An absolute auction strictly means the property is selling to the highest bidder, with no limiting conditions such as a minimum bid, reserve, right of withdrawal … and no certain price guaranteed the seller.
Yet, some auctioneers advertising absolute auctions are at the same time guaranteeing their clients a certain minimum return.
For instance, Auctioneer Frank says he will sell Harry & Marie’s farm absolute to the highest bidder, but guarantee Harry & Marie at least $500,000.
How does Frank do this? Typically Frank secretly contracts with Harry & Marie that he will pay (or have someone pay) this $500,000 if the bid at the auction comes in for any amount less than $500,000.
As such, if the high bid comes in $450,000, then Frank (or a secret designee) will be publicly identified as the winning bidder, but the sale price will be adjusted upward to $500,000 per the auctioneer’s guarantee.
Or, if the high bid comes in at $500,000 or more, then that high bidder will be publicly identified as the winning bidder, and the guarantee will not become public knowledge.
So what’s wrong with this type of arrangement?
Basically, this type of scheme portrays to the public that something is selling absolute, when it in fact is not.
For example, an absolute auction would allow a genuine bidder to acquire this property for $350,000 if that was the high bid … but with the secret guarantee, no such opportunity exists.
Too, at an absolute auction, the seller would bear the risk of the property selling for less than $500,000, where in this scheme, no such risk exists.
Auctioneers — such as Frank — want to advertise absolute auctions so as to attract a maximum number of bidders, and send a message to future clients that absolute auctions will work this way for them too … when in fact, with a guarantee, the bidders are drawn to this auction (and future sellers are drawn to this auctioneer) with a deliberate misrepresentation.
Of course, auctioneers are required by fiduciary duty to endeavor to maximize their seller’s position. And, further, there is no issue with a seller wanting a guarantee. However, this auctioneer duty doesn’t extend to creating misleading advertising and/or misrepresenting the terms and conditions of the auction.
Ohio has taken a firm stance in regard to this type of scheme. As we look at Ohio Revised Code 4707.023(c)(2), we see:
- The seller of the real or personal property at the time of advertising and at the time of the absolute auction has a bona fide intention to transfer ownership of the property to the highest bidder regardless of the amount of the highest bid and without reliance on any agreement that a particular bid or bid level be attained in order to transfer the property.
There are only two types of auctions. Auctions are either with reserve or without reserve (absolute). A so-called “absolute” auction with a guarantee is a with reserve 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 Greater Columbus Auctions and Goodwill Columbus Car Auction and. 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.