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Introduction to Auctions

An auction is a form of sale.  In an auction, property is publicly put up for sale.  An auction has a seller and a varying number of prospective buyers.  Thus, an auction can be defined as “the public sale of a property to the highest bidder”[i].  In an auction, the final sale is the result of competition between bidders.  Before auctions came into existence, bargaining was the common practice.  In bargaining, sale was conducted through negotiation but lacked the element of competition.

As is the case for an ordinary sale, an auction also has a seller and a buyer.  The difference is that in an auction there will be several prospective buyers called bidders.  Among various bidders, the one who offers the highest price or bid will be the successful purchaser.  Initially, the seller will place a minimum price for his/her property.  The bidders compete among themselves by offering competitive prices and the highest bid will be accepted by the seller.

Similar to an ordinary sale, in an auction, the sale can be performed either by the seller himself or through a person engaged by him/her.  The person so engaged is known as auctioneer.  The rules for determining winning bidders may also differ in different auctions.  In some auctions, the identities and actions of participants may not be disclosed to others.  Usually, bidders physically participate in an auction.  Bidders can also participate in an auction by phone or internet.  The auctioneer is paid by the seller based on commission.

At least two bidders are needed to conduct an auction.  When the auctioneer announces prices, bidders call out their bids.  Bidders can call out bids themselves or by proxy.  A bid can also be submitted electronically with the highest current bid publicly displayed.  Acceptance of a bid is denoted by the fall of a gavel or by any other audible or visible means signifying to a bidder that the bidder is entitled to the property on payment of  the bid price.  When no participant is willing to bid further, the auction ends for that particular property.  Once a bid is accepted, the seller has no right to accept a higher bid, nor can a buyer withdraw the buyer’s bid[ii]. Generally, an auction is complete when the bid is accepted.  A binding contract is created by the auction.  The seller can also set a reserve price in advance.  If the final bid does not reach the reserve price, the property remains unsold.

[i] Pitchfork Ranch Co. v. Bar TL, 615 P.2d 541, 546-547 (Wyo. 1980)

[ii] Id. 

Inside Introduction to Auctions