Official Statement of the National Auctioneers Association Concerning the Licensing of Businesses that Sell Property via Internet Auctions

Official Statement of the National Auctioneers Association Concerning the Licensing of Businesses that Sell Property via Internet Auctions

8880 Ballentine Overland Park, KS 66214

I. Introduction and Statement of Purpose

The National Auctioneers Association (“NAA”) is a professional organization for practicing auctioneers, their associates, and auction businesses. The NAA was founded in 1948 and continues to grow. Today, it has approximately 6,000 members. The NAA promotes the auction method of marketing and strives to enhance the professionalism of its practitioners. The mission of the NAA is “[t]o promote, increase and build the trustworthiness of the competitive bidding method of marketing, including: live, Internet, and sealed bids auctions[.]”

The NAA has been asked its opinion on the licensing of auctioneers who conduct Internet auctions. Auctioneer licensing has become prevalent over the past thirty years as a consumer protection issue. Currently thirty-three states, and the District of Columbia, require a license before an auctioneer can lawfully conduct auctions within the state. In addition, twelve states do not require a state license, but permit municipalities and political subdivisions to impose licensing requirements and regulations for auctioneers and the auction industry. Only the remaining five states do not generally impose any licensing requirements.

Technology is moving quickly and reshaping the auction industry as well as many other industries. The convergence of technology and auctioneers has lead to blurring what once was very defined and certain. Where a transaction occurs, where payment occurs, where the “sale” takes place have all become issues in Internet auctions. An auctioneer may be in one state, the buyer in another, and the property in yet another. The NAA recognizes there are regulatory and enforcement issues that still need to be determined. Despite these issues, Internet auctions continue to be a growing method of selling for auctioneers.

Individuals who sell property via Internet auctions provide the same services that licensed auctioneers provide to their customers. These services include, placing the property on the Internet for sale, marketing the sale, collecting the proceeds from the buyer, delivering the goods to the buyer, and remitting the proceeds to the seller after payment of a fee or commission. There is no reason that these Internet auctions should not be licensed and regulated in the same manner as an auctioneer since they are essentially providing the same service to the public. The use of incremental price advances and a time certain ending of the sale would make the sale an auction the same as any other auction.

(1 The states which currently do not impose any licensing requirement at the state or municipal levels are: (1) Alaska, (2) California, (3) Oregon, (4) Utah, and (5) Wyoming.)

Unlicensed and unregulated Internet auction companies pose a risk to consumers and should be held to the same standards as the auction profession. Auctioneers should not be held to a different standard simply because of the vehicle used to conduct the sale, regardless of how they are identified.

II. Internet Auctions.

The word auction comes from the root word “auctio” which literally means “increase.” The NAA Code of Ethics defines an auction as “[a] method of selling property in a public forum through open and competitive bidding.” In the Uniform Auction and Auctioneer Licensing Act (“UAALA”) the term “auction” is defined as “the public sale of real or personal property, or both, in which the sale price of the property offered is increased by competitive bids until the highest bidder becomes the purchaser.” UAALA § 1-104(c). Competitive bidding is an essential element of any auction sale.

An Internet auction, where the final purchase price is determined by competitive bidding, is an auction. The fact that the sale takes place online, instead of being sold in person at a live auction, does not change the nature of the sale. Both sales use the competitive bidding process. Internet auctions where an individual is selling goods or property on behalf of another is, by definition, an auction and should be regulated.

The term “auctioneer” is defined by the NAA Code of Ethics as “[t]he person (or firm) whom the seller engages to direct, conduct, or be responsible for a sale by auction. This person may or may not actually call or cry the auction.” UAALA defines an auctioneer as “an individual who engages in, or who by advertising or otherwise holds himself out as being available to engage in, the calling for, the recognition of, and the acceptance of competitive bids for the purchase of goods or real estate at an auction or otherwise engaging in the business of auctioneering.” UAALA § 1-104(d).

