Public Auctions: Bargains and Bamboozles
Author: Dale Hartley
I used to dabble in antiques as a hobby and made a nice part-time income from buying and selling. To keep myself supplied with inventory, I attended live auctions regularly.
One thing led to another, and I decided to go to auctioneer school and get my auctioneer's license. Since I was already dealing in antiques, I thought it would be fun and profitable to auction antiques and estates.
Well, it was an adventure anyway, but I'm no longer a practicing auctioneer. Preparing for each auction, and closing the books afterwards, took far more time than I expected. And although I profited from each auction, the payoff wasn't that great in relation to the amount of work involved.
I'll spare you my auction school horror story, in which one student arrived with an extremely brutal strain of the flu and gave it to everyone else in the class.
And I'll spare you my impression of the fine instructors: "Now, this is illegal as hell, but here's what one guy does...."
And I'll spare you the typical estate auction client, whose Mama has just died and who wants to auction her 10 year old Montgomery Ward "antique" living room suite for not a penny less than she paid for it.
Yes, gentle reader, I'll spare you the gruesome details of the auction business and give you an insider's view of what you as an auction consumer should watch for.
== PHANTOM BIDS ==
Suppose I'm auctioning an oil painting that's worth about $500.00. The customary (and legitimate) practice is as follows:
1) I start calling for bids at $500.00
2) When no one bids, I drop back to maybe $400.00
3) Then, when no one bids again, I drop back to
the "real steal" price of maybe $300.00
As soon as I call $300.00, several hands will go up. The correct procedure is for the auctioneer to acknowledge the first bidder he sees or, if he sees several at once, to just pick one and carry on from there. But here's the trick...
A slick and slippery auctioneer will see three hands go up at once (each intending to bid $300.00), and he'll point quickly to each, "$300.00, now $325.00, now $350.00" before they can drop their hands. Then he's off and running. It happens so fast that the bidders hardly realize what he did.
There are two things wrong with this:
First, none of those bidders offered a bid any higher than $300.00. They probably would have continued to bid up the price, but that's not the point. It's their decision whether to offer a higher bid. It's not the auctioneer's right to force a higher bid upon them.
Second -- and this is what's really nasty -- those two bids above $300.00 were "phantom bids" to the tune of $50.00. That's illegal. It's fraudulent. It's an offense reportable to the state licensing board. And it happens all the time.
So why would bidders allow an auctioneer to assign them higher phantom bids that they didn't make? A combination of factors: The auction is so fast-paced and adrenaline-charged that the auctioneer's sleight-of-hand may not immediately register. And they may think, "That's fine. I'm going to bid higher than that anyway." They also probably defer to the auctioneer's authority thinking, "Well, I had my hand in the air." And most people do not know this little secret:
By law, a bidder may retract his or her
bid at any time before the auctioneer says "SOLD!"
[ Uniform Commercial Code §2-328(3) ]
If you're an eBay user, you probably know that retractions are allowed only in rare and exceptional circumstances. Guess what? That's just an eBay company policy! By law, any bidder may retract any bid for any reason while the auction is still in progress. Of course, at a live auction this means interrupting the auctioneer and bringing the sale to a temporary halt, which is another reason bidders let auctioneers get away with such antics.
== SHILL BIDS ==
As most people know, shill bidding is a scam whereby the auctioneer has one or more cronies pose as bidders to run up the final auction price. This is common in online auctions, where fraud is easier to conceal (and where the seller can act as his or her own shill without the aid of others).
At live auctions, shill bidding is so transparent and risky as to be downright stupid. In all the auctions I attended, I only saw it once (and in that case it would have been obvious to the village idiot).
The online auction site uBid has an interesting policy that, in my opinion, encourages shill bidding whether intentionally or not. I am not accusing uBid or any of its sellers of shill bidding, because I have no evidence of such. I am only commenting on their policy, which is:
"If there are any bids within 10 minutes of the auction close time, the auction will be extended until there are no bids for 10 continuous minutes. There is no limit to the number of times an auction can be extended."
IF I were selling something on uBid, and IF I wasn't satisfied with the bids, I could simply cast a shill bid and keep the thing going indefinitely. IF I were to do such a thing, the entire transaction would be a sham and a scam.
At a live auction you can watch for phantom bids and shill bids by standing in the back of the the crowd and observing both the auctioneer and the bidders simultaneously.
== BACKING-OFF ==
Now, suppose that an auctioneer, while calling bids, gestures somewhere towards the back of a crowd and calls a phantom bid to help advance the price. And then suppose no one else bids. Uh-oh.
The crooked and greedy auctioneer is about to expose himself for the con artist he is, unless --
"Were you bidding, sir?" (Speaking to the phantom somewhere in the back of the crowd.) "Oh, I thought you put your hand up."
And then he backs-off to the next lowest bid and sells to that person. Whew, that was a close one!
This is why it's a good idea to sit or stand where you can observe both the auctioneer and the crowd, especially with an auctioneer you haven't patronized before.
Reserve or Absolute?
Suppose you see an advertisement for an "Estate Auction" listing the property to be sold, the date and location, and various other information about the sale, but no mention is made whether the auction is "absolute" (everything will sell to highest bidder regardless of price) or "reserve" (auctioneer may refuse to sell below a certain price). Every auction is either a reserve or absolute auction. But how can you tell when the auction ads don't specify? The auction company's very silence is your answer.
Per the Uniform Commercial Code [ §2-328(3) ], all auctions are deemed to be with reserve unless stated otherwise. If the advertising doesn't specify "absolute," then it's automatically a reserve auction. This doesn't necessarily mean that every item will have a minimum price. Most items probably will be sold absolute, even at a reserve price auction. It just means the auctioneer, acting on behalf of the seller, retains the right of refusal.
An auctioneer might have the seller's full authority to sell absolute -- this is common when liquidating estates -- but may still choose to leave the word "absolute" out of the advertising, just to retain some flexibility. If there's a light turn-out and very sparse bidding, for example, the auctioneer might want to pack it in rather than to let everything go for pennies on the dollar.
As soon as you win something at auction, the staff will immediately hand it over to you -- unless of course it's a piece of furniture or other large item. As the auction progresses, piles of merchandise will begin to accumulate around each buyer. Why, you may wonder, don't they just mark these items with your bidder number (like they do with large items) and hold them until you're ready to leave?
Be seated, Grasshopper. You have much to learn.
Under the arcana of auction law, the sale is consummated when the auctioneer says "SOLD!", not when you check out and pay. Therefore, the risk of theft or damage immediately passes to you...unless the auction company volunteers to safeguard your purchases. And this is why your auction winnings get dropped in your lap forthwith. Things do walk off or get damaged at auctions.. Better this should happen on your watch than the auctioneer's.
Auctions can be exciting and rewarding, but as someone who's "walked both sides of the street," I recommend approaching the entire experience as you would a carnival booth:
"Behold, I sent you forth as sheep in the midst of wolves: be ye therefore wise as serpents and harmless as doves."
-- Matthew 10:16
About the author: Dale Hartley is a consultant to the U.S. Department of Defense and used to enjoy auctioneering, but it wore off. He now publishes the consumer website, Consumerama, (http://www.consumerama.net) and exposes corrupt auction practices at Auction Avenger (http://www.auctionavneger.com).
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