Auctioneers bidding at their Auctions

I just don't feel that auctioneers bidding at their auction is a fair playing field...

Here's a reply for someone I asked their stance:

Larry,
Yes, auctioneers are allowed to bid on items being sold. This is generally outlined in the “Terms & Conditions” of the auction.
If you have any other questions, just let me know.
Thanks

National Auctioneers Association
8880 Ballentine
Overland Park, KS 66214
www.auctioneers.org

If I get other responses I'll post the reply

Asked an antique dealer out from of state yesterday 10/13 and he sells at auctions.
He said some do it and some will not,he does not like attending auctions that this occurs and when he finds out he stops attending.

He said he understands when something is selling way under value but thinks they should look at the end of the auction that it usually works out fine without having the auctioneer bidding.
He recommends not attending those auctions. He sells tons of merchandise every year thru auctions.

Larry,
I allow auctioneers and people who work at my auctions to bid on items including myself. These are not ghost bids. I do require everyone to pay off for whatever they purchase; therefore there are NO ghost bids.
I do not know how you could even bid on eBay or an auction that is being sold live on the internet because you don’t know if they have a real bid or not.
I recently sold a farm to a gentleman who did not attend the auction for $1,300,000.00. A few people at the auction were saying we did not have a bid. They believed the bid to be a ghost bid I reckon. When the gentleman showed up in about an hour to sign the contract, these people who were doing the talking were shocked because they knew him and everyone said “well he can sure pay for it”.
The auction business is a professional business. You must realize an auctioneer represents the seller. I would be doing the seller wrong if I knew one of my auctioneers would pay more and I would not let them bid.
I regret that you will not be attending any of my auctions because I will disclose up front that anyone can bid as long as they pay off.
I trust I have answered your question.
Sincerely,
M

Today, I was reading through the latest issue of the “Auctioneer” magazine published by the NAA. In the Legal Questions section, there was the following Q&A reviewed by Kurt R. Bachman and Beers Mallers Backs & Salin, LLP. I think it’s a very intuitive and ethical response to such a controversial question:

Q: I have seen the following sentence advertised and I wonder if it is legal in all states, especially in Indiana? — “The Auctioneer reserves the right to bid on behalf of the seller until the reserve price is achieved.” If so, then is there any special procedure that we, as Auctioneers, should follow? - Ben Osinski, North Judson, IN

A: Where state law permits a seller to bid at their own auction, then the Auctioneer, as the agent of the seller, generally can bid too. Most states permit an Auctioneer to bid on behalf of ht seller when the seller consents to it (it should be in the auction contract) and where the Auctioneer discloses that he or she may be bidding.

In order for an Auctioneer to bid, state law must not prohibit the seller or Auctioneer from bidding and the Auctioneer’s advertisements, announcements, and registration agreement must make the bidders explicitly aware that the Auctioneer will be bidding on behalf of the seller……

In auctions without reserve or after the reserve on a lot has been reached, sellers are generally prohibited from bidding, which means the Auctioneer is also prohibited from biding. The Auctioneer, as agent for the seller, cannot bid at an auction where the seller is prohibited from bidding. While Auctioneer bidding may be technically legal, depending on the state law concerning seller bidding, it raises serious ethical issues of impropriety and is strife with allegations of fraud. Although the NAA has not taken a position on Auctioneer and seller bidding, it recommends that the Auctioneer consult with an attorney licensed in the state where the auction will take place prior to bidding for the seller at an auction.

Under the NAA Code of Ethics, Auctioneers must deal with bidders in a manner exhibiting the highest standards of professionalism and respect, which means that Auctioneers owe bidders the duty of honesty, integrity, and fair dealing at all times. Article 2. Additionally, the NAA Code of Ethics defines a bid as “a prospective buyer’s indicating or offer of a price he or she is willing to pay to purchase the property at auction. Bids are usually in increments established by the Auctioneer.” If Auctioneers are bound by their duty to treat bidders with honesty, integrity, and fair dealing at all times, then it seems that Auctioneers would need to disclose that they were bidding on behalf of the seller at the time they submit the bid. Otherwise, the Auctioneer would be in breach of their duty of honesty, integrity and fair dealing to the bidders.

