We’ve held that auctioneers should disclose all known material facts concerning any property they are putting up for auction. This disclosure can be accomplished a couple ways: By the buyer, inspecting noting patent, and possibly some latent issues — and by the auctioneer disclosing other latent issues of material nature.
Relatedly, in the National Auctioneers Association (NAA) Code of Ethics, Article IX notes:
Members shall avoid misrepresentation or concealment of material facts. There is an affirmative obligation to disclose adverse factors of which they have personal knowledge. BUSINESS PRACTICE: Members should be careful at all times to present a true picture in their advertising and representations to the public. BUSINESS PRACTICE: In order to protect the public and to avoid misunderstandings, members should create and retain for a reasonable period of time an audio, video and/or online data record of each auction conducted.
It appears to me that — at a minimum — members of the National Auctioneers Association are obliged to disclose material issues about the subject property. This Article IX doesn’t distinguish between patent and latent issues, although patent issues essentially disclose themselves (given the chance to inspect.) The far more often discussed issue concerns latent issues that aren’t discoverable by the buyer even by a diligent inspection.
However, this Article IX also notes that these are issues where the auctioneer has personal knowledge. Of course, then, if the auctioneer didn’t have personal knowledge, he wouldn’t have to disclose these factors, or would he? The first sentence says, “Members shall avoid misrepresentation or concealment …”
As we’ve continually held, only being obliged to disclose what you know is untenable, because then any auctioneer could (and maybe would) just say, “I didn’t know.” The standard has to essentially be: “What you should have known” so auctioneers are then held to some external standard rather than their own view of their expected knowledge.
We have previously written about this issue, including here where Dr. Virginia Reef testified in a case concerning an auctioneer selling “as is” and disclosure of latent issues: https://mikebrandlyauctioneer.wordpress.com/2019/02/11/as-is-and-should-have-known/.
You can disagree but imagine how buyers feel when auctioneers don’t disclose material latent issues. And when a lawsuit ensues, how would a judge or jury likely feel if you the auctioneer simply and repeatedly said, “I didn’t know …” It seems likely if it concerned something you “should have known about” that a judge or jury would take a dim view of such nondisclosure.
In fact, in our experience as an expert witness in auction cases, we’re privy to several lawsuits concerning this very issue. If you agree that it’s better to stay out of court, rather than win or lose in court, then disclosure is a wise decision. https://mikebrandlyauctioneer.wordpress.com/2018/07/26/auctioneers-you-want-win-in-court-or-stay-out-of-court/.
We have addressed auctioneers who hold they have no obligation whatsoever to disclose latent issues — as latent is “hidden” and therefore not able to be disclosed. First, “latent” in this context isn’t completely hidden, and rather concealed or not obvious: https://mikebrandlyauctioneer.wordpress.com/2020/07/02/disclosing-what-you-should-know/.
In fact, in researching tort law here in the United States, it appears to us there can be substantial liability for nondisclosure of material facts — patent and latent: https://mikebrandlyauctioneer.wordpress.com/2020/10/26/possible-liability-for-nondisclosure/.
We noted this above issue of the possibility of liability for nondisclosure in our analysis of UCC § 2-316 and that the words “Unless the circumstances indicate otherwise” may play a part in regard to issues for auctioneers and nondisclosure: https://mikebrandlyauctioneer.wordpress.com/2020/10/27/unless-the-circumstances-indicate-otherwise/.
There is also the issue of expertise. If you as the auctioneer have years of experience selling “whatever” then you would be rightly held to a higher standard of disclosure. We would offer that buyers with that same level of expertise might be held to a similar standard of “should have known” or “should have noticed” given their experience.
Further, how does a lack of experience and/or expertise alter the obligation to disclose? We feel that what is “reasonable” to be known is somewhat tied to the inspector’s proficiency, although auctioneers are typically held to a higher standard nonetheless.
We’ve also written about deception in the auction business, most notably constructively misrepresenting property by omission — by not saying anything. https://mikebrandlyauctioneer.wordpress.com/2020/10/19/auctioneers-and-deception/. Lying can be expressed by words or text or by the lack of disclosure.
As we noted in the NAA business practices above, members are “to present a true picture in their advertising and representations to the public.” It seems obvious to me that those representations could be what is expressed as well as what is not expressed.
Also of note, two Nobel Prize winners (Paul Milgrom and Robert Wilson) concluded the more disclosure the more comfortable the bidder/buyer is and the higher the bids. https://mikebrandlyauctioneer.wordpress.com/2020/10/16/providing-as-much-information-as-possible/. Aren’t auctioneers to endeavor to secure the absolute highest bids? Could anything less be a breach of fiduciary duty?
Lastly, and maybe most importantly, the “opportunity to inspect” is paramount for every auctioneer’s terms and conditions. Buyers not afforded any opportunity to inspect are bound to expect compensation if the descriptions or representations are any different than reality. On the contrary, a reasonable opportunity to preview mitigates most claims for any patent and/or somewhat latent issues.
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.
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