As I’ve noted over the years, there are only two types of auctions — with reserve and without reserve. We discussed in more detail here: https://mikebrandlyauctioneer.wordpress.com/2009/11/15/different-types-of-auctions/
Despite, we frequently see some confusion arise in the with reserve format in regard to if one aspect of the “with reserve” type is met, does the property then necessarily sell and/or are all other with reserve rights extinguished.
For example, a seller has agreed with an auctioneer to offer [invite offers concerning] his 3-bedroom home for auction.
He and the auctioneer agree that the auction will be with reserve, with a non-published reserve of $159,900.
The auctioneer will disclose that the seller reserves the right to bid.
The auction gets underway with 16 registered bidders. An opening bid of $100,000 is offered, and bids continue to $165,000. Just then, the seller bids $166,000.
Upon seeing this bid, the auctioneer stops the auction — and walks over to the seller to inform him that he can’t bid as the reserve has been met.
The seller counters that the auction type is still “with reserve,” and that it has been disclosed that he has the right to bid.
And, thus the confusion. The reserve has been met (per the contract between the auctioneer and seller,) but the seller’s right to bid remains as the right to bid has been reserved for this with reserve auction (per state law.)
In a case such as this, if there is further bidding and this home sells to someone other than the seller — all is fine. However, if this $166,000 bid (or other seller’s bid) is the highest bid, the auctioneer is likely due his full commission as he has met his contractual requirements per the listing contract.
But it doesn’t mean the seller can’t bid after the reserve is met. In fact, the seller is quite correct about state law.
In a with reserve auction, any or all of these things can happen:
There can be a undisclosed reserve amount
There can be a published minimum bid
The seller can accept or reject the high bid
The seller can bid
The seller can withdraw the property
Said another way, there can be this aforementioned undisclosed $159,900 reserve amount, a published minimum bid of $100,000, the seller bidding, the seller consulted if he wants to accept or reject the high bid and the seller withdrawing the property regardless of the bid amount before the fall of the hammer. Not just one reserve method, but any or all.
The contract with the auctioneer will denote if the auctioneer receives compensation. The auctioneer’s/seller’s agreement with the general public is that the auction will be held “with reserve” meaning it might sell, and it might not … by any combination of the options available.
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. He serves as Adjunct 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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