Most Internet auction sites specialize in person-to-person sales where individual sellers sell their goods or property directly to consumers. In these auctions, the seller – not the site – has the merchandise and the site usually will not take responsibility for any problems that may arise between buyer and sellers. Many sellers set a time limit on bidding and, in some cases, establish a “reserve price” – the lowest possible price the seller will accept for an item. When the bidding closes at the scheduled time, the item is sold to the highest bidder. If no one bids at or above the reserve price, the auction closes without the item being sold. An Internet auction is an auction and the seller is responsible for conducting the sale. In other words, the seller is acting as the auctioneer.

The NAA is not suggesting that these regulations should apply to individuals who sell their own goods on-line. The NAA is only concerned with individuals who act as auctioneers as a service or the public in return for the payment of a fee. When an individual or business sells property on behalf of a third-party, the seller, in exchange for the payment of a fee, the applicable licensing requirements should apply and the sale should be regulated as an auction. This would include, for example, individuals and businesses who take goods on consignment from a third-party for sale via an Internet auction website for a fee or commission.

III. The Prevalence of Fraud Perpetrated Via Internet Auctions.

Internet auction fraud is a significant problem across the United States of America. Internet auctions are a haven for criminals and unscrupulous individuals. It is easy for sellers to list any item on-line for sale, even when the seller does not intend to sell, or even own, the goods
or property.

In 2000, a national database for Internet fraud and crime was established as a partnership between the Federal Bureau of Investigation and the National White Collar Crime Center. This database is to serve as a means to receive and process Internet related criminal complaints. This organization was originally known as the Internet Fraud Complaint Center (“IFCC”). In December 2003, its name was changed to Internet Crime Complaint Center (“IC3”) to better reflect the character of complaints received. IC3 publishes an annual report on complaints received and referred by it to law enforcement and regulatory agencies for appropriate action. To date, it has published annual reports for 2001 to 2006.

The complaints received by IC3 are processed and made accessible to federal, state, and local law enforcement to support active investigations, trend analysis, and public outreach and awareness efforts. IC3 refers complaints involving Internet related crimes to federal, state, and local law enforcement agencies around the country for further consideration. Between 2001 and 2006, Internet auction fraud was by far the most reported offense, as a percentage of the total referred complaints.(A copy of the “IC3 2006 Internet Crime Report” is attached for your review. The IC3 Report analyzes data about cyber-crimes that took place between January 1, 2006 and December 31, 2006.)

Chart 1 compares the percentage of complaints categorized as Internet auction fraud with other frauds between the years 2001 and 2006. While it appears that Internet auction fraud complaints were smaller than the other frauds in 2001 and 2002, in actuality, the percentage of complaints was significant. The other frauds category consists of the top five categories of complaints, excluding Internet auction fraud. The top five categories of other complaints changed a little each year, but consist of the following categories: (1) non-delivery of merchandise and/or payment; (2) Nigerian letter fraud; (3) credit/debit card fraud; (4) confidence fraud; (5) investment fraud; (6) business fraud; (7) identity theft; (8) check fraud; and (9) computer fraud. In fact, Internet auction fraud was the number one complaint for each year between 2001 and 2006. Plus, Chart 1 clearly shows that Internet auction fraud crimes exceeded the total complaints for the other top five categories between 2003 and 2006.

CHART 1 (omitted)

Chart 2 compares the median monetary loss for victims of Internet auction fraud between 2001 and 2006. Since the average of the losses suffered by victims would be sensitive to a small number of extremely high or extremely low lOss complaints, IC3 determined the median monetary loss. The median is a more accurate method to use for the representation of the data. The median represents the 50th percentile, or mid-point, of the loss due to Internet auction fraud.

In addition, Chart 2 and Table 2 show that between 2004 and 2006 there has been an exponential increase of the median monetary loss caused by Internet auction fraud. In 2004, the median loss was $200.00. By 2006, however, the median monetary loss for victims of Internet auction fraud increased to $602.50, which is more than three times the median loss in 2004. The 2006 median monetary loss for Internet auction fraud is significantly higher than it has been over the previous years.

