Appreciating the Dangers of Buying at Auction
It is not difficult to find material (including guides) extolling the virtues of buying at auction. Certainly the amount of TV programmes showing auctions, and the greater accessibility to buy at auction online, demonstrate the attraction of auctions not only to the trade but to the public more generally. Motivations will vary, but there may be a view that items are likely to be cheaper at auction than in a shop; that buying at auction is more likely to achieve a more accurate market value; and it’s also fair to say that it can sometimes be a thrilling experience: searching for that “sleeper,” the unpredictability and the gamble involved in any bid. Having bought a fair amount at auction for the last 25 years, and also sold a few pieces, the purpose of this article is to highlight some of the less attractive aspects of buying at auction that do not seem to get very much (if any) coverage. (Regrettably, the Antiques Trade Gazette declined to publish the views expressed in this piece, maintaining instead its own auction guide that was rather more flattering to auction houses, that also happen to advertise with it.)
Auction Charges & Sale’s Commission
In years gone by, it was the seller that just paid a commission (as well as other charges) to the auction house as it acted as the vendor’s agent in selling the item, but gradually over at least the past 30 years, most auction houses now also charge a commission to the purchaser known as a buyer’s premium. Such charges vary, but auction houses commonly will be reaping a total commission of around 1/3rd of the price that an item sells for. The similarity in charges between auction houses, as well as the importance of bringing them clearly to the attention of consumers, has prompted various regulatory investigations in the past.
Broadly speaking, this level of commission makes auction houses look more like retailers than mere auctioneering agents. Indeed, when you see auctions on view, such as “house and garden” sales, where the items are displayed like some room set, the physical impression of a shop can even be conveyed. When buying online, it should be noted that a further 3% plus VAT might be levied. In contrast to a shop, however, the raft of terms and conditions relied upon by auction houses – attempting to exclude almost any responsibility for what they do – makes you wonder exactly what you are paying a buyer’s premium for.
Estimates
Most auction houses publish a bracket between which the hammer price might be expected to fall, called an “estimate.” The reserve should not be more than the estimate, otherwise the auction house is being misleading in suggesting the possibility of a sale at its lower estimated figure. (For this reason, beware of auction houses that publish no estimate particularly when leaving an absentee bid.)
Estimates can be helpful provided you don’t forget that the sum that you actually pay will also have the buyer’s premium added & normally with VAT applied on that premium too. In a guidance note, the Advertising Standards Authority Ltd (ASA) suggest that the guide price should be followed by a statement of any percentage buyer’s premium applicable, including VAT. (Personally I felt that this guide could be clearer as the section entitled “How should non-optional fees be displayed” seemed to be at odds with later sections.)
You should also be aware that auction houses can frequently put estimates at a very low level to encourage interest. This can lead to some auctioneers declaring (rather irritatingly) that an item is going “very cheaply” despite the fact that it still falls within their own estimate or is even beyond their estimate. Therefore, if you really want an item, be prepared for the fact that its “value” is greater than the estimate & that any absentee bid you place, is pitched at the right level.
Catalogue Descriptions & Rights of Redress
The terms and conditions are often quite clever and, to the lay person, the intricacy will not be obvious. They are quite obviously designed to protect the auction house. They make clear that they are only acting for the vendor, lest it might be said that they are assuming some obligation to the buyer who is (for no express reason) also paying a commission. The intention is that in cataloguing an item, supplying a condition report to a potential buyer or in arranging a telephone or absentee bid, these fall into some “free service” for which the auction house has no responsibility to the buyer (at least) for getting right: this often also being expressly spelt out. Commonly the auction house will design its clauses to prevent any duty arising in the first place and, for good measure, then exclude any liability that might arise were a duty to be found.
Because the law sets out differences between someone expressing an opinion and someone saying something as a fact, the terms and conditions also have a standard clause that auction houses are just expressing opinions about what an item is; who made it; its age or condition. Opinions, of course, can more easily differ (although someone should still have reasonable grounds for forming whatever opinion they do express & can be held liable if they don’t.) Further, buyers are told that they should inspect an item personally at the auction house and make up their own minds, and that things are sold “as is”: all further watering down the possibility of the auction house being held responsible for anything that it says. I don’t think that this is fair and it’s also at odds with general consumer expectations.
