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

mass-1518843_1920I speak to thousands of auctioneers throughout the year all across the United States.

In so doing, I always stress the importance of knowing the law as well as customary practice regarding the auction industry.

One topic that has been asked somewhat repeatedly recently has involved registering bidders for an auction. The question has been essentially, “Can I have different terms and/or conditions for different bidders?” The answer is, “You cannot.”

I well understand that the seller and auctioneer contract for an auction, and as such the seller and auctioneer can unilaterally determine the terms and conditions for the bidders to participate. For example, each bidder must show some sort of identification and/or have a certain amount of funds available to bid on a subject property.

However, most auctioneers know that these terms and conditions must strike a balance between the seller and the bidders — on the one hand protect the seller from unqualified bidders — and on the other hand protect and attract as many qualified bidders as possible.

This is counter to the erroneous argument that the terms and conditions solely benefit the seller. We noted such here: https://mikebrandlyauctioneer.wordpress.com/2016/09/27/terms-and-conditions-only-for-sellers-protection/

We hold that an auctioneer/seller can solely determine the terms and conditions for their auction, but that those terms and conditions must be applied to all bidders equally. More importantly, by giving one bidder an inequitable advantage, the auctioneer/seller then burdens the other bidders with an inequitable disadvantage.

Why is this important? This principle is part the basic fabric of what an auction is and how it works. When someone makes a bid, they can only be outbid by a higher bid … and how does the auctioneer know that next bid is higher? Normally, because the value of the bid is greater than the current bid.

Yet if the bidders are bidding with dissimilar terms and conditions, how does the auctioneer know that next bid is higher? If an auctioneer has $2.45 Million bid from a bidder satisfying the terms and conditions of having $7 Million in ready cash, and the next bid is $2.46 Million from someone with no ready cash — is that next bid really a higher (better) bid?

Bids are offers from bidders offered to the auctioneer/seller and auction offers encompass both the price and the terms & conditions. Let’s take a look at two such offers:

    • $2.45 Million and able to close in 30 days
    • $2.46 Million and little or no ability to close in 30 days

Which offer is higher based solely on numerical value? The 2.46 Million offer is higher in that regard. However, which offer is better? The 2.45 Million offer is clearly better. Aren’t auctioneers to sell property to the highest and best offer?

If you agree that the $2.45 Million offer is better, this bidder could successfully argue that the auctioneer could not void his contract for $2.45 Million in favor of this $2.46 Million offer; auctioneers cannot void bid calling contracts with lower (worse) bids.

Imagine dozens of different bidders having all different (unique) terms and conditions all their own for the same property … how does an auctioneer assess when any bid is higher (better) than another?

Auctioneers would want to avoid lawsuits accusing them of selling property to bidders with lower bids than others — or if you prefer, not selling property to the highest [best] bidder. How would auctioneers avoid such claims? For one, ensure all bidders are bidding with the same terms and conditions so that the number (value) of the bids is the sole criteria used — easily tracked by most auctioneers.

Lastly, bidders are to be treated with honesty, fairness and integrity. As such, bidders often base their bids on other bidders’ actions, words or behavior. A bidder at $2.45 Million might rightly note that by someone else bidding $2.46 Million that the property is worth $2.47 Million because someone else — under these same terms and conditions — thinks the property is worth $2.46 Million.

Because auctions are collaborative in nature, bidders deserve auctioneer/seller honesty and fairness that those other bidders are being held to the same standards required to bid. Every bidder should be able to bid with confidence that they are being outbid by higher bids, and those other bids are indicative of discernible value.

I would argue that a bidder at any auction should openly and rightly challenge the auctioneer’s use of unfair, unreasonable and especially inequitable discretion and control over the auction and the registration process, and that for an auctioneer to avoid such, he should use his skill, expertise and judgment to maintain consistent and uniform terms for all bidders.

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, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.