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Anyone who has participated in any type of auction is probably familiar with bid increments. An increment is an increase of some amount, over some number.

For example, if a 2009 Case IH Magnum 335 is selling at auction, and the auctioneer has $175,000 is asking for $177,500, then the bid increment is $2,500 ($177,500 minus $175,000).

For those familiar with buying items on www.ebay.com, eBay’s increment table is well known; for example, with www.ebay.com, if a bid of $1,000 is made, the next bid must be at least $1,025. See their complete increment table here: http://pages.ebay.com/help/buy/bid-increments.html

Since the concept of bid increments is widely understood, we hope to analyze here if bid increments are permitted and/or legal in the United States. Our question could alternately be formed as follows: Can an auctioneer refuse an increment which he deems too small?

What laws are involved in bid increments? We first look to the UCC 2-328, which 49 of the 50 states in the United States has adopted as state law. What does the UCC 2-328 say about bid increments?

Nothing.

The UCC 2-328 talks about other things, such as how with reserve and without reserve auctions are conducted, seller withdrawal, bidder retraction, the finality of (or the lack thereof) the “hammer falling …” but doesn’t quite say either way if, for example, the auctioneer could refuse a bid of $175,500 for that 2009 Case IH Magnum 335.

So, can an auctioneer refuse a higher bid?

What is interesting about the UCC 2-328 is that there is probably the presumption that selling at auction is the same as “selling to the highest bidder.” Yet, the UCC 2-328 doesn’t use those words, nor does it suggest that an auctioneer could (or couldn’t) refuse a bid which he felt was insufficient to upset a prior bid.

If we look at state laws in particular, which differ from state to state, we can find some states which have in their statutory law that:

    “an auctioneer may establish reasonable bid increments.”

Then, there are states which say that if this 2009 Case IH Magnum 335 is selling without reserve inside their state’s borders, that the words “without reserve” mean selling to the highest bidder, and lacking the ability to establish reasonable bid increments, this $175,500 bid would have to be accepted.

These same states typically suggest as well that if this 2009 Case IH Magnum 335 is selling with reserve, that then it isn’t selling to the highest bidder necessarily (because the seller could withdraw the tractor), and seem to then infer that an insufficient bid increment can be refused.

Further, could an auctioneer require bidders to accept terms and conditions which included that he, as the auctioneer, can decline an offer which he deems is less than the required increase over a prior bid? Or, can the auctioneer require prospective bidders to accept a standard bid increment table, such as www.ebay.com uses?

We discussed bidders waiving rights granted by state law here: Can the auction bidder waive rights granted under state law? and conclude that generally in this case, it would be difficult to enforce those increment restrictions if questioned by a court, especially if state law dictated any increment (increase) had to be accepted.

Changing our focus here, let’s ask another question: Why would an auctioneer want to refuse any increase in the bidding over a current bid? Isn’t more money always good for the auctioneer’s client? What client wants less for something they are selling?

The argument most auctioneers use is along the lines of sellers don’t always see the forest for the trees. Those arguments include:

  • If this auctioneer selling this 2009 Case IH Magnum 335 refuses a bid of $175,500, and repeats his demand for $177,500, maybe that bidder will acquiesce and bid the $177,500.
  • If this auctioneer selling this 2009 Case IH Magnum 335 sells-out the $175,000 bidder for a $500 increase, sometimes that $175,000 bidder will take offense to this, and not bid again out of spite. Whereas if the next bid increment means a bid of $177,500, for example, the $175,000 bidder may more likely consider that fair, and bid again.
  • Generally, taking such a small increment invites others to do the same, making the auction move slower, and ultimately, more than likely, resulting in less gross proceeds as bidders leave the auction prematurely due to the auction taking so long.

What bidders find fairly universal at any auction is some uniformity in bid increments. Like www.ebay.com, most auctioneers ask for a higher next bid when the actual bid amounts get larger. Customarily, a $5.00 increase over a $10.00 bid would be deemed acceptable, where a $5.00 increase over a $10,000 bid would not.

Too, most bidders find uniformity regarding bid increments in/around the same bid amounts. For example, most auctioneers that had a bid of $175,000 for this 2009 Case IH Magnum 335 tractor would likely accept a bid of $177,500 and then immediately invite the $175,000 bidder to bid again at $180,000. This would constitute an increase of $2,500 over the $175,000 bid and that same $2,500 increase over the $177,500 bid. In this way, the auctioneer is treating both bidders in an equal fashion in this regard.

It is not unusual for auctioneers to only increase the increment at what are considered milestones in the bidding. For example, maybe the bidding for this 2009 Case IH Magnum 335 goes to $180,00, $182,500, $185,000, $187,500, $190,000, $192,500, $195,000, $197,500, $200,000 and then the auctioneer might up the increment to $5,000 and ask $205,000 at this $200,000 milestone.

As well, it is not unusual for an auctioneer to ask for an increase in the bidding when a bidder ups the increment. For example, if the auctioneer had $175,000 for this 2009 Case IH Magnum 335 and a bid came in at $177,500 and then $180,000 and the auctioneer then asked $182,500 and a bidder yelled out, “I’ll give you $185,000!” With that being a $5,000 increase, the auctioneer would likely ask the $180,000 bidder to bid $190,000, thus staying with this new $5,000 increment.

And, if a bidder cuts the bid, i.e. offers half the increment being suggested or some other lesser amount, what do auctioneers generally do? If they accept the lesser amount, then they usually stay in that same new increment when they go back to the other bidder. For example, if an auctioneer had $175,000 for this 2009 Case IH Magnum 335 and was asking $177,500 and someone offered $176,000 — if that $176,000 was accepted, then it is likely the auctioneer would stay in this new $1,000 increment and ask the $175,000 bidder to bid $177,000.

Could an auctioneer be required by fiduciary duty to only accept certain increments in the bidding? Could the seller of this 2009 Case IH Magnum 335 require that the auctioneer only accept $5,000 increases in the bidding over $200,000? If such a seller requested this, and in particular this was delineated in the contract between the auctioneer and his client, then the auctioneer would have the obligation to follow his client’s legal instructions.

Most states as of the date of this article do not regulate online auctions in the same fashion as live auctions. Therefore, it is quite possible a state would say that certain minimum bid increments are (or are not) enforceable in a live auction, and be mute about that same subject if the auction was purely online.

Lastly, is there a minimum bid increment due to our currency? In the United States, since 1857, there have been no currency minted less than one cent. Of course, someone could still have a one-half cent coin in their pocket? Would it be reasonable that the minimum increment in today’s economy would be one cent? How would a court view an auctioneer’s argument that $1.00 was a reasonable minimum independent of there being no minimum increment allowable?

Considerations for auctioneers in regard to bid increments include:

  • Is the auction in a state that permits the auctioneer to set “reasonable increments?”
  • Is the auction in a state that equates “without reserve” to “selling to the highest bidder?”
  • Is the auction in a state that equates “with reserve” as not necessarily selling to the highest bidder?
  • Is the auction advertised as “selling to the highest bidder?”
  • Does the contract between the auctioneer and seller dictate certain increments?
  • Do the terms and conditions dictate that bidders must abide by certain increments?
  • Do the minimum or required increments have the knowledge and consent of the client?
  • Have the minimum or required increments been disclosed to bidders?
  • Do the terms and conditions dictate that bidders agree the auctioneer may set standard increments and/or determine increments on-the-fly?
  • Is the auction being conducted live, live and online both, or just online?

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.