The reality is that auction houses will have had every opportunity of looking in detail at an item that it puts up for sale (including photographing it, although often without illustrating the blemishes) and frequently will have been able to talk to the vendor. Indeed, many auction houses trumpet their expertise on their website and how long they have been in business. Auctioneers will even frequently coax buyers along when actually selling with comments like “it’s a super lot this;” “it’s in excellent condition;” “it’s a fine lot this one” as they appreciate this all goes to help persuade someone to bid and buy. Yet their small print all attempts to exclude liability for these assurances. Auction houses are in a far superior position than a buyer. High standards should be expected and they should be held to account if they get it wrong. (In their coaxing, auctioneers should be wary that they may go too far: Andrews v Hopkinson 1957 1 QB 229 “it’s a good little bus, I’d stake my life on it,” the Vendor was held liable for its defects.)
Unfortunately, and it happens on a fairly frequent basis, you may also receive a condition report that fails to mention what seems to you – when you have an item delivered- the blindingly obvious. The condition report on an item may well be given by someone inexperienced at the auction house who can’t tell if an item is 17th century or something that has been knocked up in that style in the last 20 years; that there is extensive restoration or gives such a bland comment – “knocks and marks consistent with age”- which doesn’t tell you anything. But with auction houses permitting bidding online to buyers all over the world, who clearly can’t personally inspect an item, this lack of care and exclusion of liability must surely fail if tested in court. Sometimes I feel that auction houses could learn a bit even from the expectations on the Ebay site that all defects should be described on every item sold. Yet only recently, I had an auction house relying on an exclusion clause when I bought over the telephone and their catalogue description turned out to be inaccurate. The best I got was a refund in the buyer’s premium as a gesture of goodwill but still felt saddled with the item. I do believe that had I bought the item from a shop, I would have been better positioned to ask for a complete refund.
There are various statutes that may assist a buyer in attacking the exclusion clauses of auctioneers, or holding them responsible including (in the UK) The Consumer Rights Act 2015 (replacing The Unfair Contract Terms Act 1977 & the Unfair Terms in Consumer Contracts Regulations 1994); or The Trade Descriptions Act 1968. Unfortunately, the Consumer Contracts (Information, Cancellation & Additional Charges) Regulations 2013 (formerly Distance Selling Regulations) do not apply to auctions. In Jersey, the Supply of Goods & Services (Jersey) Law 2009 and associated 2010 regulations will be relevant. Whether or not the buyer is acting in the course of a business may be relevant to which particular statutes or provisions apply. The Office of Fair Trading (which regrettably closed in 2014) has many years ago reviewed the terms and conditions of auction houses and provided a valuable analysis of what terms would be regarded as fair and reasonable. It suggested that auction houses should, for example, accept liability for their negligence when providing a condition report or in failing to execute an absentee bid.
At the end of the day, however, with the complexity of the law, it can easily feel that the auctioneer is in a pretty fortified position with only reputational damage being the simplest and cheapest weapon for an aggrieved purchaser to threaten. (If the auctioneer belongs to a professional body, a complaint in this direction might also help.) I have a number of auctioneers I trust and go back to; others I steer well clear of, having had my fingers burned, sometimes on more than one occasion when I thought I had just been unlucky the first time around. I do believe that auction houses need better regulation given the broader clientele that they are now attracting; the online method of bidding; and their superior bargaining position when compared to consumers, who can often be very inexperienced.
As a rule of thumb, therefore, never be tempted to buy a lot that you have not seen in the “flesh” without at least having the precaution of a condition report and asking for additional images. That way, you may be better informed and have more chance of redress if required. I regret to say that even then, it’s sometimes only once I get a piece of furniture home and start polishing each bit of it, that I see all the faults and restorations. But it’s generally too late then!
Absentee or Commission Bids
“Commission” or “absentee bids” can be left with the auction house if you cannot attend and the basis of such bids is that the auction house will try and secure the item as cheaply as other bids (including the reserve) permit. There is an element of trust here, because obviously the higher the end price, the more commission the auction house makes. I confess that with some auction houses, when I have listened online to events, I have suspected that they have simply started off with my absentee bid (with no other bids on their books) but you have no real way of establishing the position and, absent issuing a legal claim, no right to look at the books. A more subtle difficulty is where the item is subject to a reserve but the auctioneer has a discretion, say of 10%. If the auctioneer is also executing an absentee bid that is equal to or more than the reserve, it’s an easy outcome for the auctioneer simply to bang the hammer down on the reserve price (wrongly in my view) rather than the 10% lower sum that he could have accepted. Given that the auctioneer has confidential information for both buyer and seller, absentee bids should be executed by a separate person at the auction house under what’s called a Chinese wall so that this conflict does not arise, but this is unlikely to happen at smaller auction houses. In any event – and for some reason that I can’t understand- this obvious impropriety seems not to have provoked any regulatory intervention.
