Auctioneers have been asked this question for centuries. My good friend Bill Forbes asked me about this just the other day.
This longstanding question is “Does an auction price equal market value?”
Relatedly, Bill’s question was if a court had ruled on this topic; the answer to both questions is, “yes.”
It should be no surprise that the Court which most notably ruled on this topic was the Supreme Court of Ohio just last month — in August, 2015.
Ohio has been discussing this issue since 1846 when a state law was enacted which suggested that auction prices could not be used to determine market value because they were often forced sales and not arms-length.
However, this law and subsequent court rulings moved slowly towards the conclusion that market value wasn’t necessarily prohibited from being based upon an auction price if the auction was not forced and arms-length.
An auction which is not a “forced sale” is one where the seller is selling voluntarily. In other words, the seller is not being forced to sell and as well the buyer is not being forced to buy.
An auction contract which is “arms-length” suggests the buyer and seller act independently; both act to improve their own interest; neither are under undue duress or pressure to buy nor sell and the subject property has been exposed to the marketplace for a reasonable time.
The Supreme Court of Ohio solidified in Schwartz v. Cuyahoga Cty. Bd. of Revision that an auction price could be used to establish market value if it was not a forced sale and arms-length.
Among the real estate classes I teach at Hondros College of Business, I often teach real estate appraisal. It frequently surprises students that market value is an estimate — an opinion — and often not much more than a guess.
It seems ironic that we often view market reality with skepticism while treating market opinion as factual. Refreshingly, the Supreme Court of Ohio noted reality has more merit than opinion when it comes to value.
We’ve written about market value many times before. Most notably regarding this topic here: https://mikebrandlyauctioneer.wordpress.com/2012/03/15/whats-it-worth/
Does an auction price equal market value? If it’s an arms-length voluntary transaction, chances are it should be considered exactly market value.
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.