As the auctioneer, do you have to take a “cut” bid? Maybe. But first — what is a cut bid? A cut bid is a bid more than the current bid, but less than what the auctioneer is suggesting. For instance, if the high bidder is on at $5,000 and the auctioneer is asking for $5,250, a cut bid could be $5,100.
This cut bid in our example is an offer, and our question involves if the auctioneer/seller must accept it. The answer depends upon the type of auction.
There are only two types of auctions — with reserve and without reserve. We discussed more on this material issue here: https://mikebrandlyauctioneer.wordpress.com/2009/11/15/different-types-of-auctions/
Given these two types of auctions, here’s an easy way to remember if you have to take cut bid:
- In a with reserve auction, you do not have to take a cut bid (the offer could be refused.)
- In a without reserve auction, you do have to take a cut bid (the offer must be accepted.)
It is almost this simple, as in a without reserve auction, setting a minimum amount over the current bid for the next bid would constitute a reserve; there can be no reserves in a without reserve auction.
Otherwise, auctioneers can somewhat set the pace and increments at auctions — by using reasonable increments during the auction, and treating bidders fairly and equitably.
For instance, having a bid of $5,000 and suggesting $5,001 or having a bid of $50 and demanding the next bid be $500 would in either case be viewed as unreasonable.
Too, having a bid of $500 and asking $550 and accepting a cut bid of $525 would dictate the other bidder be offered back in at $550 — a $25 increase over the prior bid and another $25 increase over the high bid … an equitable plan.
Do auctioneers have to take cut bids? Maybe, depending upon the type of auction. If you are allowed, endeavor to be reasonable and equitable.
Further, should you refuse any higher bid anytime? Probably something you should discuss with your seller before the auction. If refusing a cut bid capriciously increases the overall auction event total, then it may be prudent, but this needs to be disclosed in the contract with the seller and in the terms and conditions with the bidders.
You ask how such would possibly increase the auction event total overall? Maybe bidders would acquiesce and bid the higher bid if their cut bid is refused, and as well if cut bids are refused, those bidders (and other bidders) might cease offering those cut bids on subsequent lots.
Lastly — and maybe most importantly — has any auctioneer been involved in significant litigation for not taking a higher bid at a without reserve (absolute) auction? They have, as when you don’t accept an offered (and acknowledged) cut bid, you aren’t “selling to the highest bidder.” This one lawsuit cost the auctioneer over $200,000 in legal fees and all his related commission.
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, an Instructor at the National Auctioneers Association’s Designation Academy and Faculty at the Certified Auctioneers Institute held at Indiana University.