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Shill bidding occurs at auctions all over the world every day. Is it a widespread occurrence? I would guess not, but it’s not hard to find. No type of auction is exempt — live, online, live and online, silent, sealed bid, or other.
So what is shill bidding?
Let’s look first at the word, “shill.” Shill means basically to falsely advocate a position in attempts to entice others do follow that lead. For example, Robert opens a music store in Seattle, Washington and Robert enlists his friends and family to blog about how wonderful the service is at this new music store — even though none have even set foot in Robert’s new store.
In our example, here, Robert could himself author testimonials of good service at his own store, but under the disguise of some other name or identity. Therefore, Robert could himself shill on behalf of his own music store.
Now let’s look at the word, “bidding.” Bidding at an auction is the act of communicating an offer to purchase subject property at an auction. People can bid at a live auction, online auction, silent auction or sealed bid auction where the auctioneer invites offers, and the bidders then typically bid accordingly, per the invitation the auctioneer is suggesting.
For example, Vern the auctioneer announces, “Folks, we have this wonderful old trombone, and I’d like a bid of $200.” Bidders have the choice of agreeing to this $200 (thus offering $200) and the auctioneer typically accepting the $200 and then inviting a bid for more, or communicating another offer to the auctioneer, such as, “I’ll give you $50,” where the auctioneer can accept or reject the offer.
Shill bidding then would involve falsely advocating a position in attempts to entice others do follow that lead by bidding at an auction. In other words, Frank is selling his prized 1920’s trumpet and enlists his son to bid on the trumpet to give the impression others should also bid on the trumpet, and ensure it doesn’t sell below what Frank desires to receive.
What shill bidding involves is bidding without the genuine intent to purchase, and rather with the intent to ensure price protection for the seller by one of two methods:
- The shill bids and if the bidding only reaches an amount less than Frank is willing to accept, the shill buys the item, and would then typically pay for the item and return the item to Frank, who would reimburse the shill for his purchase.
- The shill bids with the intent of influencing others to bid, hoping others see his level of interest in the item, and gauge value based upon his bidding. In this scheme, the hope is that if the shill bids an amount, the other interested bidders sense one more higher bid as reasonable.
In practice, shill bidding typically involves a combination of these two methods because, of course, when the shill bids there is the inherent risk no other bids are made, thus requiring the shill to purchase the property, even if the scheme is put in place to influence others to bid higher than the shill.
First, in any forced sale situation, where property is being sold without the seller’s consent, the seller or someone acting on behalf of the seller, may bid.
Otherwise, in a with reserve auction, the seller may bid if that right has been reserved (if the other bidders have knowledge). However, at a without reserve auction, the seller nor someone acting on behalf of the seller may bid.
What are the implications of shill bidding?
For honest auction participants — both buyers and sellers — shill bidding damages the auction process by instilling distrust in the practice. Buyers may avoid auctions where they believe shill bidding is tolerated. Sellers may find lower prices where their items are sold at auctions which potential bidders are avoiding.
Too, auction buyers pay artificially inflated prices by either basing their bids on shill bidders, and/or being pushed by shill bidders to pay more.
For the shill bidder, the consequences can range from being barred from participating in auctions, to civil and and even criminal charges; fines alone to-date have been as high as $400,000 for shill bidding. Most every case of shill bidding resulting in civil charges has involved some type of online auction, where the identity of the bidders is more easily concealed.
Shill bidding is a crime and auctioneers need to do everything they can to help eliminate it from the auction industry.
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 serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.
Mike Brandly, Auctioneer Blog 
I would like to know what can be done if you know shill bidding is going on? There is a local on-line auction, and I have documented several weeks of what is known as shill bidding going on. It has cost me money, and a lot of others that are unaware. What can be done about this? Can you steer me in the direction I need to go? Thank you.
Vicky,
Thanks for your question, and sorry to hear about your situation.
It’s likely this crime isn’t governed by any license agency, but rather the state’s attorney general’s office. I would start there.
Especially if you have documentation, you have a good case. Of course, you can also take legal action (lawsuit) against the online auction company if you wish.
thank you for giving me some direction to go. This is still going on, I have documentation for 7wks of this. Just really gets me as to how they can do this and then smile at you when you go there to pick up your winning bid items. Again, thank you.
How would one go about filing a claim against an auction company who uses unethical tactics in their on-site auctions? Shilling and using house numbers to drive up the bids are a normal procedure at this auction.
If in a license state, the regulatory agency might be the first place. In a non-license state or jurisdiction, the state’s attorney general’s office.
Hi Mike,
With the popularity of auction TV shows nowadays, there are some notions about auctions that may need to be clarified. How would you classify the following: a bidder at a storage locker auction doesn’t really want the contents, however he bids fervently so that his primary adversary “pays dearly.” This idea of “I-can’t-let-the-other-guy-catch-a-good-deal” seems to be one of the main subplots on many of these shows. Have you addressed this sketchy practice in any of your articles?
