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chairWe recently wrote about managing legal seller bidding, and today wish to discuss illegal seller bidding.

Illegal seller bidding is just that — the seller bidding at auction when he or she is not permitted to do so under the law.

Basically, there are two scenarios outside of forced sales where the seller is prohibited to bid at auction:

  • A without reserve auction
  • A with reserve auction where the right to bid is not reserved

In either of these cases, if the seller is bidding, the auctioneer has a duty to stop such illegal activity if knowledgeable of the act. As such, no duty exists if the auctioneer is not knowledgeable of the act … but the act itself remains illegal.

Our question today involves how to manage such illegal seller bidding.

Auctioneers generally take one of three actions when they wish to stop seller bidding:

    1. Stop the auction, make an announcement condemning the act, and possibly identify the seller
    2. Just ignore the seller and take bids otherwise
    3. Have a staff member intercede and inform the seller privately that he is not permitted to bid

We highly recommend option #3.

Stopping the auction and making the act public knowledge most likely makes the issue more widely known than necessary. Too, this method leaves little room for the possibility the seller was bidding with no ill intent and/or there is truly a misunderstanding.

Ignoring the seller invites the seller to wonder why his or her bids are not being accepted. If the seller believes he has a right to bid, this option may result in further disruption of the auction.

Keeping this situation private between the seller and a representative of the auctioneer is best. The particulars can be discussed, and the auction is minimally impacted otherwise.

I would submit that while illegal seller bidding is somewhat widespread, it is not such a grave problem that any further regulation is needed. Sufficient remedies exist in state law as well as a judicial system that can economically decide such cases for auctions of significant financial value.

The UCC 2-328 provides a remedy for buyers if the auctioneer knowingly accepts a bid from the seller without disclosure in a with reserve auction:

If the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale.

Lastly, for those sellers bidding illegally, other methods exist where they can bid legally. In a way, if they felt prohibited from bidding, either the property would not be offered or a legal method would be utilized, thus denying legitimate buyers nonetheless.

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.