CHART 2 (omitted)

In addition to the Internet auction fraud crimes reported to IC3, the Federal Trade Commission (FTC) receives thousand of fraud complaints each year. Among the thousands of complaints, those dealing with Internet auction fraud consistently rank near the top of the list. The FTC maintains the Consumer Sentinel database, similar to the IC3 database, for sharing information with law enforcement agencies and education.

IV. Imposing a Licensing Requirement on Individuals and Businesses Who Sell Real or Personal Property via Internet Auctions as a Service for a Third Party.

The primary purpose of Internet licensing laws is for protection of the public. The provisions of state law from several jurisdictions confirm and validate this purpose. For example, the Illinois General Assembly explained its legislative intent in the statutory provisions imposing the auctioneer licensing requirements. It provides: “The General Assembly finds that Illinois does not have the ability, without legislation, to enter into reciprocal agreements with other states to allow residents of Illinois to practice auctioneering in other states.” 225 ILCS § 407/5-5. It further explains: “This body further finds that, without legislation, Illinois does not have the ability to evaluate the competency of persons engaged in the auction business or to regulate this business for the protection of the public. Therefore, it is the purpose of this Act to license and regulate auctioneers.” 225 ILCS § 407/5-5. The Louisiana Code has a similar provision. It provides: “The Legislature of Louisiana declares that requiring the licensure of qualified auctioneers and auction houses is in the best interest of the citizens of this state.” LSA-R.S. 37:3101(A). It further explains: “The purpose of this Chapter is to require qualifying criteria in a presently unregulated occupational field in which unqualified, irresponsible, or unscrupulous individuals may injure the public.” LSA-R.S. 37:3101(B). See also N.J.S.A. § 40:52-1 (permitting municipalities to “make such regulations as the governing body of the municipality shall deem necessary, to protect the public against fraud at public auction sales”).

Imposing licensing requirements on individuals and business who conduct Internet auctions will reduce fraud and help protect consumers. The licensing requirements adopted by state law establish minimum standards to ensure that auctioneers and auction firms will have a certain amount of knowledge, skills, competence, and training. UAALA §§ 2-103, 2-203. In addition, as part of the licensing procedures, individuals and businesses are required to provide documentation and information about the business. Id. The disclosure of information to a regulatory body will discourage fraudulent and improper conduct. Furthermore, licensing laws generally require the posting of a bond or participation in a recovery fund for the protection of consumers. UAALA § 6-101 et seq. If an individual is harmed by fraudulent or criminal actions, the victim can assert a claim against the bond or recovery fund. In this manner, the harm to an individual or business is minimized. Finally, licensing regulations generally prohibit fraudulent conduct and provide disciplinary procedures. UAALA § 5-101. These procedures permit the regulatory body to fine, reprimand, suspend, and otherwise discipline auctioneers for improper conduct. UAALA § 5-103. For offenses of a serious nature, the license can be even be revoked.

V. Conclusion.

There are sound policy reasons for requiring a license for individuals and businesses who conduct Internet auctions. An individual who conducts an Internet auction is, by definition, an auctioneer. As an auctioneer, he or she should be required to obtain an auctioneer’s license. More importantly, imposing licensing requirements on individuals and businesses who conduct Internet auctions will help reduce fraud and protect consumers. The data from both IC3 and the FTC show that Internet fraud complaints are significant. For IC3, Internet auction fraud was the number one complaint each year between 2001 and 2006. For the FTC, complaints relating to Internet auctions consistently rank near the top of the list. In addition, the median monetary loss for victims of Internet auction fraud has increased significantly over the years. In fact, between 2004 and 2006 the median monetary loss for victims of Internet auction fraud increased over 300 percent. (See Chart 2.)

Furthermore, there is no reason that these Internet auctions should not be licensed and regulated in the same manner as an auctioneer since they are essentially providing the same service to the public. For these reasons, the NAA respectfully recommends states to impose licensing requirements on Internet auctions in order to protect the consumers and the public. States should license and regulate Internet auctions in the same or similar manner as it does the traditional auctioneer and auction industry.


