Auctioneers recount lots of stories. One such story regards changing a “with reserve” auction to an “absolute” auction. It typically goes something like this …
The seller has informed his auctioneer that he is willing to sell his prized framed painting for $150,000, at his upcoming auction, and not for any less. This of course would be a “with reserve” auction. The auction commences and the bidding starts at $50,000 and quickly rises to $75,000, $80,000, $90,000, $125,000, $135,000 … $145,000 and a bid comes in for $150,000, and the auctioneer announces “Folks, we’ve reached the reserve, and we now have an absolute [without reserve] auction.” Just then the high bidder at $150,000 retracts his bid and tells the auctioneer that he now offers $1.00 for the painting. Since the auction is now absolute and a bid has been received within a reasonable time, the painting cannot be withdrawn.
We would offer … not quite.
Auctions in the United States are one of two types. There are not three types of auctions, nor four types of auctions, nor five types of auctions … there are two.
The two types are described here: http://mikebrandlyauctioneer.wordpress.com/2009/11/15/different-types-of-auctions/, where we cite the UCC 2-328 as adopted by essentially all the 50 states in the United States.
What are the implications of there being two types of auctions?
For one, in a reserve auction, the seller may withdraw the property from the auction up until the auctioneer so announces “Sold!” by the fall of the hammer. In a without reserve auction, once a bid is received within a reasonable time, the seller may not withdraw the item from the auction.
These two types of auctions are materially different in this regard.
Let’s look at changing a with reserve auction to an absolute auction, and an absolute auction to a with reserve auction. First, can an auction type be changed? Not really.
Once property is put up for auction either with reserve or without reserve, that’s the auction type for that particular lot. Or, as my good friend Jason Smith suggests, “I’ve got a Coke can here, and I can’t change it into a Pepsi can.”
But what Jason can do … is throw away that Coke can and go grab a Pepsi can. That is if he can throw away the Coke can. At auction, sometimes auctioneers can throw away that Coke can and other times they can’t.
Let’s look at the two types of auctions to determine if the current lot or property can be withdrawn (and thus if that Coke can be thrown away:)
In an absolute auction, the lot or property can be withdrawn before it has been put up for sale, and then otherwise only if no bids are placed within a reasonable time.
In a with reserve auction, the lot or property can be withdrawn anytime before the auctioneer announces the completion of the sale (typically, Sold!”)
So, if the seller (via his auctioneer) desired to change his with reserve auction into an absolute auction, the first step would be to withdraw the painting from the with reserve auction — and therefore nullifying all bids — and then put the painting up in an absolute auction.
Or, if a seller (via his auctioneer) desired to change his absolute auction into a with reserve auction, the first step would be to withdraw the painting from the absolute auction — only possibly nullifying any bids made after a reasonable time — and then put the painting up in a with reserve auction.
As can be seen here, so-called changing the type of auction is actually two steps: Withdraw the property from the current auction, and put it up in the other type of auction. But that is only if the property can be withdrawn at that moment.
Our above story here has a flaw. If any auction item or property is withdrawn, no bids exist at that moment. In the case of this $150,000 bid on a painting, once the painting is withdrawn, the $150,000 bid disappears. In other words, no need for that bidder to retract his bid as it’s essentially done for him.
Finally, what should an auctioneer do if he’s having a with reserve auction of this painting, and the bid reaches the reserve? He could say, “Folks, we’ve reached the reserve,” and continue to ask for bids. This would keep the auction with reserve, and not extinguish the $150,000 bid.
Otherwise, if an auctioneer had this same painting selling absolute and the bidding reached only $82,500 (thus below what the seller desired) … it could not be withdrawn unless the initial bid was placed after a reasonable time after the painting was put up for auction. We discussed this nuance here: https://mikebrandlyauctioneer.wordpress.com/2014/11/10/auctioneers-absolute-right-of-withdrawal/
The only other choices with the final bid being below the desired amount would be to sell the painting and suffer the seller’s disappointment, or withdraw the painting and thus breach the current contract with the high bidder and the collateral contract with all bidders which promises the painting will be sold to the high bidder.
What’s the best strategy? Don’t change (withdraw and put up otherwise) any auction type at any time. If it’s a with reserve auction, leave it as such; if it’s an absolute auction, leave it as such.
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 Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.
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