Auctioneers work primarily as agents and for clients (principals) in performing their duties. As such, they would owe loyalty to those clients — in part — acting in the best interests of those clients, rather than for themselves.
Relatedly, some auction houses use net listing arrangements. These arrangements are inherently a conflict of interest. The auctioneer often suggests a low value guaranteed to the seller, then sells the property for far more often realizing a profit in excess of market norms.
We wrote more about net listings and our thoughts here: https://mikebrandlyauctioneer.wordpress.com/2020/05/20/an-auction-net-listing/. As we continue to note, it’s not the actual conflict that is the issue, but the all-too-common mismanagement of such conflict.
This aforementioned mismanagement of conflict of interest situations stems primarily from an uneven playing field. Often the auctioneer knows far more about the market and may even have a buyer in wait — in other words, the problem is profiting from [incentivizing] not disclosing true market value or similar material facts to a principal.
Some apparently argue that if this client has defrauded or used trickery before, it’s okay if his auctioneer uses the same. So we’re all trying to find the lowest waterline of performance? On the contrary, auctioneers would do better trying to raise the level of their professional service.
Or, what if this auctioneer has used (and mismanaged) net listings for decades with many other clients — does that make it right? In other words, if we’ve always done it this way, it’s fine? I’ve heard for decades that if I’ve always done anything a certain way, I must change that immediately.
Not all net listings (nor conflict of interest circumstances) are problematic. For some sellers, a guarantee has value and as long as the parties discuss what is best for the seller/client including the possibility of unjust enrichment on the part of the auctioneer, then proceeding in this fashion is likely acceptable.
However, it’s best to search your own state or jurisdiction for the laws regarding net listings. Many states have outlawed such practice for real property transactions suggesting the essence of a net listing in an agency relationship is ill-advised.
Finally, not all auctioneers work in fiduciary capacities. If merely working as a contractor/vendor and brought in to buy-out property presumably for resale, there is not the duty of loyalty. However, even in non-agency circumstances, honesty, integrity and fair dealing are good guidelines for auctioneers.
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, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.