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Let’s say an auctioneer has an upcoming auction of heavy machinery including a Caterpillar 973C Track Loader.

This particular loader is in almost new condition and given the features and hours, the owner is expecting to realize about $250,000 for it.

A Caterpillar dealer from Harrisburg, Pennsylvania stops in to look over this particular loader about a week before the auction. The dealer informs the auctioneer that he is willing to offer the auctioneer $200,000 for the track loader — in other words, the auctioneer can “start the bid at $200,000” at the auction.

Let’s stop here to analyze what has occurred.

  • An interested buyer has indicated to an auctioneer a bid of $200,000 on an item scheduled for auction about a week ahead of a scheduled auction.
  • If this offer is accepted by the auctioneer, does the auctioneer’s contract grant him authority to accept offers prior to the scheduled auction?
  • If the auctioneer accepts this offer of $200,000 on behalf of his seller, prior to auction, we assume this now formed contract is contingent upon not receiving a higher bid at the auction?
  • Is this offer and acceptance also contingent upon the offeror not retracting the bid prior to the auctioneer announcing, “Sold!?”
  • If this is an absolute auction, does this offer and acceptance a week before the auction extinguish the right of the auctioneer to cancel the auction?

Hold the phone. Why all the questions? Because these are the common questions when a pre-auction offer is submitted, but not under the guise of it being an absentee bid.

Any offers tendered prior to the official start time of the auction are essentially absentee bids. Absentee bids can be executed competitively “as if the bidder is bidding for himself,” or can be started out at any certain amount as agreed by the person submitting the absentee bid.

No bids (offers) prior to an auction dictate that the auction is now underway, or commenced. The fact that auctioneers accept absentee bids doesn’t mean they actually accept the offer in a form of acceptance, forming a contract like a bid-calling contract.

On the contrary, if any contract is formed, it is a collateral contract that the auctioneer will execute the absentee bid on behalf of the offeror, thus forming bid-calling contracts at the auction.

Now, let’s look at a similar situation: This Caterpillar 973C Track Loader is also being offered online to allow bidders to place bids prior to the auction. A bidder from California places an online bid of $150,000 almost immediately after the online catalog appears. A day later, a bidder from Canada bids $160,000 online, and soon after another bidder from Arkansas bids $175,000 online …

Here again, we ask: Has the auction begun? Have these offers prior started the legal and contract structure of the auction itself? Can an absolute auction be canceled after several online bids have been placed?

I think it is fair to think of all this online bidding as a competitive mechanism to discover the highest absentee bid to be placed at the actual auction. In other words, if the $175,000 bid is the highest received online, then the auctioneer can say, at the auction, “Folks, we have a very nice Caterpillar 973C here, and I have an opening bid of $175,000 …”

However, the potential problematic nature of accepting competitive fashioned absentee bids is that the very process in which these bids are executed very closely resembles an auction itself. Would it be fair to assume that some bidders would consider the auction already underway as they bid online, prior to the auction’s publicized start time? Yes, it would.

So, it is worth noting here, that despite no court of notoriety taking up this issue, being the defendant in such a case shouldn’t be on any auctioneers’ to-do list.

Auctioneers are advised to carefully consider how any bids are entertained prior to the start of a live auction. In order to ensure legal compliance, and protect the client, any and all bids (offers) prior to the auction should be considered absentee bids, which will be executed at the auction. In this way, the auctioneer and seller retain their rights to cancel/withdrawal, and yet reap essentially the same benefits of pre-auction interest.

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.