…..Several state legislatures have drafted laws governing Auctioneers conduct with respect to this practice. Additionally, the NAA has published the Code of Ethics to ensure that Auctioneers conduct fair and honest auctions in order to preserve the public’s trust in the auction method of sale and the auction profession. For these reasons, I do not encourage Auctioneers to bid on behalf of sellers at any auctions.

Auctioneers Magazine, February 2008 pp 21-22

“Shill” bidding (also referred to as “by-bidding”, “ghost bidding” and“puffing”) or any other schemes to inflate bids are not permitted under the NAA Code of Ethics. Auctioneers should never employ such tactics as a means to artificially inflate bids or circumvent the previously declared intention to sell the property to the highest good faith bidder. Beyond these ethical considerations, in virtually every jurisdiction anauctioneer is prohibited by law from knowingly receiving a bid on the seller's behalf or permitting the seller to make or procure such a bid unless notice has been given that liberty for such bidding has been reserved. In many jurisdictions, bidding by the auctioneer or seller is prohibited even where notice is given of the right to do so. The NAA therefore reminds members that the employment of shill bidding or any other scheme to artificially inflate bids is not an acceptable method for protecting the seller’s property under established legal precedent and the Association’s Code of Ethics.

It is perfectly legal. They can bid and pay just like anyone else.

Wisconsin Auctioneers Association, Inc.
PO Box 620-830, Middleton, WI 53562-0830

From New Jersey-The GOLD STANDARD at this point.

Our company and it’s employees do not bid at our auctions period.

May I ask why you are asking?

Thanks

Bob

Note the Pa. state law in his response-GO PA.

Larry,
If auctioneers are bidding at the auctions they are conducting it should be for one reason only. They should be bidding on behalf of an absentee bidder and disclose it to the audience. It is specifically forbidden by Pa. Law under the auctioneers license act for an auctioneer to bid and buy at any sale he conducts if it is on his own behalf.
K
Autioneer from Pa.

National Auctioneers Association Article Oct.2008

AUCTIONEER BIDDING UP TO RESERVE
I have been in the auction business over 20 years and am currently conducting weekly auto auctions, but I have recently been commissioned to auction real estate. My question is “In the real estate auction market, is it expected that the Auctioneer bid on behalf of the seller up to the reserve placed on the property, as we do in the auto industry?
M. Joseph Bradley CAI

ANSWER: The first issue to consider is whether an Auctioneer can bid on behalf of the seller. In most states the seller may not bid at an auction, either directly or indirectly, unless it is expressly announced that he or she reserves the privilege. The seller is not allowed to make secret bids in an effort to increase the purchase price of the property. Some states prohibit sellers from bidding on property at his or her auction. Since an Auctioneer is the agent of the seller, if the seller is prohibited from bidding at the auction, the Auctioneer will be prohibited from bidding on the seller’s behalf. (An agent steps into the shoes of the seller—if the seller cannot bid the agent cannot bid.) So, it is important for Auctioneers to determine whether state law prohibits sellers or Auctioneers from bidding at an auction.
In states where an Auctioneer is permitted to bid for a seller, an Auctioneer should only agree to do so after discussing the issue with his or her seller. After discussing the issues and advising the seller, he or she may consent to and authorize the Auctioneer to submit bids on his or her behalf. In order to avoid a “he said, she said” type of dispute, the seller’s consent and authorization should be specifically documented in the auction contract. If the seller authorizes an Auctioneer to bid, the fact that the Auctioneer may bid on behalf of the seller must be disclosed to the bidders before the auction. An Auctioneer should announce that he or she has the authority to bid on the seller’s behalf and disclose that authority in the registration agreement.
Unless the seller consents to the Auctioneer bidding on his or her behalf and the Auctioneer discloses this authority to the bidders, the Auctioneer should not submit bids on behalf of the seller. In fact, if an Auctioneer bids on behalf of the seller, but does not have the seller’s consent, then the Auctioneer has acted beyond his or her authority and the sale may be voidable at the seller’s discretion. In addition, bidders could sue the Auctioneer for fraud and misrepresentation.

