Dr. Yin Yao was the foremost collector of ink and wash paintings of the Song Dynasty. One such example came up for auction in London, England and Dr. Yao planned to attend and bid.
The day of the auction, Dr. Yao walked in and registered for the auction. He viewed the subject artwork and was satisfied it met with his expectations. As the auction began, he took his seat near the rear of the gallery awaiting this Lot #124.
About 90 minutes later, Lot #124 came up for bid. The auctioneer asked for a bid of $1,000,000 (US Dollars) and a bidder near the front of the gallery offered $250,000. Dr. Yao bid $300,000 and the bidding continued $350,000, $400,000, $450,000, $500,000 … all the way to $1,300,000 with Dr. Yao as the high bidder.
With no more bids, the auctioneer announced, “Sold!” to Dr. Yao for $1,300,000. The auction continued for about another hour and was complete. The auctioneer sought out Dr. Yao shortly thereafter as the media wanted more information on Dr. Yao’s purchase.
The reporter asked the auctioneer how the auction went … “Very well” he responded, “As at auction we received the highest price possible for this Song Dynasty example.” The reporter then turned to Dr. Yao and said, “And you are that person that paid that highest price!?”
“Well, yes, I am the high bidder at $1,300,000 as that was my highest offer. However, I was willing to offer more — upwards of $2,000,000 if necessary.” Dr. Yao remarked. As such you can see here that $1,300,000 is the highest offer but not the highest price (nor offer, if you prefer) Dr. Yao was willing to submit.
At auction property doesn’t necessarily sell for the most that buyer was willing to pay, but rather more likely one more bid than the most the runner-up bidder was willing to pay. In our example here, Dr. Yao only had to outbid this other bidder who bid his maximum bid of $1,250,000.
As we wrote some time ago, Professor William Vickrey surmised there may be a better way to manage this process. He suggested we award the high bidder the property for the second-highest bid. In this way, all bidders probably bid more knowing they will win for less … you can read more about this here: https://mikebrandlyauctioneer.wordpress.com/2012/03/25/vickrey-auctions-high-bidder-bids-more-honestly/
Do auctioneers have a duty to maximize any bidders’ bid? If they don’t know that maximum, there’s no way to really do that. If they know the maximum someone is willing to pay, they only have that duty if the bidder knows of such so-called duty, and consents to it.
We auctioneers sell to the highest offer we can obtain, but not necessarily the most that bidder was willing to pay …
Mike Brandly, Auctioneer, CAI, CAS, 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, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.