening bid of $500” on an item possibly worth tens of thousands of dollars.

National Public Radio (NPR) recently conducted a radio show from an auction where bank owned homes were being offered to the public at auction. This was a reserve auction, where the seller (the bank) can accept or reject any offer, and/or withdraw the property up until the auctioneer announces “Sold!”

Most all these same homes had “opening bids” of $500, $1,000, or other such trivial amounts. Yet, many did not sell even with bids far in excess of these opening bids. Let’s explore a few issues regarding this practice with some of the actual facts from the particular auction NPR covered:

  • Any type of “bid” is normally offered by a bidder. For anything to be sold at auction with an “opening bid” advertised prior would suggest that this is the minimum amount acceptable as a bid. If this is indeed the case, better, more clear wording could be used, such as “minimum opening bid,” or the like. However, if an opening bid or minimum opening bid is denoted, this should be an amount the seller will accept if no other bids are offered. To suggest you might buy a house for $500 and bid up to $87,500 and are still turned down by the seller is nothing short of deceptive.
  • Some auctioneers argue that this “opening bid” is merely a number to kick off the auction — and informs bidders that “We’re not starting the bidding at $1.00 or any such number on any of these houses today.” Well sure, we understand the convenience of a starting bid in that regard. Yet, what is the strategy, outside of deception, to start the bidding at $500 when a bid of 175-times that is not acceptable? If a house has to bring 80-some-thousand dollars in order to sell, why not tell the public the starting bid (or opening bid) is just that?
  • Does an opening bid of $500 or other such amount on a $87,500 house really save a lot of time and add convenience? If I’m the auctioneer, and asking for bids on a house worth $87,500, would it be unlikely that someone might just blurt out “I’ll give you $500 for it!” even with no published minimum bid at all? Of course. In fact, the actual opening bid would almost assuredly be much more than $500. It seems clear the printed “opening bid” isn’t to ensure a reasonable starting bid at the auction, but rather to entice bidders to think they might get an $87,500 house for $500.

I have not been privy to any such conversations, but can tell you I know this is how some auctioneers handle pre-auction inquiries using this tactic:

    Caller: “Hi, I’m interested in one of the houses upcoming at your auction.”
    Auct: “How can I help you?”
    Caller: “I’m interested in 542 Locke Street, and the opening bid is $500?”
    Auct: “Yes, that’s right.”
    Caller: “So, I show up, register, and then bid on the house?”
    Auct: “Right, these are great opportunities …”

How might a better, more honest, forthcoming inquiry be handled?

    Caller: “Hi, I’m interested in one of the houses upcoming at your auction.”
    Auct: “How can I help you?”
    Caller: “I’m interested in 542 Locke Street, and the opening bid is $500?”
    Auct: “Well, that $500 is only the starting point, our client isn’t accepting those low starting bids on any of their houses.”
    Caller: “So, I’m not getting that house for $500?”
    Auct: “No you’re not … I would expect to pay $85,000 or even more on that one.”

In every state in the United States, auctioneers are charged to properly represent their clients (typically the seller). This auction, and many like it with these deceptive opening bids, are no exception. Still, as then the buyers are not clients, but rather customers, certain duties are commanded by many laws and precedent including many consumer protection regulations (and as outlined in my blog: What do auctioneers owe their customers?:

    • Honesty
    • Integrity
    • Fair Dealing

In fact, the National Auctioneers Association has written as much as part of their code of ethics:

    ARTICLE 2 (in part)
    Members must, in conducting an auction, deal with customers in a manner exhibiting the highest standards of professionalism and respect. Members owe the customer the duties of honesty, integrity and fair dealing at all times.
    ARTICLE 11 (in part)
    Members shall avoid misrepresentation or concealment of pertinent facts. There is an affirmative obligation to disclose adverse factors of which they have personal knowledge.

The more we see deceptive practices used in the auction profession, the more it damages the reputations of all auctioneers and the auction business overall. Without the confidence of the general public that we uphold a high standard of practice, our industry will suffer.

And, one more observation: How likely is this bidder, thinking he might buy a house for $500, to ever attend another auction, tell his friends what a positive experience he had, or ever hire an auctioneer?

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.