You might have guessed one is auction and the other is private negotiation.
And today, we’re looking at the combination of these two methods.
For instance at a car auction, let’s say we have a late model car selling with reserve. The dealer who owns the car wants to realize at least $32,500.
The auction starts and there is a bid of $20,000 followed by bids of $21,000, $22,000, $23,000 … all the way to $28,000.
At this point, the auctioneer leans toward his ringperson signaling that he is to see, “What the high bidder can do …?”
The ringworker talks with the high bidder to see if he will offer more than his $28,000 bid. He might even tell him that the dealer needs $32,500.
Here, we’ve changed the contractual nature of our scenario from auction to private negotiation.
Why is that important? At an auction, bidders make offers and the auctioneer accepts offers subject to three distinct contingencies:
- Not receiving a higher bid
- The bidder not retracting his bid
- The owner not withdrawing the car
However at the point this is no longer an auction — but private negotiation — and the contract structure changes. The offer can be from either party, and if there is an offer and the other party accepts, the contract is formed — with the following contingencies:
So, if this high bidder offers $31,000 and the dealer accepts, the car is sold. If however, the $31,000 is accepted in an auction, it is accepted and a contract is formed, but the car is not sold unless there’s no higher bid, the high bidder doesn’t retract his $31,000 offer and the dealer doesn’t withdraw the car.
Even more troubling here is if this $31,000 bidder is the same as the $28,000 bidder, then the contract for $28,000 still exists, as it it assumed it can only be broken by one of the three contingencies of which one is a higher bid — presumably from someone else (unless the $28,000 bid is withdrawn.)
Maybe this is simple enough, but it could get more complicated.
In our above example, what if another bidder offered $31,000? Is the offer a private negotiation offer or an auction offer? What if it was intended to be a private negotiation offer, but the auctioneer accepts as an auction offer?
Now let’s turn our attention to the terms and conditions of these contracts.
Clearly the auction contract has preset terms and conditions, which are (likely) known to all parties. However, if we venture into private negotiation, what are the terms and conditions of those contracts?
What’s paramount in the private negotiation area, is that the offer (or counter offer) is accompanied by the particular terms and conditions. For instance, “I’ll give $31,000 but I want the car detailed and delivered to my lot,” which happens to be 50 miles away.
Would an auctioneer accept such offer? Might. But, might not, and rather want to accept the $31,000 in an auction contract so that the terms are more favorable and he can seek higher bids.
Of course, if the original offer included the detailing and delivery, so-called-accepting it any other way would constitute a rejection of that offer and a new offer back to that $31,000 “bidder,” and he could accept or reject.
In conclusion, this type of auction where there is bid calling and private negotiation intermingled is not for the untrained auctioneer, and seemingly unique to live in-person interactions. Maybe this is one reason there is merit in talking fast?
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.