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  • Writer's pictureMike Brandly, Auctioneer

Seller’s tolerance for risk

We’ve held for many years that all bidders at any auction need to adhere to the same terms and conditions. For instance, all bidders need to produce a driver’s license and sign an acknowledgment.

Or, terms and conditions could offer bidders a choice … either a driver’s license or state-issued identification and sign an acknowledgment. Further, terms and conditions could say, “Driver’s license, state identification, or if you went to high school with the auctioneer …”

However, there are those who say sellers and their auctioneers should have the right to arbitrarily, selectively, and/or capriciously set terms and conditions for any (all) bidders in real-time. The reason cited is often the seller’s tolerance for risk.

For instance, terms and conditions say that bidders need a driver’s license and a major credit card to register. Rachel is the neighbor of the seller who walks over without her driver’s license nor credit card. The seller knows Rachel and says, “She can register without all that … I know her (I am willing to accept the risk of her participation.”)

The problem with this argument is it only considers the seller’s acceptance of the risk, without fully noting the other risks involved. If Rachel bids against other bidders who did meet or exceed the terms and conditions, their argument is going to be that Rachel had no right to bid against them.

As I mentioned in a prior story, an auctioneer was ordered to pay over $68,867 in damages due to a “non-qualified” (not compliant) bidder bidding against him at a real property auction. Why is it such a stretch to understand this risk is real?

Auctions have risks — most notably property not realizing what the seller is expecting, bidders not showing up or registering, the weather not cooperating … so we all should be looking for ways to minimize these types of risks for all involved. However, we don’t want the cure to be worse than the disease, right?

We previously wrote about assigning risks, with the possible risks of such policies: In essence, as Sir Issac Newton suggested, every action [can have] has an equal and opposite reaction.

As a frequent expert witness helping attorneys with customary practice, industry standards, and commercially reasonable (and other) issues I see contracts and terms and conditions which absolutely put the auctioneer/seller at risk by upsetting this delicate balance of centuries of tradition.

In the purest sense, auctioneers routinely put reserves on property “to protect against” the lack of bidding, where a reserve like this can cause a lack of bidding. It’s prescribing a solution that can solve one problem but causes others.

In practice, auctioneers changing their contracts and/or terms and conditions should not merely make changes to protect themselves and call it a day … and rather consider how such changes will affect all other parties involved — sellers, bidders, buyers.

An auctioneer in our market years ago was having weekly auctions at his downtown warehouse. He was disappointed in some prices, so added reserves and felt the crowds were too small, so he placed his family members in the audience to make it look more crowded — only to then get even fewer bidders and less participation …

As we noted a few months ago in our analysis concerning bigotry ( Countrywide Financial Corporation (2011) paid $335 Million to settle claims of widespread black (and Hispanic) discrimination in lending practices from 2004-2008. How did this restructuring of perceived risk work out for Countrywide?

I frequently hear that bidders, “Don’t read anything” and in fact can attest to that belief as we sell vehicles in an online auction. If the bidders don’t read nor understand the terms and conditions, can they be held to them? Doesn’t a contract require a meeting of the minds? We wrote about this here:

Some apparently feel in light of bidders not reading terms and conditions that we should make them longer — more pages, and maybe smaller print. Is the idea that we as auctioneers can take advantage of bidders not being aware? Maybe the terms which they don’t read could address what happens when they don’t read them?

Some auctioneers are even advising in their auction terms and conditions that potential bidders should contact their attorneys if they don’t understand the auction policies: They are so complex I need an attorney to bid?

What’s the solution? I have advised auctioneers to be careful and thoughtful. Change is constant and inevitable, but changes we make should not be made in haste, and only after consideration of all the likely effects — disclaiming responsibility for Cornonavirus issues without considering that such may be unenforceable, for example,

If you’re sitting down with your attorney to “firm up” your contracts, terms, and conditions, and other policies, ask him or her what the unintended consequences could be. Don’t you ask your doctor what the “side-effects” might be? It’s likely a second opinion would be prudent in both cases.

Joseph Mast recently told a group of auctioneers in Texas, “Take a little risk, it can lead to a bigger reward” He didn’t say big risk, nor did he guarantee a reward. This type of thoughtful advice is what auctioneers need to hear and consider. Interestingly he didn’t say “assign or waive a risk” which can lead to a bigger reward …

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, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. 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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