While it may be common, or even expected in automobile auctions, for the Auctioneer to bid up to the amount of the reserve, it is not common in the sale of real estate. Auctioneer bidding up to the reserve may even be common in some communities, but nationally the practice appears to be uncommon. It is important to discuss this issue with the sellers and advise them of the issue and let them make the final decision.
Although consent from the seller and disclosure to the bidders are the general requirements, Auctioneers should also consider issues Auctioneer bidding may raise with the public. For instance, even if the disclosures and announcements reflect that the Auctioneer has the authority to bid on behalf of the seller at a reserve auction, imagine a bidder wanting to confirm who has the high bid on a property. Unless an Auctioneer announces that he or she was bidding at the time he or she submits a bid, the public may think that the Auctioneer is employing by-bidding or ghost-bidding. So, even if the Auctioneer has done everything ethically, he or she could still be viewed as dishonest by some of the bidders. Auctioneers should exercise caution when they bid on behalf of a seller. It is too important to protect your reputation and the auction profession.

From the above article:
#1)Since an Auctioneer is the agent of the seller, if the seller is prohibited from bidding at the auction, the Auctioneer will be prohibited from bidding on the seller’s behalf. (An agent steps into the shoes of the seller—if the seller cannot bid the agent cannot bid.) So, it is important for Auctioneers to determine whether state law prohibits sellers or Auctioneers from bidding at an auction.

#2)Although consent from the seller and disclosure to the bidders are the general requirements, Auctioneers should also consider issues Auctioneer bidding may raise with the public. For instance, even if the disclosures and announcements reflect that the Auctioneer has the authority to bid on behalf of the seller at a reserve auction, imagine a bidder wanting to confirm who has the high bid on a property. Unless an Auctioneer announces that he or she was bidding at the time he or she submits a bid, the public may think that the Auctioneer is employing by-bidding or ghost-bidding. So, even if the Auctioneer has done everything ethically, he or she could still be viewed as dishonest by some of the bidders. Auctioneers should exercise caution when they bid on behalf of a seller. It is too important to protect your reputation and the auction profession.

From legal section of www.auctioneers.org, this is from lawyers:

Can Auctioneer bid on items at his own auction?
I was curious as to the legality of an Auctioneer or
his staff bidding at an auction which they are conducting.
I know it is prohibited in states like Pennsylvania. but was wondering how that issue is generally addressed?

ANSWER -- Under general auction law principals,an Auctioneer acts as an agent for the seller, who is
the Auctioneer's principal.As such, the Auctioneer owes a fiduciary duty to the seller to act in his or her best interests, most primarily by obtaining the highest price possible for the seller's goods at auction.

By bidding on the seller's goods, the Auctioneer and his staff could be acting contrary to the best interests of the seller.
Although the Auctioneer may actually increase the ultimate price obtained by the seller for his goods by bidding up the price, the Auctioneer's interests in this situation are in conflict.
He or she would be under a duty to obtain the highest price for the seller's goods, while at the same time seeking to purchase those goods at the lowest possible price for himself.
In some states, an Auctioneer and his or her staff are prohibited by law from bidding at any auction they are conducting.

Where such bidding is not specifically prohibited,the Auctioneer must obtain the consent of the seller and should explicitly convey to all individual bidders that he or she reserves the right to bid. The
Auctioneer should make this statement not only in the auction sales agreement, but also by announcing such an intention at the auction before the Auctioneer calls for bids. In addition, the Auctioneer
should refrain from bidding at an absolute auction.Such a practice would certainly leave a feeling of impropriety among other bidders and if your successful bid is far below the fair market value of an item,
your actions could be considered a breach of your fiduciary duty to the seller.

Larry,

Thank you for your email. The MSAA is a voluntary membership organization for auctioneers in Michigan. We do not police, license or govern auctioneers. The Uniform Commercial Code which governs auctions deals with this issue under section 2-238, which is available online.

I hope this will help clear up any questions you may have.

