In the United States, there are two types of auctions.
In other words, an auction is one type or the other — and necessarily one or the other — and not both.
We have written extensively about this topic, including:
Despite this being the law of the land, it appears that some auctioneers are asserting that they have auctions which are neither absolute, nor with reserve.
We discussed a similar topic regarding a with reserve auction with a $0.00 reserve:
Nevertheless, our topic today is more general. Let’s say that a potential bidder (Eric Roberts) calls an auctioneer and the conversation goes like this:ERIC ROBERTS: “Hello, I’m calling about your upcoming auction on Flat River Road this coming Saturday …”AUCTIONEER: “Yes, we’ve got a great opportunity there — wonderful 125 acre farm with creek, woods, and plenty of room to build.”ERIC ROBERTS: “Right, I’m familiar with it and I have known Dick & Janet Coffman since I was a kid. I wondered if they were selling absolute?”AUCTIONEER: “Uh … no, not absolute, but it’s going to sell Saturday.”ERIC ROBERTS: “Going to sell? So the Coffman’s have no no minimum bid it has to bring?”AUCTIONEER: “Right, no minimum bid and they’ve already moved down to Louisiana and Dick’s opened his new office there.”ERIC ROBERTS: “Okay, great — no minimum bid and I assume Dick & Janet can’t refuse the high bid? They’re going to accept whatever it is?”AUCTIONEER: “Exactly, and they couldn’t be happier in that warmer climate, and Janet even said she’s already feeling better with the higher humidity there.”ERIC ROBERTS: “Good for them. I know Janet’s health hasn’t been the best lately. So, they can’t refuse the high bid, and there’s no minimum?”AUCTIONEER: “I’m happy for her too … both of them. Yes, no minimum bid and they’re not going to refuse the high bid — they want this farm sold.”ERIC ROBERTS: “It sounds like then they won’t be withdrawing the farm from the auction, even if they aren’t happy with the price?”AUCTIONEER: “Oh no … no withdrawing it from the auction.”ERIC ROBERTS: “I was at Foreman’s auction the other day and he had a seller bidding on his own property. They certainly won’t be doing that?”AUCTIONEER: “They’ve already moved, so they won’t even be at the auction …”ERIC ROBERTS: “Okay, so maybe I misunderstood? This is an absolute auction?”AUCTIONEER: “No, you understood … we’re not selling this absolute.”
If I’m Eric Roberts, I would have asked this auctioneer a few more questions.
One would have been, “If there’s no minimum bid, they aren’t going to refuse the high bid, they aren’t going to bid themselves, and they aren’t going to withdraw it from the auction, then what is the particular reserve in this auction that’s not a without reserve (absolute) auction?”
For this auctioneer to claim this isn’t an absolute (without reserve) auction is disingenuous. Without reserve auctions don’t have reserves and this auction apparently has none. So, it is indeed a without reserve auction — which is the same as an absolute auction.
The only other possibility — which a few auctioneers have admitted to me — is that they don’t advertise auctions as absolute, and therefore can invoke one or more reserves if needed. For example, if the price doesn’t reach the amount the Coffman’s want, the auctioneer can say, “Sorry folks, but we aren’t selling today.”
The problem with this is our auctioneer just told Eric Roberts that the Coffman’s would indeed accept the final bid price, regardless. Yet, as I’m told this is somewhat standard procedure: Paint the picture of the auction as absolute, but don’t advertise it as such, in case … something happens.
So why would an auctioneer avoid having an absolute auction?
It appears to me that auctioneers are just afraid … and avoid the use, and associated benefits, of calling their auction an absolute auction for one of two issues: They fear …
Lawsuits which are more common in absolute auction cases.
Giving up the rights of withdraw or rejection because there could be “that one” auction where they’ll need to invoke that option.
I can certainly understand the fear of a lawsuit, and the fear of needing a “with reserve” option in an extraordinary circumstance (even though absolute auctions allow cancellation before the auction is opened, and if no bid is received within a reasonable time,) but how does this weigh against not advertising the auction as absolute?
Some claim the word absolute has been so misused to such an extent (absolute above a certain amount, absolutely going to sell if the seller confirms, as examples) that the public largely doesn’t know what it means anymore, and are not sensitive to absolute auction marketing.
Others such as me believe the public is very well educated about auctions — much more than they were in the 1950’s, 1960’s, 1970’s, … even the 1990’s. With the Internet, television shows, radio programs, blogs, electronic forums and the like, coupled with the vastly increased use of auction marketing — auction terminology and methodology are nearly common knowledge.
It seems clear to me as I travel all across the United States that the public does understand the words “absolute auction,” and responds much more to an auction advertised as such, than they do a with reserve auction — or for that matter a with reserve auction disguised as an absolute auction.
In summary, there are only two types of auctions, and any one auction (one “lot”) must be one or the other, and not both. An auction that is not absolute, nor with reserve should be considered no more than sales talk or puffery.
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 serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.
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