I hear this on a somewhat regular basis … “Don’t hold absolute auctions so you can stay out of court.” I’m certainly aware some of the most famous auction-related cases involve absolute auctions, but I can assure any auctioneer if you want to stay out of court, don’t hold with reserve auctions
The issue regarding “with reserve” auctions is most auctioneers then feel (mistakenly and apparently) empowered to bid for the seller under disguise, withdraw property arbitrarily, and have fluid reserves which tend to move depending upon the circumstances. Buyers detest with reserve auctions to begin with and all the associated smoke and mirrors make them detest them even more.
A properly run without reserve (absolute) auction has no more or less chance of litigation than a properly run with reserve auction. Any auction conducted in accordance with the laws and ethics prescribed for auctioneers minimizes litigation.
Of the dozens of cases (over 40) where we’ve been consulted on over the past 10 or so years, the subject auction is with reserve about 55% of the time, where the auction is absolute about 45% of the time. It appears quite frankly as an absolute auction removes some considerable discretion from auctioneers’ authority, those auctions are more … uneventful.
Steve Proffitt and others have held that one of the worst words auctioneers have ever memorialized in terms and/or contracts was “discretion.” Some auctioneers can manage discretion, but certainly many more cannot. Inherent in “with reserve” auctions, there is assumed to be an abundance of discretion.
It’s important to note here that auctions are either with or without reserve. Mixing the two — for example, selling absolute above a certain minimum (reserve) amount is asking for a lawsuit. We don’t see any absolute auctions advertised as with reserve, but when that first one occurs, there will be a lawsuit for sure.
We recently testified in a case where material issues about the subject property were concealed and a second auction to mitigate damages was held which didn’t meet any reasonable standard. The auctioneer’s attorneys argued their discretion (about their with reserve auctions) was suitable, where I argued it was certainly not.
Are you conducting your with (or without) reserve auction in a fair, honest, equitable, reasonable fashion? If not, you may not be avoiding lawsuits, and rather inviting them. We wrote about this somewhat simple concept here: https://mikebrandlyauctioneer.wordpress.com/2021/04/22/good-faith-diligence-reasonableness-and-care/.
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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