auction, Auction Law, auctioneer, auctioneers, auctions, bidders, buyers, courts, disclosure, forced sale, forced sales, last good faith bid, state law, types of auctions, with reserve, without reserve
One right that is sometimes given up, but other times not, is the right to bid on that property at the auction.
Why do sellers want to bid on their own property at auction? Several possibilities exist:
- To make sure it demands a certain price, or otherwise they’ll retain ownership
- Because they have changed their mind about selling that property, and wish to keep it
- They wish to avoid a certain other person or entity from acquiring ownership of their property
- To increase the “apparent” market price of such property
For these or other reasons, sellers do wish to bid on their own property at auction, and do.
What do the laws in the United States, and what have the courts in the United States, said about such practice? Basically, the courts have consistently stated that:
- By the seller bidding, either himself or by proxy, such action constitutes a reserve
As we know, there are only, and distinctly two types of auctions. We discussed this in our article about the Different Types of Auctions. Auctions are either with reserve, or without reserve; period.
Therefore, if the seller bids then a reserve has been placed on the property selling — thus the auction would have to be a “with reserve” auction, and not a “without reserve” auction.
What does state law say about the seller bidding? First, almost all state law says that if the seller may only bid at a “with reserve” type auction. Secondly, that if the seller wants to reserve the right to bid, that such must be disclosed to the other bidders. Third, that if the seller bids without such disclosure, that the high bidder on property on which the seller bid can take the property at the last good faith bid prior to the seller bidding.
However, there is a consistent exception to all of this, which state law and the courts have upheld. At a forced sale, no matter the type of auction, the seller may bid without any disclosure. Such auctions are often court-ordered events, such as foreclosures, repossessions and the like. We discussed this in more detail in our article about Auctions and Forced Sales.
Auction bidders detest the seller (the owner) bidding on property in which they (the bidders) are interested. Few things deter bidders from an auction to any larger degree than sellers bidding, or otherwise protecting their property from bidders.
While it is difficult for auctioneers to determine if sellers are bidding at a live auction, especially if those sellers are bidding by proxy, the Internet has opened up an almost completely undetectable method for sellers to bid undetected by auctioneers.
Most experienced auctioneers have a pretty good sense if the seller is bidding or if someone is bidding for the seller at a live auction. Facial expressions, bidding habits, posture, eye contact, and other mannerisms contribute to the data auctioneers use to determine if the seller or proxy for the seller is bidding.
The Internet allows bidders to hide their appearance completely, and also hide their identity, thus contributing to more undisclosed and illegal seller bidding than ever before.
Sellers can bid at a with reserve auction, so long as the right to bid has been disclosed to the other bidders. Too, sellers can bid at forced sales. However, state legislators and the courts have been clear that otherwise, the seller cannot bid on their own property at auction.
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.