As we have discussed in various posts, there are two types of auctions:
With reserve
Without reserve
In a with reserve auction, the seller reserves the right to accept or reject the final highest bid, up until the auctioneer announces, “Sold!” In a without reserve (a.k.a. absolute auction), once the item is put up for bid and a bid is received within a reasonable time, the item must sell to the highest bidder.
Some sellers, and some auctioneers, are nervous about this particular facet of a without reserve auction — that once a bid is made, the item must sell. Therefore, they wish to conduct with reserve auctions so that an item may be withdrawn if the highest bid is deemed insufficient. Yet, buyers don’t like this type of auction, as even if they become the high bidder, they can be denied title.
On the other hand, auctioneers are hesitant to conduct auctions for sellers with reserves on all items, and especially hesitant if those reserves are unrealistic when compared to the market. So, because of this, an auctioneer might want his seller to acquiesce control over to the auctioneer by contracting that all items have a reserve bid of $0.00 (a reserve bid of nothing).
An auction such as this could then be advertised as an auction with “no minimum bids” and “no reserve prices” as all items would have a reserve of $0.00. Yet, if for whatever reason, a certain item didn’t demand a price that was acceptable to the auctioneer and/or seller, the item could be withdrawn from the auction.
Another issue regarding the type of auction is that if an auction is a with reserve auction, the seller may bid so long as that right is disclosed to the bidders. On the contrary, at a without reserve auction, the seller may not bid (unless at a forced sale). So, in a with reserve auction with all reserves $0.00, the seller could retain the right to bid, and in that way withdraw any (or all) items up until, “Sold!” even though there were “no minimum bids” and “no reserve prices.”
The general public perceives an auction advertised as having no minimum bids and no reserve prices as a without reserve auction. This perception was no more paramount than in the landmark case Drew v. John Deere Company of Syracuse, Inc., 19 A.D.2d 234, 241 N.Y.S.2d 267, 269-270 (1963) where the judge in the case pointed out that “selling to the highest bidder” was not the same as a without reserve auction — even though Drew felt the advertising clearly denoted an absolute auction.
Some reading this post might be thinking that this is nothing new — as seller confirmation auctions have been around for 100’s of years. In such, there is no minimum bid or reserve price, but rather the seller may accept or refuse the final bid (up until, Sold!).
Yet, this is different. If the auctioneer’s contract with the seller says all the reserve prices are $0.00, then the seller has agreed, per the contract, to sell any item for any amount over $0.00. The fact it is a reserve auction now might only allow the auctioneer to reject any high bids which he feels are insufficient — not the seller. In fact, the contract could forbid the seller from bidding.
Can the seller contract away rights he otherwise has? We discussed that as well here: http://mikebrandlyauctioneer.wordpress.com/2010/03/19/can-the-auction-seller-waive-rights-granted-under-state-law/
I would look for more of this type of auction, where the seller turns over his rights of withdrawal to the auctioneer, and the auction remains a with reserve format. An interesting twist to what we normally think of as an auction with “no minimum bids” and “no reserve prices.”
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. His Facebook page is: www.facebook.com/mbauctioneer. He is Executive Director of The Ohio Auction School.
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