The UCC § 2-328 has a prescribed solution to solve a seller bidding without disclosure. Basically, the high bidder (the buyer) may void the sale, or take the “goods” at the “last good faith bid.” However, what if the seller bids intentionally and maliciously to solely raise prices for other bidders … are there other risks?
There are other solutions for high bidders as Nevada National Leasing Co. v. Hereford S.F. No. 24624. Supreme Court of California. May 17, 1984 so noted including punitive damages. As such, there are probably far better ways to protect property from selling below the seller’s desired reserve, including minimum bids and/or seller confirmation.
Drew L. Kershen wrote the authoritative treatise on what the “last good faith bid” means and we’ve memorialized his thoughts from 1984 here: https://mikebrandlyauctioneer.files.wordpress.com/2019/02/kershen_horsetradin-2.pdf. However, as can be seen, in this same year, the Supreme Court of California awarded further damages when a seller bid to merely increase prices.
Seller bidding also has another downside, in that if other bidders note the seller is bidding, that may well depress pricing as well as sew distrust in that auction/auctioneer. We’ve held that absolute auctions are far better than with reserve auctions, where the seller cannot bid (although some do) unless a “forced sale.”
In a sense, a seller who consigns his property to auction and then bids to ensure a certain price doesn’t truly believe in the process. A properly advertised and conducted [absolute] auction typically realizes market value, and there are other — better — methods of sale for such skeptical sellers.
We’ve written about the merits of absolute auctions many times, including most recently here: https://mikebrandlyauctioneer.wordpress.com/2021/10/13/you-dont-conduct-absolute-auctions/. If a seller can’t sell absolute, then other possible considerations include a sealed bid event or a minimum bid auction where the true minimum is no more than 70% of true market value.
Context remains a key issue. We’ve consistently held an auction noted as “$300,000 appraised value, minimum bid $200,000” is materially better than just “minimum bid $200,000.” The former clearly and quickly sends the message of a “prospect of a deal” where the latter requires more unnecessary investigation.
Of course, if a seller is willing to sell for 70% or less of market value — why aren’t you suggesting selling absolute? Wouldn’t anyone pay $70 for a $100 bill? Maybe a better question is, wouldn’t anyone pay $99 or more for a $100 bill? Or, maybe you or your seller only believe this “bill” is worth $100?
Is the “prospect of a deal” important? It may be the most important issue for any auctioneer. If your auction has no prospect of a deal — and no, not a guarantee of a deal — bidders will respond. If you don’t, they won’t. https://mikebrandlyauctioneer.wordpress.com/2009/12/11/auctions-and-an-iowa-corn-field/.
As we’ve implied, if you insist on having with reserve auctions, find some other way to protect those reserves than having the seller bid — as the risk is obviously with a lack of sufficient disclosure (which auctioneers are famous for) buyers can void sales, take for the last good faith bid, or even possibly sue for punitive damages.
Lastly, it seems being an auctioneer selling things is much more rewarding than maybe selling things. Not every seller is suitable for an auction. By choosing to work with people (and property) where the seller has equity, urgency, and reasonable expectations, auctioneering can be much more rewarding.
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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