“I’m bid a hundred - now a quarter. I’m bid a hundred, now a quarter, one ana quarter, one ana quarter, now a half. One ana half, one ana half, 75, 75, now 200 dollar.” 

Last week, we looked at the auctioneer’s chant to see what all the fast talk really means. We saw that the auctioneer gives two numbers in the chant. The “bid” is the first number the auctioneer calls and it is the amount that a bidder has bid for the lot. The “ask” is the second number called and it is the amount the auctioneer is requesting potential bidders to bid next. So when an auctioneer cries, “I’m bid a hundred - now a quarter,” she is saying she has a $100 bid in hand and she is seeking a bid of $125. When the bidding reaches $125, the auctioneer immediately asks for $150. When it hits $150, she requests $175. Once she gets that amount, she next looks for $200 … and the process of escalation continues until the bidding ends.

While calling two numbers seems simple enough, these numbers have a meaning that goes beyond numeric value. This is due to a legal intricacy in the auction process that controls the seller, bidders, buyers, auctioneer, and even the possible outcome of the auction itself - but not always in the same way. As a result, sometimes the chant favors the seller and auctioneer, while other times it is tilted toward the bidders and buyers. This is a critical concept that should be clearly understood by all auction participants. Let’s look closer to grasp it. 

The object of an auction is to offer the goods for sale to the bidders. A sale occurs when an auctioneer cries “Sold!” This act forms a contract for sale between the seller and the highest bidder (now the buyer) for the subject lot. A contract for sale has three required elements which must be satisfied to be valid. These elements are: (a) an offer to sell the goods, (b) an acceptance of the offer, and (c) consideration which generally is the inducement for the parties to contract or the benefit to be conferred upon them as a result. To more fully understand the auctioneer’s chant, we need to focus on the first two elements - offer and acceptance. These determine who has control in the auction process.

When an auctioneer cries bids for an auction lot, which party is vested with the power of acceptance and, therefore, is in control of the process - the seller or the bidders? The answer is … it depends. Many people believe that when an auctioneer calls bids, the auctioneer is seeking offers to buy from the bidders. This is true … some of the time. Other times, it is the seller that makes an offer to sell and the bidders hold the power of acceptance. 

To understand how this works, we need to know which party is in control of the auction process. The answer turns on the type of auction being conducted - whether it is (a) an auction with reserve or (b) an auction without reserve. The auction type determines the identity of the party who makes the offer. Is it the seller that makes an offer to sell, or the bidders that make offers to buy? This distinction defines whether it is the seller or the bidders that possess the power of acceptance and, therefore, control over the auction process. 

Two weeks ago, we briefly reviewed these two auction types. We saw that in an auction with reserve the seller “reserves” the right to sell the lot or not, based upon whether the seller wishes to accept the highest bid made for it. In using reserve protection, a seller says to the bidders - “I might or might not sell the lot to you. Give me your highest offer and I will consider whether to accept it.” So in an auction with reserve, it is the bidders who make the offers to buy the lot from the seller. The numbers the auctioneer calls are the offers made by the bidders (i.e., the first number called being the “bid”) and the higher offers that the seller asks the bidders to bid (i.e., the second number called being the “ask”). If the seller receives an offer that he wants to accept, he can do so and sell the lot. Otherwise, the seller can reject all offers and retain ownership of the lot. In an auction with reserve, the seller holds the trump power of acceptance and control over whether a sale will be made.

An auction without reserve is the opposite and the seller reserves no right to decide against a sale. Instead, by choosing this auction method, the seller says to the bidders, “I offer to sell this lot to the highest bidder, regardless of price.” The courts have ruled, and the commercial code supports, that it is the seller who makes the offer to sell as a result of announcing an auction without reserve (also known as an “absolute auction” or an auction “selling to the highest bidder”). This means the highest bidder has the right of acceptance and, therefore, the power of control over the sale of the lot. Therefore, the “bid” numbers called by the auctioneer are not offers to buy but, rather are escalating acceptances by the bidders of the seller’s offer to sell. The “ask” numbers are the auctioneer’s efforts to increase the amounts of the acceptances of the seller’s offer. 

We can now see that the auctioneer’s chant has a broader meaning than might have been thought. The numbers called in the chant recite the amount that has been “bid” for the lot, as well as the amount that the auctioneer “asks” to be bid. Additionally, and dependent upon the type of auction, the numbers also relate the amounts of the offers to buy, or the amounts of the acceptances of the offers to sell. All of this is important information for auction goers to know.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Steve Proffitt may write to him in care of this publication.