Almost every week we receive a call, asking essentially “Can the seller bid disguised as another genuine bidder?” State law does allow the seller to bid in certain circumstances as noted here:
… if the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid … § 2-328. Sale by Auction
As well, sellers (and anyone else) can bid at a forced sale. However, if it’s not a forced sale, and is necessarily a “with reserve” auction, the seller can bid or “procure” (cause) a bid, and someone can bid on the seller’s “behalf.”
So if Rachel is the seller she can bid or someone else can bid if that bid is on her behalf (suggesting she would have to consent) or she causes (suggesting she has knowledge) the bid to be placed. Nonetheless, in all these cases, this is the seller’s bid, and nobody else’s.
Yet, what happens every day in the United States is that bids are placed by basically auctioneers and/or software where the bidder is represented as a genuine arms-length bidder where the bid is — when scrutinized — held it was the seller bidding.
For example, in an online or simulcast auction, Rachel is the seller, but a bidder named Annie bids. Is Annie really Rachel? Did Annie bid for Rachel? Did Rachel procure Annie’s bidding? Does Annie exist? We believe it’s likely Annie doesn’t have Rachel’s consent to bid for her, nor Rachel’s knowledge she is bidding for her.
Therefore, with Rachel as the seller, Annie is presented as a genuine non-seller bidder to protect Rachel from selling anything below her reserve. If Annie is bidding without Rachel’s knowledge and consent, then Annie isn’t bidding for Rachel and is bidding for herself.
However, it appears too often that Annie bids, and then the property is ultimately noted as a “no-sale.” Did Annie refuse to pay? More often, there is no Annie to pay nor take possession, and rather Annie is a fictitious name used to shill bid for Rachel.
So you might wonder … why not just register Rachel to bid for herself, or put a bidder in as “the seller” so there is no misunderstanding? It’s clear if the bidders know it’s the seller bidding, they tend to not use the seller’s bids as reliable to bid further.
As we’ve noted, auctions are highly collaborative: https://mikebrandlyauctioneer.wordpress.com/2021/07/12/consensus-of-value-at-auction/. As such, it appears auctioneers have a choice to act in a truly collaborative fashion or place shill bids.
We’ve written about shill bids here: https://mikebrandlyauctioneer.wordpress.com/2010/11/25/what-is-shill-bidding/ and more recently here are some related shill bid thoughts: https://mikebrandlyauctioneer.wordpress.com/2019/02/27/when-is-a-sellers-bid-a-shill-bid/.
How about this? If the seller is bidding to ensure the subject property doesn’t sell below the desired amount — or the seller (or auctioneer) want to “experiment” to see if the subject property can sell for more … just note in the contract and terms the auctioneer has the right to bid for the seller, and then proceed.
Most importantly, don’t pretend someone else is bidding when those (Rachel’s) bids are placed. In other words, if Rachel is the seller, bid for Rachel and don’t gesture to someone else, name someone else (such as Annie,) or otherwise hold that those bids are from someone other than Rachel.
Or better yet, hold absolute auctions and have larger bidder pools, likely higher prices overall, happier sellers, happier bidders/buyers and no need to bid for sellers. Further, despite what you hear, you might even spend less time in court too. https://mikebrandlyauctioneer.wordpress.com/2021/07/27/which-is-better-for-the-seller-absolute-with-reserve/.
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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