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  • Writer's pictureMike Brandly, Auctioneer

The cost of that “one more” bid …

The argument is, essentially, if an auctioneer is to maximize price for the seller, and a bid comes in “while the hammer is falling in acceptance of a prior bid” the bid should be reopened — in order to maximize price.

Our question today involves if this is prudent considering the cost? Of course, maybe there’s no cost, but there can be, as in litigation. To save you time, there have been several material lawsuits when the bid has been reopened, including:

  1. Ragusa v. Greco, 171 La. 686, 131 So. 849 (1930) a high bid was not reopened, but “would have been” and as a result, a beneficiary party was not happy. Lawsuit.

  2. Hoffman v. Horton, 212 Va. 565, 186 S.E.2d 79 (Va. 1972) auctioneer reopened the bid and the previous high bidder was unhappy. Lawsuit.

  3. Kline v. Fineberg, 481 So. 2d 108 (Fla. Dist. Ct. App. 1985) the bid was tentatively reopened but then overruled by a supervisor. Lawsuit.

  4. Callimanopulos v. Christie’s Inc., 621 F. Supp. 2d 127 (2009) Christie’s reopened a high phone bid and that phone bidder was unhappy. Lawsuit.

So, let’s agree to agree that the auctioneer is to endeavor to maximize price. Yet, what’s even better is to maximize the net-to-seller, which when saddled with substantial litigation costs benefits from avoiding litigation.

Yes, a Florida District Court in 1985 noted the auctioneer was to “obtain the best financial returns for the owner of the property sold” but didn’t apparently note the cost of litigating this very case which far exceeded the $100,000 higher bid:

The auctioneer possesses a great deal of discretion with respect to the conduct of an auction and the acceptance of bids. Blossom v. Milwaukee & Chicago Railroad Co., 70 U.S. (3 Wall.) 196, 18 L. Ed. 43 (1866); Jones v. Tennessee Valley Authority, 334 F. Supp. 739 (M.D.Fla. 1971); McPherson Bros. Co. v. Okanogan County, 45 Wash. 285, 88 P. 199 (1907). This discretion includes the right either to close bidding or reopen bidding based on whether the auctioneer believes a bid was timely raised. See Sanford v. Sanford, 355 So. 2d 365 (Ala. 1978); Hoffman v. Horton, 212 Va. 565, 186 S.E.2d 79 (1972). In the instant case the record shows the officiating clerk believed Mr. Kline’s bid was timely raised and he elected to continue the sale. Accordingly, we find that the sale should have been continued. Our holding is in keeping with the “main purpose of auction sales [which] is to obtain the best financial returns for the owner of the property sold… .” Pitchfork Ranch Co. v. Bar TL, 615 P.2d 541, 547 (Wyo. 1980) (quoting 7A C.J.S. Auctions & Auctioneers § 2 [1980]). Kline v. Fineberg, 481 So. 2d 108 (Fla. Dist. Ct. App. 1985)

Indeed, reopening the bid [ultimately] resulted in $100,000 more in gross proceeds in this auction, but less net proceeds for the seller after considering all the time, stress, and costs to secure it.

In even more simple terms, what is better:

  1. Auction grossing $4,200,000, $420,000 seller commission, $500,000(?) in legal expenses, netting the seller $3,280,000

  2. Auction grossing $4,100,000, $410,000 seller commission, netting the seller $3,690,000

Exactly; a seller is far more satisfied earning an additional $410,000 — even though the other auction demanded more in gross proceeds. Admittedly, there is little litigation in lower-dollar auctions, but the risk increases substantially as the property value increases.

You might rightly wonder why there is litigation when the bid is reopened, and not when the bid is not reopened. The reason is, typically, because of how the prior bidder feels when his or her bid is upset under this narrow circumstance.

The brilliant auctioneer/presenter/singer/songwriter/evangelist Aaron Traffas wrote about this reopening of the bid from the customer’s perspective and came to this same conclusion. I highly recommend you read his stance here:

If you want [another] attorney’s perspective, here’s one:

… the integrity of the process and respect for bidders’ reasonable expectations is generally consistent with the goal of asset maximization, as most courts have found that the risk of an upset bid stifles aggressive bidding and ultimately results in lost value to the estate. James Michael Peck

Incidentally, what countless auctioneers think “reopening the bid” means is in the case of two (or more) bidders bidding the same amount, and it does not. Rather, this allowance is when a higher bid is made while the hammer is falling.

Should we as auctioneers be advising our sellers we’re not reopening the bid? I would hold we should advise our clients if we are going to be reopening the bid — after explaining the unnecessary risks.

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, Brandly Real Estate & Auction, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He has served as 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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