Even where there is no reserve and no other bids, auctioneers do not necessarily just start at the lowest bid possible when selling an item, such as at £5 or £10, but can gear it to the estimate, plucking a low figure and starting your absentee bid at that. This is in breach of their terms and conditions which normally state that they will buy the item as cheaply as other bids or the reserve permit: in this instance, none being applicable. I have heard one auctioneer (who also appears on TV) selling an unreserved £500 estimated item stating on the rostrum “You won’t see many other auctioneers like me starting this off on commission as low as £50.” I wanted to ask “why not & how did you select that figure?”
Another auctioneer refused to accept a bid in the room on an unreserved item, saying it was up to him to decide how low to go and he could refuse to sell an item at all so as to protect the vendor. In practice, I suppose it’s only the vendor that could really complain if they wanted a sale and, despite the vast array of terms and conditions, I couldn’t find one covering this, but I’m not sure the auctioneer was right. For instance, had the auction house accepted an absentee bid on the normal basis for execution, how could that auction house then refuse to honour its obligations to execute the bid & as cheaply as possible? Further, were the auction house to have represented or advertised to potential buyers that it was selling items at no reserve, the would-be buyer might have additional grounds for complaint. (In this particular case, the irony was that the item sold at an even lower price in the following sale, but the vendor will probably never have known what went on, & I doubt the auctioneer will have volunteered the information.)
What if I leave an absentee bid and the auction house fails to execute it, puts it in on the wrong item, or executes it at the wrong price? This situation happens more than you would think and I have experience of all three scenarios. It can be very frustrating and cause a fair amount of disappointment. In auction houses where the administration is not as efficient as it ought to be, this kind of situation is prone to happen. It is far better for auction houses to confirm the absentee bid by email, not least so there is a written record, but even then it can fail to make it onto the auctioneer’s sheet or whomever is handling absentee bids.
The basic position is that a contract is formed between the potential buyer and the auction house to execute that absentee bid; this often being covered by the terms and conditions of auction houses as has already been discussed. The provision of this service means that the law implies a condition that the auction house has to exercise reasonable care and skill when dealing with that absentee bid, so if the auction house messes it up, it is technically liable, although calculating any loss would be fairly difficult. Some auction houses attempt to exclude liability, but the Office of Fair Trading has opined that such exclusion clauses may be considered unreasonable and therefore be ineffective. Obviously, if the auction house bids for you on the wrong lot or more than the agreed sum, it is hardly likely that the auction house will be able to insist that you pay their invoice.
Unfortunately, when they do mess up and overlook an absentee bid that is greater than the hammer price actually paid, I very much doubt they also go on to compensate their vendor, although as the vendor’s agents, they owe a duty to do so. Instead, an apology might be heard to the disappointed (would-be) buyer accompanied by the confession that “our poor vendor has also lost out.” That says it all really. Auction houses can appear immune from responsibility for their own ineptitude.
Interestingly, traders in particular will cultivate relationships with the porters at auction houses who may enter into what appears to be a private agreement to execute that trader’s commission or absentee bid that otherwise will not appear or be seen on the books of the auction house. In return they are “bought a drink” by the trader, particularly if they secured the item advantageously. This practice seems to have evolved many years ago. It either evidences a concern on the part of the trade as to how commission bids on the books are executed by the auction house itself, or there are other advantages for the trader in proceeding in this way. However, my objection to this practice in the 21st C is that all buyers have to pay a buyer’s premium and I do not see why certain buyers should be treated differently. More importantly, it seems ripe for abuse as the porter, as an employee of the auction house, is under a potential conflict or, at least, it’s only a small distance to helping the trader to other helpful information that he/she should not have. In an age where other professions have to be careful as to what gifts they receive from their particular business relationships, the auction world has apparently escaped such scrutiny. (See further pg.19 The Times 13th May, 2017 where it is posited as a reason why one investment company will no longer be sponsoring The Chelsea Flower Show as regulations make it improper to give out free invitations to clients.) I have seen one auction house say in its terms that bids left with our porters are nothing to do with the auction house. That may be an attempt to insulate the auction house from any complaint by the person making the absentee bid, but it misses entirely the potential conflict and prejudice to the vendor.
The same principles make it exceptionally unwise for an auctioneer (or any of their staff) to bid on items for his or her own purchase, something that in other walks of life might be described as “insider dealing.” If it is lawful (as I heard the BBC claim, rather boldly, on an episode of Celebrity Antiques Road Trip) an auctioneer would be wise to ensure that a term to such effect is included in its terms and conditions; any such bid is disclosed and the member of staff bidding has no involvement in the sale of the item itself.
