Tags

, , , , , , , , , , , ,

dualagencyI have argued — and remain an advocate of — auctioneers reserving the right to bid at their own auctions.

My belief is that auctioneers should be able to bid to enhance the seller’s position.

If an auctioneer is selling a framed oil on canvas with a high bid of $330, for which he is willing to pay up to $500, he should have the right (actually, the duty) to bid.

As such the auctioneer becomes a dual agent. He represents the seller and also represents his own interest as a bidder.

I wrote about this more extensively here: https://mikebrandlyauctioneer.wordpress.com/2009/11/15/can-the-auctioneer-bid/

The exception, which I noted in my prior article concerned real estate. Many states prohibit dual agency in real property transactions; even those states which consider real estate dual agency legal have strict requirements.

Dual agency requirements generally include agents not advocating either party’s position. More or less, the dual agent doesn’t encourage either party to offer more or less, nor disclose information about either party to the other party.

While at any auction, the auctioneer is encouraging the bidders to pay more (even if that bidder is the auctioneer,) such action is intrinsic with how auctions work. This perceived conflict of interest is managed in an open, transparent fashion where the client and the public both understand and agree to the possible opposing goals.

That is, except when selling real property. Real estate law is much more developed and largely literally prohibits real estate auctioneers from acting as dual agents, and common law effectively prohibits it altogether.

Further, real estate auctions invite litigation which is magnified by the auctioneer bidding for his or her own interest. Rarely does a large auction-related lawsuit not involve real property.

Some auctioneers have argued that with sufficient knowledge and consent (disclosure) that they are able to bid as the auctioneer while selling real estate. I would caution that such consent doesn’t override state law, nor considerable precedent.

One possible solution would be the auctioneer representing the seller and bid (or buy) through as a limited liability company or corporation. In that way, the auctioneer remains the seller’s agent, and is necessarily not personally the bidder/buyer; or contract with the seller via a business entity and bid/buy personally or through yet another business structure.

This type of business structure solution has considerable legal support. Similarly, distinct business entities owned in part or whole by the seller can legally bid at absolute auctions where the seller individually is prohibited from bidding.

Many point to so-called traditional real estate laws and note that this type of dual agency (where the agent is representing his or her own interests as buyer or seller) is legal in their particular state, so auctioneers should be able to exercise these same rights. The difference in regard to auctions basically involves “disclosure” and “advocacy.”

Such restrictions are generally that a dual agent cannot advance (nor attempt to advance) the interests of either party; of course, auctioneers inherently ask for that next higher bid — thus attempting to advance (advocate) the seller’s position.

Secondly, a dual agent cannot advise the buyer on how much to offer nor can the agent advise the seller to accept or reject an offer; of course here auctioneers openly suggest (disclose) that next-higher-bid thus advising the ultimate buyer how much to offer as well as the ability to bind the seller.

Lastly, the Supreme Court of the United States in 1921 said “auctioneers are to represent sellers,” suggesting only the seller, in regard to a real estate auction.

Auctioneers as dual agents? Permissible for personal property auctions (outside of Pennsylvania) with proper knowledge and consent, but not at a real estate auction due to the resulting dual agency relationship.

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. He serves as Adjunct Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.