Best regards,
__________________
T
Michigan State Auctioneers Association

Buying items at your own auction
I have completed over 1,800 auctions and from time
to time I will bid on some items in the auction that I
am conducting. During my opening statement I
always disclose this and I show everyone my bid number
and tell them that I might be biding on one or two
items and that my money is as good as theirs is.
Last week I auctioned a motorcycle repair shop and
the customer was very pleased, except for the fact
that I was bidding on a few of the items. This was the
first time anyone has ever said anything about me
bidding on items. I explained to him that I did disclose
everything to the crowd and that I have seen
many other Auctioneers bid in their own auctions. I
also explained that everything that I bought just made
the final gross of the auction go up which was money
in his pocket. My customer seemed to be pacified by
my explanation. In my opinion, I think this practice is
not only legal but ethical as well, as long as the
Auctioneer discloses his or her intentions. Do you
think it is all right to do this, and have you seen many
other Auctioneers buy items at their own auctions?

ANSWER: Although buying items at your own auction
is generally permissible it should be avoided.
Most states allow an Auctioneer to purchase items at
his or her own auction only if the seller consents and
the Auctioneer give proper disclosure of the fact that
he may bid on items. Despite the fact that it may be
permissible to purchase items at your own auction, it
creates several problems. First, an Auctioneer is an
agent for a seller. As an agent, the Auctioneer owes a
fiduciary duty to act for the seller's benefit, while subordinating
one's personal interest to the other person.
A fiduciary duty is highest standard of duty implied
by law. When an Auctioneer purchases something
from his own auction it creates a conflict between the
Auctioneer and seller. The Auctioneer wants to purchase
items at a lower price and the seller wants to
obtain the highest price for each lot.
The fiduciary duty should not be compromised in
favor of the Auctioneer's personal desire to purchase
property. Second, this type of self-dealing can damage
the reputation of Auctioneers and the profession.
I expect that the damage to the profession may not be
worth the possible benefits of bidding on items.
Even though it is permissible, purchasing items at
your own auction is fraught with danger and should
be avoided. If you want to purchase an item that will
be sold at the auction, you should consider not
accepting the sale. Otherwise, you take the risk and
may be inviting costly litigation.

Bidding without disclosure
Does an owner or Auctioneer have the legal right to
purchase or bid on items without making this fact
known in the advertising of their auction?
ANSWER -- An owner or Auctioneer generally does
not have a “legal right” to bid on items without full
disclosure. Whether an owner or Auctioneer may bid
depends upon several factors including: (1) the type
of auction, (2) the specific facts and circumstances,
and (3) the applicable state law. Let’s consider the
owner’s right to bid on items at an absolute auction
and a reserve auction. Afterward, we will consider
whether an Auctioneer can and should bid on items
at their own auction.
In an absolute auction, the owner cannot bid on an
item under the NAA Code of Ethics. The NAA Code
of Ethics defines an absolute auction as “An auction
where the property is sold to the highest qualified
bidder with no limiting conditions or amount. The
seller may not bid personally or through an agent.” In
addition to prohibiting the owner from bidding at an
absolute auction, the ethical standards prohibit
agents of the owner from bidding. This last part of the
rule, since an Auctioneer is the agent of the owner,
prohibits the Auctioneer from bidding on property
sold at an absolute auction.
In a reserve auction, an owner may be permitted to
bid on items at the auction. A reserve auction is
defined by the NAA Code of Ethics as “An auction in
which the seller retains the right to establish a minimum
price, to accept or decline any and all bids or to
withdraw the property at any time prior to the
announcement of the completion of the sale by the
auctioneer.” Several states require disclosure of the
fact that the owner may bid at an auction. If the
owner reserved the right to bid at the auction, the
Auctioneer should fully disclose that fact prior to the
auction. Otherwise, the Auctioneer may jeopardize
the sale and be inviting costly litigation.
The issue of whether an Auctioneer can bid on
items at a reserve auction merits some additional consideration.
Although buying items at your own auction
is generally permissible, it should be avoided.
Most states allow an Auctioneer to purchase items at
his or her own auction only after the owner consents
and the Auctioneer gives proper disclosure of the fact
that he or she may bid on items prior to the sale.
There are a few states, however, that prohibit
Auctioneers from bidding at their own auctions. So,
before bidding on anything make sure you understand
and comply with the applicable law.
Despite the fact that it may be permissible to purchase
items at your own auction, it creates several
problems. First, an Auctioneer is an agent for the
owner. As an agent, the Auctioneer owes a fiduciary
duty to act for the owner’s benefit and must subordinate
his personal interest to the owner’s interest. (A
fiduciary duty is highest duty implied by law.) When
an Auctioneer purchases something at an auction he
or she is conducting, it creates a potential conflict
between the Auctioneer and seller. The Auctioneer
desires to purchase a lot for a reasonable price and
the seller wants to obtain the highest possible price
for each lot. The fiduciary duty should not be compromised
in favor of an Auctioneer’s personal desire
to purchase property. Second, this type of selfdealing
can damage the reputation of Auctioneers and the
profession.
I expect that the damage to the profession may not
be worth the possible benefits of bidding on items.
Even though it may be permissible, an Auctioneer
should usually avoid purchasing items at an auction
he or she is conducting.
--