3 thoughts on “Official Statement of the National Auctioneers Association Concerning the Licensing of Businesses that Sell Property via Internet Auctions”

  1. Marlin Andres said:

    I was involved in an internet house auction 10/27/18 where “current bid” showed $290,000 and the “your bid” showed $290,000 but when the auction closed it showed lost to higher bidder. Auctioneer said their was nothing he could do. What repercussions do I have?

  2. Thomas Williams said:

    Any person or company that conducts online only auctions MUST be licensed to protect the consumer. These online only auction companies are receiving all of the benefits of being a licensed auctioneer without any regulations. Example: I hired a online only auction company in Texas to sell off some of my companies inventory and assets. I was expecting a check in the mail within a few weeks after the auction had concluded. After waiting a month I called and they told me they would send the check. Then 2 months go by and nothing. Then I called the Texas Auctioneers Licensing Board to get help. They told me that this company does not have a licensed auctioneer and for that reason they told me there was NOTHING they could do. Then 3 months go by, then 4 months, then they stopped answering my calls, texts, and emails. After 6 months I finally sent a email threatening a lawsuit, 2 weeks later I finally got my check. A licensed auctioneer is required by law to send the seller their part of the auction proceeds within a certain amount of time, so a licensed auctioneer never would have done this because they wouldn’t want to lose their license, but a online only unlicensed auctioneer can do whatever they want with no laws or regulations. The only recourse for the seller is to sue them in court. A online only auction is no different than a live auction. A platform, or a computer is not conducting the auction, it is a person or a company. They contract with a seller, charge the seller a percentage, they list the item for the seller, do all of the work marketing the item, the sign up bidders, they start the auction on a certain date, they collect the money, and they have the buyer come to their place to pickup the item. They even charge the buyer a buyer’s premium which is ridiculous. Live auctions started charging a buyer’s premium many years ago because the auctioneer has to spend a ton of money to hold a live auction. For a live auction the auctioneer needs a building to conduct the auction, a lot for bidders to park their cars, chairs for the bidders, ac and heat, lighting, a platform with microphone and speakers, they have to pay several people to be in the audience as bid callers, if driveable equipment is involved they need several workers to drive those vehicles by so the bidders can see if driving, they need several workers to collect payments at the end of the auction, in some cases they need a notary, a title person, and im sure a few things I am forgetting. If the auctioneer holds the auction at the sellers site the auctioneer needs expensive trailers, trucks, and etc to carry all of the equipment to the sellers site. This is how and why the buyers premium started. These un-licensed online only auction companies charge the exact same buyer’s premium for doing nothing! With online only auctions there are no extra costs associated with the buyer. However, if it is a licensed auctioneer conducting a online only auction they should still be able to charge the buyers premium because a licensed auctioneer will always have more expenses than a unlicensed auctioneer like a licensed auctioneer has to have certain insurance policies, certain banking accounts, and son on. A unlicensed auctioneer or auction company doesn’t have to do any of this and it is hurting the consumer because if something happens like it did with me there is nothing anyone can do to help you! If these online only auction companies want to sell items then all they have to do is list that item for sale at a certain price, that’s it. PLEASE someone get these legislators in other states in board, or else turn it into a federal issue, because these companies are getting the same benefits as hard working licensed auctioneers with none of the regulations and laws that these licensed auctioneers have to follow and it’s not ok. The sellers and the buyers are the consumers, and they are the ones laws are supposed to protect, but in Texas there was no agency to protect me because Texas does not require online only auctions to be conducted by licensed auctioneers. This must be done in EVERY state!!!!! Licensed auctioneers need a very good lobbyist to go to work for them and get these laws in place so in every state if you conduct ANY type of a sale that has bidding then you must be a licensed auctioneer! Otherwise just put a price on the item you want to sell and sell it!

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