Rings
Buyers (usually from the trade) can form a ring where they agree not to bid against other and then carve up the items amongst themselves at deflated prices. Such rings are illegal but do happen to varying degrees. For those not committing this criminal activity, it can lead to the puzzled feeling that you don’t get a great deal when selling at auction but you somehow seem to be paying a lot when buying!
A true reflection of market value?
Buying at auction in preference, for example, to buying in an antiques’ shop might be justified on the basis that the shop will have overheads to cover and a profit to make, and will be selling at higher than an auction price. It is, however, simplistic to find too much comfort in an auction providing a fair reflection of market value for the item that you buy. It is true that, in an instant, the auction has buyers from far afield, deciding upon an object at a given time but there are various factors that can distort the picture.
Even where there is no reserve, the point at which auctioneers start off the bidding can be a cause for concern. I have been to one auction (heralded as without reserve) only for the auctioneer to start off bidding pretending he had a bid when he didn’t and therefore impose his own reserve. (A member of the auction team in effect admitted this to me.) On another occasion, after quizzing the auctioneer as to the hammer price that I paid, he admitted that the reserve was increased before the auction and above the auction estimate that had been provided. He didn’t see any harm in the estimate giving a wholly false impression. On other occasions, an auction house (or indeed you) can fail to see some important defect in the item being purchased; a misapprehension that might be shared by all other buyers so that the price paid is inflated but without any easy or practical means of redress.
One might hope that auctioneering was merely a practical and transparent form of selling an item but there is indeed an “art to auctioneering” -as one auctioneer proudly told me. Surprisingly, he trumpeted this only after I queried why my commission had been levied against the wrong lot, and then the right lot was invoiced to me but at reserve (no discretion applied) and after the sale, for it had actually been passed in the sale as unsold. It took a while to get him to understand that this “art” might in fact be incompetence and a sale after auction also required my agreement.) Aside from tone and pace (important to maintain interest) there are auctionering aspects that are slightly suspect. These include starting the bidding process at a sum that the auctioneer has no intention to sell at (as being below the reserve) & perhaps pretending to take a bid from a non-existent person at the back of the room (justified as the bid of the vendor under a reserve.)
While such practices are technically lawful under the auction house’s standard terms & conditions, this is really no better than a deception. At some point, particularly at the lower price, a (real) buyer can be persuaded to bid and is then sucked into the process. Once two buyers have their teeth into bidding for an item, sometimes prices can be achieved that exceed those that one expect to pay in the calm atmosphere of a shop.
When bidding at auction, it’s important to stick to a limit. Of course, there can be slight variations on the day: the item may appear better than the initial viewing or there may be a gut feeling from the bidding such that one further bid would secure. However, tenacity and perseverance – admirable qualities generally -are a buyer’s enemy at an auction &, unfortunately, only play well for vendors and the auction house. Despite “ebay” style terminology beginning to be taken up by some auction houses, please note that you don’t really “win” an item. Unfortunately, there is an expectation that you will be paying for it, just as you would in a shop! So be patient, and do your homework before the sale. At least 9 times out of 10, a similar quality item will eventually come up. Remember also, that sales can be a bit boring waiting for the lot that you are interested in. Resist the temptation to stick your hand up, or clicking your mouse, when something (that you probably haven’t looked at properly) is apparently going remarkably cheaply. The chances are that there’s something wrong with it, or it’s just not very good!
Summary
Clearly some good bargains can be secured at auction but the truth is that you need to have your eyes opened to some of the less savoury processes and understand where and how it can go wrong. Over the years, regrettably, I have probably bought more “duds” than bargains at auction and the collapse in value of many traditional antiques has emphasized that sentiment. (In that latter respect, what happened to the value in apparently rare Royal Doulton series items or dining tables & why the continuing demise of the bureau?) It is clear that there is greater “come back” for purchases from a shop business than an auction house which can be an important factor to consider. Unfortunately, in an age of cut backs and the disappearance of organizations such as the OFT, it remains to be seen if there will be more regulation of auctions in the near future so as to better protect the consumer. In my view, the law in this area is complex, unclear and inadequate. With changes in consumer habits, and online bidding, better regulation of auctions is undoubtedly required.
Timothy Hanson is a Jersey advocate & English barrister and, disappointingly to his wife –“where on earth are you going to put that?”- a keen collector of early furniture.
(Revised & Republished article that first appeared in 2017.)