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This post arises out of a request of an attorney some time ago that we, as an auctioneer, require any bidders who were related to the decedent to provide a “pre-approval letter,” while not requiring other bidders, who were not family, to provide the same.
Our answer to our attorney in this case was, essentially, “We can’t do that.” As we explore this issue here, you’ll see that we suggest your answer as an auctioneer, in similar circumstances, be the same.
This issue basically divides into two issues:
- Can an auctioneer give a bidder an unfair advantage?
- Can an auctioneer restrict a bidder with an inequitable disadvantage?
First, it is clear that auctioneers can discriminate (and must discriminate) between bidders based upon their bid amounts. An opening bid of $100,000 is treated differently than another bidder’s opening bid of $95,000, for example.
In regard to giving a bidder an unfair advantage, there is ample evidence this is bad practice.
Without citing the specific cases, I was able to find three such cases in state courts, all east of the Mississippi River. All three involved an under-bidder claiming that the high bidder (and winning bidder in these cases) was afforded an unfair advantage.
Specifically, one such case involved the auctioneer having terms and conditions including requiring all bidders to tender a $10,000 deposit to obtain a bidder number — except that one bidder notified the auctioneer prior to the auction that he, that bidder, had misread the advertisement, and had a cashier’s check for only $5,000 (not $10,000) with him. The auctioneer allowed this bidder to bid, and he was the high bidder. The runner-up bidder sued and won damages due to the auctioneer providing the high bidder better terms than the runner-up bidder, the plaintiff.
A similar case I found involved the high bidder finding out after the auction that another bidder was offered seller financing, while other bidders including him were not offered such financing. Upon discovering that the potentially-seller-financed bidder took the bidding from $50,000 to nearly $90,000, the high bidder was awarded damages including the $40,000 additional he had to bid due to the auctioneer’s (seller’s) providing the other bidder an unfair advantage.
In regard to restricting a bidder with an inequitable disadvantage, there is less court evidence of this being bad practice, but still may be considered unwise.
Some auctioneers have had trouble with some buyers in the past, including bad checks, non-payment altogether or not removing items per the terms and conditions, etc. In these cases, many auctioneers tell these “problem” bidders that they must pay cash, or not buy anything that can’t be removed in a timely fashion — in other words, alter the terms and conditions to restrict a bidder.
While it would appear that it would be difficult for any other bidder to complain about another bidder having to pay cash, while he can pay with cash, credit, debit or a check, for example, another type of potential claim might be made — by the seller.
The seller might see that a certain bidder was inequitably disadvantaged, and claim prices were dampened due to less bidding, causing him to net less in proceeds. While I’ve not found a case just like this, it would seem that to avoid this potential litigation, problem bidders should be treated the same, or if treated differently, only with the client’s prior consent.
In summary, of course if an auctioneer gives any bidder an unfair advantage, he is inequitably disadvantaging all the other bidders; similarly, if one bidder is restricted with an inequitable disadvantage, then all other bidders are provided an advantage. This seems to be a slippery slope to tread, treating any bidder differently than any other.
Can auctioneers treat bidders differently? Yes, they must in regard to their bid amount. Otherwise, a good rule to remember might be, “treat all bidders the same.”
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 Executive Director of The Ohio Auction School.