Auction House Clarification

[scgaynor]

I started a new thread for this instead of posting in the other one about Heritage and undisclosed reserves as I didn't want it to get lost. There seems to be alot of misunderstanding about what an auction house can and can't do legally.

I didn't know this until I got my auctioneers license last year, so my guess is that it is not common knowledge.

When a licensed auction house or auctioneer is holding a live auction (one in which people are attending to bid), all lots are assumed to have reserves unless otherwise noted. Unless the auction is identified as an "absolute" auction, you should assume that there is an undisclosed reserve. It does not have to be stated in the auction terms that there are reserves. The assumption by the state is that since the auction is being conducted by a licensed auctioneer, that it is being conducted ethically. Different auction houses do things in different ways. Some will place "house" bids, some will start the item at the reserve and some will take bids for as long as possible and then state "there is a reserve on this item of X, do I have a bid of X?".

Heritage uses licensed auctioneers so they are within the law to have undisclosed reserves and it is not considered unethical to use them either (at least within the auctioneers code of ethics).

If the reserve is not met, the auction house should not include the price realized as an actual sale in their records. Sotheby's got in trouble for doing this years ago.

Most of the smaller local auction houses run few items with reserves as it only causes problems, but when you deal with the big auction houses (the real high end guys), pretty much everything has some sort of undisclosed reserve. Very few people are going to give their several million dollar item to an auction house and just hope that they get a good price.

The same rules do not apply to catalog/internet auctions held by unlicensed auctioneers or auction houses. My guess is that as long as they state in their terms that there are undisclosed reserves it is legal for them to place "house" bids.

Scott

[Matt]

Scott- that's interesting and it explains why both Hunt and Heritage, have the practice of placing house bids on their lots (and both disclose this fact). The other houses are all purely catalog (save for the yearly live Mastro auction) and therefore can't legally engage in this practice without disclosing it.

[jbsports33]

Scott,

This all makes sense, but can be very confusing to a buyer, can’t auction houses tell bidders which lots maybe set at undisclosed reserves, great to hear your response.

Jimmy

[scgaynor]

I guess it just depends on how the auction house wants to do business.

If they tell people ahead of time, it might discourage people from bidding on a lot. It is the fiduciary responsibility of the auctioneer to get the highest price possible for his client. Auctions are all about competitive bidding. If you discourage even a couple of bidders from participating, it will most likely effect the final price. That is why in the good old days of ebay, a lower minimum bid usually resulted in a higher final price.

On the other hand, if you always use a reserve and don't tell the bidders it will piss them off and that is not good either.

Personally I think the best thing to do is just start the bidding and X and see where it goes. If there are no bids, move onto the next item.

It is just a business decision that each auction house has to make. There is no really good way to handle undisclosed reserves, which is one of the reasons why most auction houses try to shy away from them.

Scott

[BobC]

Scott,

Didn't you get your license through the state you reside/operate in? I don't believe there's a federal law for licensing auctioneers so, is it possible for the auction house rules to vary from state to state and, if so, can the rule regarding auction house reserves also vary by state?

I've been to live auctions run by licensed auctioneers that are also being simulcast on the internet and open to on-line, real-time bidding. I assume the auctioneers in those instances comply with laws for the state they are in but, what impact/effect is there from being on the internet and also electronically running an auction virtually in every state on-line? Is it also possible that some states may have auctioneer rules that are more favorable to the auction house than others? Intersting topic nonetheless.

Bob

[Exhibitman]

Licensing is state by state as is the format for auctions, legal and illegal acts, etc.

Setting aside what an auctioneer can get away with, the issue for me is whether they should be allowed to get away with it. I have a very big issue with an auctioneer who buys for its own account in its auction because it has about a 20%-40% advantage (the commission, BP and shipping costs) over everyone else who is bidding, which means it can safely run up bids and if it gets stuck still end up with a very good price on the item.

[scgaynor]

Auctioneers are licensed by state, the federal govt does not get involved.

Different states have different requirements for getting a license, and I am sure that there are some variations in the laws, but I don't think that there is much variation. The laws for auctioneers in New England (MA, ME, VT, CT, RI, NY, NH) are pretty much the same. Usually the differences are in what is required to become licensed. For example in MA you have to take a 60hr certification course, be bonded, get references, etc. In NH you have to take a written test. In NY, you don't have to take the certification course, all that you have to do is apply for the license, be bonded and pay the license fee.

When using Liveauctioneers, Proxibid, Artfact, etc, the rules of the state in which the auction is taking place are what apply.

The auctions that really surprise me are the automobile auctions that you see on TV. Those guys really seem to be on the edge of what is legal and ethical in the way that they conduct them. You have the owner bidding on the item right in front of everybody and they get to decide if they want to sell the car or not just before the hammer falls. Odd way to run an auction, but I guess it works for them. I can't imagine any other type of auction being run that way.

Scott

[Bridwell]

It bothers me that virtually all the auction houses list an item as 'sold' in their archives and show the sold price realized, when in fact the house was the winner when the item failed to reach the reserve. No sale actually took place in some of the auctions.

Originally Posted by Bridwell

It bothers me that virtually all the auction houses list an item as 'sold' in their archives and show the sold price realized, when in fact the house was the winner when the item failed to reach the reserve. No sale actually took place in some of the auctions.

I was told years ago by a fairly high-rolling Heritage consignor (not of sportscards) friend of mine that Heritage would guarantee him a minimum credit - not cash - for his consigned item(s). I understood this to mean that my friend could tender an item with a potential retail value of, say, $20K, and Heritage would guarantee him maybe a $12K credit against that item to spend on other items in the same auction.

My friend claimed to do this often. He would take the credit, buy something from a 2nd consignor, and (in this example) if his item sold for more than $12K, his purchase and sale would be netted; if, however, his item didn't receive an outside bid of over $12K, Heritage would take the item and pay the the 2nd consignor for the item my friend bought.

My understanding is that Heritage would, in this example, report two $12K sales - even though no one wrote any checks except Heritage.

Besides my distaste for this practice, I also don't bid with Heritage because in 2 of 3 auctions I've participated in, I thought I'd won when I really didn't. I once "won" a Heritage auction through eBay, and was listed there as the winner but was told later (only because I asked) that I was beaten by a floor bidder. I also "won" on their web site - I was listed as a winner the following morning - but was told later that they had "overlooked" a floor bid that was better than mine, and they showed me language in their rules that allowed them to correct such a mistake.

So, for me, never again.