As I continue to teach auctioneer pre-licensing and auctioneer continuing education, among the concepts those attendees often find surprising is when an auctioneer can (and can’t) refuse a higher bid.
It’s well established that there are only two types of auctions: Any auction is either “with reserve” or “without reserve.” And the answer how an auctioneer handles higher bids rests with the type of auction being conducted.
In a with reserve auction, the auctioneer may refuse a higher bid (reserve the right to refuse …) where in a without reserve auction, any higher bid must be accepted.
Said another way, in a with reserve auction, the auctioneer is not bound to sell to the highest bidder. In essence, the next higher increment represents the minimum bid.
We discussed bid increments in more detail here: http://mikebrandlyauctioneer.wordpress.com/2010/05/22/bid-increments-at-auctions/
More generally, when would an auctioneer desire or feel it is prudent to decline a higher offer? It is a higher offer after all.
For one, an auctioneer with an vast inventory of automobiles to sell (or whatever) might want to keep the increments “reasonable” so that the auction keeps moving along, and isn’t slowed by taking small or insignificant bids on each item. A car can sell for $60,000 by $500 increments much quicker than by $5.00 increments; same ultimate price, and less time.
Secondly, some bidders take offense or are of the thinking that if they offer $40,000, for example, that the auctioneer should demand at least a reasonable amount more to have that $40,000 bid upset. “I gave you a great opening bid on a $60,000 car of $40,000 and you accept $40,005 from another bidder? Are you kidding me?”
This feeling that an auctioneer might owe a high bidder the courtesy of asking or requiring a reasonable amount – increment — more than his prior bid is powerful. Many bidders who are outbid by another bidder by only a small amount lose interest or are often otherwise disturbed by such small increments. As such, higher (or at least reasonable) increments might actually result in a higher sale price.
Too, sometimes a bidder who wants to offer a trivial amount will actually offer the more reasonable amount once the trivial amount is identified and declined. This too can result in higher sale prices.
However, it is important to know that at a without reserve auction, property must sell to the highest bidder. And in our prior example of a $40,000 bidder being outbid by $5.00 — in such an auction, that bid must be accepted.
Finally, the right to refuse higher bids should be discussed with the client. This is based on the basic need to provide the client with knowledge of such material issues, and receive the client’s consent of such actions.
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, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Columbus State Community College, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.
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