Tags

, , , , , , , , ,

A multiple parcel auction of real property involves offering each parcel separately as well as in various combinations of those parcels.

The property in total is then sold whatever way (combination) realizes the seller the most money.

Early multiple parcel real property auctions utilized what is known as the “Iowa Method.” This method involved a minimum of two rounds of bidding. For example:

Ed owns 7 parcels as described here. Ed’s auctioneer offers each parcel at auction individually. The results are as follows:

    Parcel 1: 2.6 Acres, $20,800 Bidder # 124
    Parcel 2: 1.1 Acres, $10,230 Bidder # 71
    Parcel 3: 3.5 Acres, $26,250 Bidder # 101
    Parcel 4: 10.6 Acres, $71,550 Bidder # 68
    Parcel 5: 6.9 Acres, $54,510 Bidder # 97
    Parcel 6: 4.3 Acres, $34,400 Bidder # 36
    Parcel 7: 9.8 Acres, $88,200 Bidder # 18

Ed then offers to the crowd the opportunity to outbid the aggregate amount bid thus far. With $305,940 bid on the 7 parcels individually in total, Ed’s auctioneer asks if, “Anyone would like to bid $306,000?”

If someone bids $306,000, Ed’s auctioneer would then ask for more, such as $307,000, $308,000, $309,000 … until no more bids are made on all 38.8 acres. In a basic 2-round format:

  • If there is a higher bid on the total, the entire 38.8 acres is deemed sold to the highest aggregate bidder.
  • If there is a no higher bid on the total, the 7 parcels are deemed sold to the high bidders for each parcel.

In formats with more than 2 rounds, as a higher aggregate amount is bid, such as $309,000, then the individual bidders are offered the opportunity to raise their bids to then outbid the aggregate bidder.

This type of, “back-and-forth” bidding between the individual bidders and the aggregate bidder(s) can continue until no more bids are made, or for a maximum number of predetermined rounds.

In the early 1980’s, with the advent of personal computers, computer programs were written,

    “Allowing bidders to bid on individual tracts, combinations of tracts or the entire property in an unrestricted process that promotes greater competition for each tract, leading to higher prices.”

For instance, in our previous example with Ed’s 7 parcels, a bidder could offer $60,000 for Parcels 1, 2 & 3 which would be more than the individual bids for those 3 parcels totaling $57,280.

The computer would calculate and keep track of each individual bid, combination bid and aggregate bid — noting the current, “combination” that results in the highest amount.

So … our question today. Can you have an, “absolute multiple parcel auction?”

Certainly, a seller can wish to sell his property, “to the highest bidder,” and, “without any minimum,” and, “for whatever it demands …”

However, in an absolute auction, per the UCC 2-328:

    “… After the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time.”

Again, citing our previous example, once these 7 parcels are offered individually, bids are made (within a reasonable time). Therefore, those lots (here, parcels) cannot be withdrawn. Are they withdrawn if a bidder makes a bid on the aggregate higher than the total of the individual parcels?

The three arguments seem to be:

  1. Yes, they are withdrawn, as the higher aggregate bidder is bidding on a completely different lot (combination of parcels). The auctioneer is illegally withdrawing each parcel from the individual bidder in order to sell to a higher aggregate bidder.
  2. No, they are not withdrawn, as the higher aggregate bidder’s bid is actually a fractional higher bid on each individual parcel, thus outbidding the prior bid. The auctioneer is legally taking a higher bid on each parcel in order to award the high bid to the aggregate bidder.
  3. Neither withdrawal nor a higher bid, as the bids are merely held in multiple combinations of the parcels. The auctioneer simply waits until the last bid is placed, and then decides which bid (or bids) is the best for the seller.

Certainly, the multiple parcel auction format was not widely used until after the adoption of the UCC 2-328. Therefore, it is reasonable to conclude this multiple parcel question wasn’t considered as the rules for auctions and bid calling were created.

Nevertheless, we as auctioneers now operate with both the UCC 2-328 rules in place, and the desire to sell real property in an absolute multiple parcel format.

I know of only one case where this concept was addressed by a state auctioneer licensing agency and a state attorney general’s office. In this case, as I have recounted many times:

    “Only a few years ago — a bidder had placed a bid of $1.00 on a lot in an absolute auction; the auctioneer then said, ‘I’m going to add another lot to this current lot …’ and then received a $2.00 bid from another bidder.”

Now … get ready for this.

The original $1.00 bidder cried fowl. He claimed that when the second lot was added to the first, the original lot was withdrawn. The state attorney general’s office agreed citing the UCC 2-328 as adopted. The auctioneer’s license was suspended, required to pay a $500 fine and submit proof of completion of 3 hours of auctioneer continuing education.

Given this one (and possibly only) case, despite the almost trivial bid amount, it seems likely to me that all three of our arguments were explored, and that a similar case would have a similar outcome.

Can you have an absolute multiple parcel auction? Maybe not.

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.