Recently, I read a story about shill bidding that reinforced what I already knew: we in the auction industry need to do a better job educating consumers about how the auction process works. And, the collective “we” need to work together to make sure our peers adhere to ethics and industry standards.
The article was well written, and it was clear the writers did their homework with their in-depth reporting. The headline caught my attention first – who wouldn’t stop to read more after seeing reference to fake bids driving up prices?
Then a few paragraphs in, I saw the term that makes many of us in the industry cringe, “shill bidding.” It’s an old term that is often misunderstood, and sadly, some auction houses don’t always follow the rules.
So, what are rules? And why would an auction house engage in such a practice if it could damage consumer trust?
One challenge is that the rules vary worldwide. Here in Arizona, shill bidding, or using a third party to drive up prices, is legal so long as customers are informed. But even that gets tricky, because it all boils down to whether the item has a reserve.
The reserve is the minimum amount needed to keep the bidding going. Many consignors request a reserve for peace of mind – they fear their valuable collectible may sell for less than what they perceive it to be worth. In reality, though, no-reserve auctions, referred to as “absolute” auctions, will attract serious buyers who appreciate a fair bidding experience with no games or hidden agendas.
On a rare occasion, we’ll set a reserve for a big-ticket item. When we do this, we announce it, and we’ll be transparent about any “house bidders” who may be bidding up to that amount. But, cross that line and then we’re breaking the rules. So, for example, if the reserve is $25,000, and we had a house bidder who kept going past that amount, that’s illegal in Arizona.
There is one point I want to clarify about bidding frenzies. They often occur during the final moments before the item is sold. Just because you see prices jump high at the last minute, doesn’t mean you’re bidding against a bunch of fake or house bidders. This is the psychology behind bidding – people like to wait and see what type of value others place on an item.
I don’t like shill bidding, and fortunately, we have not had the need to do so. On the rare occasion that our auction house has included a reserve, the bidding was strong enough that there was no need for it.
As with any business, do your research before placing a bid online or in person. Auctions should be fun and stress-free. Most importantly, many auctioneers like myself want to build your trust, so don’t hesitate to ask questions.
Erik Hoyer owns EJ’s Auction & Appraisal in Glendale.