Bidding on these shows — or at any auction for that matter — without the genuine intent to purchase is a shill bid. What you described appears to be just that.
i was bidding on a bicycle it seemed i was the only bidder but the price went higher and higher ( i had expressed interest in the bike to my friend Frank who was the auctioneer that day) when i lost the bid didnt get the bike, i asked Frank who got that bike? he said the guy in the orange hat there was no guy in a orange hat. several weeks later Frank had his own auction at his farm and the bike was there. can the auctioneer bid on items without telling bidders that he is bidding?
In all states except Pennsylvania, the auctioneer can bid while bid calling. In a few of these states, it is required that he disclose that he reserves the right to bid if he wishes to do so.
From your story, it’s not entirely clear that the auctioneer bid, but it appears that he did. It’s unfortunate this type of thing goes on.
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shill bidding is standard practice in every thoroughbred auction around the world.
if your auction house is primarily Absolute and you have a few Reserves, then it becomes an Reserve auction correct and no longer an Absolute auction. I work for an auction house in Texas and noticed a seller bidding on their behalf to increase the bid. After the auction i spoke to the owner of the auction and said this is illegal for the consignor to be bidding up their own item.
By law, an “auction” is one item or one lot. An “auction event” has many auctions …
Each lot can be either with reserve or without reserve. If the auction event is deemed absolute, then all lots must be. If the auction event is deemed with reserve, then all lots must be.
An auction event with both with and without reserve items (lots) is just that — an auction with some absolute and some with reserve.
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I believe my husband and I were taken for way over a reserve on Hubzu.. We only had one other bidding against us and the first letter a the bidders name is listed! This bidder drove the price up to $300 dollars shy of the list price on a forcloser property. When we received the paperwork to sign the name started with the same as the person bidding against us. When I googled there name it came up that they work for Altisource business solutions which was linked to Hubzu.!!!! Hmmm
I think they should be investigated !
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This is a very interesting post and the comments are equally interesting.
I attend a weekly live auction in a small town in upstate NY. I have been told that the auctioneer, who is also the owner of the auction house, bids as shill. Her MO is that there is no other person acting as a shill. For example, she will say, “I have $50,” and there is no $50 bid. Once I bid on a lot and did not increase my bid after she announced the “highest bid.” The item was “sold” to the highest bidder, who I am convinced did existed only in the auctioneer’s strategy.
The identical item appeared in a new auction 2 weeks later. I said to a staff member, “That was sold 2 weeks ago. I know because I bid on it.” She shrugged her shoulders and said, “I don’t know.”
The auctioneer is devoid of morals and ethics. She lists her auctioneer ID on auctionzip.com, but I can find no record of any such license nor is there apparently any licensing of auctioneers in NYS, only in NYC. How do I document this ongoing practice? And am I accurately describing it as shilling?
Thank you kindly.
My wife and I a think we are onto a new scam being perpetuated by auctioneers. We are resellers of items online that were purchased at estate auctions as are many people. When we are doing our research on items that will be made available at local auction houses we find items that appear to be selling for a high price online and use that as a guide on what we should purchase the item for. In recent months we have found items that appear to be selling for a high price online and after purchasing these items and getting ready to list our items the high selling item we saw online is no longer there and cannot be found anywhere.We have not yet figured out exactly how they are doing it but believe me it is happening at least here in Indiana and we are sure elsewhere as well. Please let people know. RESELLERS BEWARE.