10/15/08 From the Tennessee Auctioneer Commission

"We consider it unethical" and if a complaint is filed we will follow up and take action.

L @ the
Tennessee Auctioneer Commission

Mr. Singleton,
You previously wrote:
What is your stance and or policy on auctioneers bidding at an auction they are conducting.
Thanks for the information.
The Auctioneers Rule: 21 NCAC 4B .0605 states:

(a) No auctioneer/firm shall bid on items in a sale he is conducting or procure such a bid without the intent to purchase the item. However, in a sale with reserve, the auctioneer/firm may bid on the reserve item up to, and including, the amount of the reserve price without the intent to purchase the item. In any auction where the auctioneer/firm bids or such auctioneer/firm procures such a bid, the auctioneer shall announce such bidding in advance of the auction.

I hope this provides you with the information that you have requested. If not, let me know how I can further assist you.

Sincerely,
R
North Carolina Auctioneer Licensing Board
602 Stellata Drive, Fuquay Varina, NC 27526

Thank you for your e-mail Larry. With regards to your inquiry, the personal bidding of auctioneers on items they sell at auction does take place. It is imperative that auctioneers state both verbally before the start of the auction that they intend to bid on items personally and that this statement be posted in the “terms and conditions” document at the auction. If you have any concerns about this activity, we would suggest contacting the auction company prior to the auction to verify if they intend to bid upon items at an auction you are interested in attending. With all of this said, we understand your concern and please note that there are auctioneers who frown upon this practice due and do not allow this activity at their auctions for the same reasons you listed below. In addition to contacting the auction companies directly, I would also suggest contacting your state’s Attorney General or auction license commission to verify that this practice is legal in your state, as many states prohibit this activity.
C
National Auctioneers Association

8880 Ballentine

Overland Park, KS 66214

http://www.auctioneers.org

Come on Folks-I know you have some thoughts on this...speak up...

Larry,

I came across your post on MAD and found it compelling enough to join this forum and post a reply. Our company has been in business since 1954 and our policy reads "Garth's employees and its owners never have, and never will, bid at our auctions." We feel it is an unfair advantage to us, and puts bidders at a disadvantage: our staff is intimately involved with the materials and the sellers and we know what the amounts of reserves and absentee bids are. Auctioneers traditionally adhere to the principle that their fiduciary responsiblity lies with the seller, and that is the end of it. But, the fact is, buyers need to be protected and respected, or they won't feel comfortable bidding with a firm. No buyers, and the consignments will dry up. We take our obligations to both the seller and the buyer very seriously.

Thank you - and, I love the forum. Great opportunity to share information.

Amelia Jeffers
co-owner, Garth's Auctions
Delaware, Ohio

Amelia, thanks so much for joining and your reply. Amen to your stance on the auction you guys do. It does put buyers (us) at a handicap and I have viewed what it does to folks attending auctions-they start that talking-you know what kind I'm talking about-these auctioneers aren't fair or honest-I won't be back and alot of the time they do not return and the auctioneers never know what went on...... I guess I kinda on a lil' mission to share exactly what you shared.

Please come back and post on this and other topics-we need folks to share their knowledge.
Thanks
Larry