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bigmacWe were discussing absolute auctions at the NAA Conference & Show in Addition, Texas July 14-18, 2015.

Our discussion involved that absolute auctions cannot have minimum bids, seller reserves nor seller withdrawals (once a bid is received within a reasonable time.)

However, certainly an auctioneer can charge a minimum qualifying deposit to bid — a fixed amount due in order to participate in an absolute auction?

We would suggest not. And the evidence seems clear.

For example, let’s say an absolute real property auction with an expected final sales price of $250,000 requires a deposit of $10,000 to register — to participate as a bidder.

The argument is: a bidder without $10,000 to put down is hardly qualified to buy a $250,000 property — and on the odd chance the property sells for $9,000 (instead of the expected $250,000,) the auctioneer/seller can refund the $1,000 difference back to the buyer.

Nevertheless all bidders in this example need $10,000 in order to bid. And in a sense that is the minimum bid no different than if this same absolute real property auction had a minimum opening bid of $10,000, which it can’t have.

But the argument of the refund has merit which makes the deposit of $10,000 materially different than the $10,000 minimum bid. An actual minimum bid involves no refunds …

Let’s look at another example.

What if McDonald’s required everyone hoping to buy a Big Mac sandwich to pay with a $100 bill? McDonald’s would of course provide change of about $96 but still the customer must have $100 to begin the transaction. In other words, the minimum qualifying deposit is $100.

If Big Mac’s were being sold at absolute auction and buyers had to pay $100 to register at that auction, then someone with only $4 couldn’t participate, even though one Big Mac currently sells for just less that that.

Auctioneers argue that they are charged with protecting the seller and associated interests — and they are. This isn’t about not protecting the seller, but using the wrong type of auction to qualify bidders with a certain amount of money up-front to register to bid.

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.