I overheard that one auction companies allows their employees to bid, which I don’t object to, “IF” they see an item that they would truly like to own, and purchase but I have been around guns and guitars for 50 years and can tell condition, value, and what it takes to fix either one, and the value before and after doing so. I examine and grade these items for out of state bidders, and make a small fee. This auction house will sometimes run the same lots through 2,3,4 or even 5 or 6 auctions, and the reneg fee is I think 20%-25% or $400, whichever is greater. On a gun that sells for $900 gun that is only worth $650-$700, which would you chose? Pay $400+ taxes for nothing, or pay $250 more than an item is worth. If it’s a $6000 gun selling for $6800 pay $1200 or $800 more than it’s worth? Hardly anyone is going to pay that reneg fee and go home with nothing, but over 75% of the guns from their last auction, are in this current auction, yet again. THESE ARE SERIAL NUMBERED ITEM THAT I ASCERTAIN THE DATE OF MANUFACTURE BY USING SAID SERIAL NUMBERS. BEING THEY ARE FIREARMS TAMPERING WITH THE SERIAL NUMBERS IS A FEDERAL OFFENSE. ON ONE PURCHASE THE CLERK PUT DOWN A DIFFERENT SERIAL NUMBER ON THE 4473 FORM THAN WAS ON THE GUN. THIS IS ALSO A FEDERAL OFFENSE. I made a comment on that, and the fact that an inordinate number of firearms seem to reappear in numerous sequential auctions. I was promptly ask to leave and barred from the property. I do believe it’s time I called the AG and had some undercover officers try bidding, and take a look. I also KNOW it’s time I paid a personal visit to the ATFE, and had a chat with the head of the local field office. Falsifying info on any ATFE form, on the part of the buyer or the seller, is a federal offense. The spooky fact, is, this auction house disposes of seized firearms for police departments, (mostly municipal, and they also dispose of state police surplus). They have already had some contracts revoked, but I am not at liberty to go into specifics, at this time. This indicates, suspicious activity has been detected, and these organizations, are distancing themselves as a preemptive measure, before things eventually come to the attention of the general public. This company has a pretty bad reputation with surplus and salvage re-sellers, for aggressive and obvious shill bidding. These re-sellers spend all day, every day, buying items at auction. I am using a different email than I usually use. In fact this email is almost never used, so good luck to anyone figuring out who I am. If they do see me again, I will be just to their right, across the aisle, in a court room. I just checked another auction with reserves that were so high, nothing sold. It seems this company’s shill bidding practice is almost just as bad. I find it sad, that they go to these extremes. This is a blatant violation of Uniform Commercial Codes for ethical business practices, compounded with AFTE violations to cover it up, being the bulk of their business is government related. The online bidding service they use also condemns these practices. Being they use an online service, and sell across state lines, the FTC can actually be brought into investigate too.
Bidding without the genuine intent to purchase is shill bidding. The same gun (or whatever) in 2. 3. 4. 5.6 successive auctions is not necessarily illegal, but shows a pattern of illegal behavior.
Do you have a specific question for me? What can I do to assist you?
You answered one of my questions in your comment, and I most sincerely do thank you. When I said “the same gun”, try more like half or more (closer to 66%-75%) of the same GUNS (plural), showed up in subsequent sequential auctions, at least ONCE. (so TWO auctions, for 66-75% of the past auction’s inventory?) No way can that be happening due to ATF form 4473 background refusals, or renegging. It’s absurd even begin to think that any viable reason. Since firearms are serial numbered, it makes so much easier to verify, “Yes, those are the definitely same items.” Should the state consumer affairs office, and or attorney general be made aware of this activity? They have given the auction businesses a huge black eye. I already know that the AFTE wants to know about any shifty record keeping. I now am in Texas as a non-resident to examine and purchase firearms from a huge collection. I am staying for the live auction, and I have been through 4 other days of live auctions, over 3 weeks, from a truly massive estate.
Recently I submitted an absentee bid sheet for some guns being auctioned by one of the big auction names. Nearly every gun in the entire auction went for below or just at the low estimate. This indicated to me that there were few bidders lined up. One gun that was bid up way over the high estimate was one I had submitted. I watched the live bidding on my computer and was amazed at how tepid and uncompetitive all the other bidding had been, except on just the one gun I wanted most. My bid was substantially higher than the high estimate because I really wanted that gun. But other guns similar to it went for below or just at their low estimate, including one that was very similar and which went for substantially less than its own low estimate. It appears that my outlier bid value was a result of the auctioneer having someone shill bid against me, because I had submitted a high absentee bid. I’m quite sure that had I bidded by phone, I would have acquired that one gun for a lot less than I got it for. Any suggestions about how to report this anomaly? Thank you
I was bidding in an online auction in MN with 200 + lots. I put in greatly varying high bids on 10 lots. There were absolutely identical lots to the lots I put the high bids on . Near the end of the auction the same bidder number bid everyone of my lots up to within 1 dollar of my high bid including cents to the exact cent on every lot. All my bids were driven to the max high bid although they varied greatly. And other identical lots went for much less money. It was so obvious that the bidder was looking at my high bids as he maxed them all out to the penny in 1 bid with out ever overtaking a single one. No one would bid on a higher priced lot let alone 10 with identical cheaper lots in the same auction. I looked through the auction results and saw that this shill bidders number had bid up many lots of higher price when cheaper identical lots remained . The obvious shill bidder only bumped up bids he never won a single lot.
Appears to be a clear case of shill bidding.
Would this auction happen to be K-Bid? I have had the same problems with them and your case sounds extremely similar to mine. Reply to this if it is K-Bid that you are referring to. They are based in MN
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I recently worked at an auction company. Every auction I was asked to make house numbers for the owner of the company. I later found out why he was using these house numbers and it seemed very unethical to me. I would like to know if it is legal or illegal to do this? This is in the state of Florida. If in fact it is illegal, I would like to know how to file a claim against this company.
If the “house” number was used to purchase, it’s likely fine. If the “house” number was used to bid against other bidders for the seller — that’s all good so long the auction was “with reserve” and it was disclosed that “the seller reserves the right to bid …” or the like. If the “house” number was used in an absolute auction, and without the genuine intent to purchase, that’s illegal.
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