Selling property at auction involves contracts — which begin with offers from bidders; what auctioneers do is suggest — invite — bidders to make offers.
For example, an auctioneer might say, “Start me out at $15,000 …” [the invitation to bid $15,000] and then a bidder might bid $5,000 [the offer.]
There is no contract formed until offer and acceptance, and bidders make those offers outside of absolute-auction collateral contracts the auctioneer makes to all bidders that property will be sold to the highest bidder.
We wrote in more detail about bid calling contracts here: https://mikebrandlyauctioneer.wordpress.com/2014/08/11/bid-calling-is-just-numbers/
However, sometimes auctioneers act as bidders and “start the bid” and then suggest someone else bid more. For example, an auctioneer might say, “Start me out at $15,000 … I have $5,000 and somebody give me $6,000 …
In such circumstances as this, the auctioneer is either saying:
“I am bidding $5,000 and will buy this property for $5,000 if nobody bids more.”
“I am portraying that I (or someone) has bid $5,000 so the next bid should be $6,000 …. but if nobody bids more than $5,000, I will retract (void) this $5,000 bid.”
It is prudent to note that both #1 and #2 above are legal and ethical in a narrow and reasonable circumstance: At the time of this $5,000 bid, that bid is made with the genuine intent to purchase.
If — on the other hand — this $5,000 bid is made with intent to withdraw (retract, void) if no higher bid is made, then no genuine intent to purchase is present, and that $5,000 bid is nothing less than misrepresentation.
Of course, an auctioneer could say, “I did bid with the genuine intent to purchase … but since nobody else bid more, I changed my mind.” Context would be used to find that if an auctioneer held that he repeatedly bid with the genuine intent, and then changed his thinking each time — that the genuine intent almost assuredly never existed.
We wrote about this type of bid calling technique in 2010: https://mikebrandlyauctioneer.wordpress.com/2010/02/04/unethical-bid-calling-3-he-loves-me-he-loves-me-not/
This is far different than the auctioneer bidding for the seller (i.e. protecting the reserve.) Auctioneers can bid for the seller in a with reserve auction with proper disclosure — and in essence if the seller is the high bidder, he buys his own property.
Nonetheless, when bids are made without the genuine intent to purchase, they constitute a shill — a false advocate — holding out that someone believes this property is worth $5,000 when [apparently] nobody actually holds that opinion. Shill bidding is a violation of the Sherman Antitrust Act.
We previously wrote about shill bidding here: https://mikebrandlyauctioneer.wordpress.com/2010/11/25/what-is-shill-bidding/. Possibly more importantly in the last four auction-related court cases in which we’ve consulted, the word, “shill” has been discussed extensively.
Auctioneers can certainly start the bid on any (personal) property lot (other than while bid-calling in Pennsylvania,) and if that bid constitutes the genuine intent to purchase, all is fine. However, if that starting bid lacks the genuine intent to purchase at that price, then all is not fine.
Finally, for auctioneers who just can’t (or refuse to) believe this, it’s worth noting the Supreme Court of the United States in Veazie v. Williams, 49 U.S. 8 How. 134 134 (1850), affirmed that auctioneers cannot accept fictitious bids — those lacking the genuine intent to purchase.
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, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished 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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