Auctions

Updated 01 Oct 2011
Auctions-hero

Introduction

Auctions are fun and popular. But if you buy a faulty product, you may not have much legal comeback.

In this article, we answer readers' most frequently asked questions about buying and selling goods at auction. You may also want to read our articles on Internet auctions and Second-hand goods.

Buying

I went to my first car auction last week and the first thing I had to do was register and sign a bidder's agreement. What was that all about?

Registering as a bidder means you give the auction house your personal details and are given a bidder's number.

The auction house does this to keep track of the bidders during the auction. After each sale, the auctioneer jots down the successful bidder's number, then moves on to the next item.

All the conditions of the auction must be made clear to the buyers beforehand. If the auction house doesn't do this, you are not bound by those terms.

Usually, the conditions will be set out on signs and in your copy of the bidder's agreement. By signing, you accepted that agreement, so read it first!

Common conditions contained in such agreements include that the buyer must take away the goods that day at their expense, payment must be made by cash, Eftpos or bank cheque on the day, and that a 12 percent buyer's premium (plus GST) will apply.

A "buyer's premium"? What on earth is that?

As you probably know, to make their money, the auction house charges the seller a commission on each sale. However, auction houses now often impose a charge on buyers as well. This is the buyer's premium, also called a buyer's commission.

So, with that agreement you signed, if you buy something you must pay an extra 12 percent plus GST on whatever you bid.

The agreement also said that all goods are sold on an "as is, where is" basis. Can they do that?

Yes. Goods sold at auction are not covered by the Consumer Guarantees Act. So, if you buy a stove at an auction, but when you get it home you discover the elements don't work, too bad.

Auction goods may be covered by the Sale of Goods Act, which requires goods to be of merchantable quality. However, auction houses can opt out of that law (and usually do).

But it's not all bad news. Auctioneers are covered by the Fair Trading Act. That means they can't say or do anything that misrepresents or misleads you about the goods on sale or the auction process.

In 1999, Christchurch Auctions auctioned off a range of lounge suites. Although the covering of the suites was a mixture of vinyl and leather, the auction house advertised them as leather, without mentioning the vinyl.

That was misleading. The Commerce Commission prosecuted, and Christchurch Auctions had to pay costs and fines of over $7000.

Complaints about auctioneers

If you think an auctioneer has duped you, you can cancel the deal and demand your money back. If you get nowhere, you can take a claim to a Disputes Tribunal.

You can also complain to the Auctioneers Association, a voluntary association of auctioneers whose members must adhere to a code of ethics. At no charge to the complainant, the association will investigate complaints involving its members. For a small fee, it will also try to resolve matters involving non-members.

Some auctioneers belong to another, similar organisation: the Licensed Traders Association.

Before the auction started, the cars were on display. Is this the only chance you get to check them out?

No. Auction houses often hold inspection days prior to the auction day. They may also produce catalogues, containing details of the goods on offer.

If you're buying a computer at auction, say, it's especially important to get it properly checked beforehand.

If you read through a car catalogue before the big day, you will have time to get a vehicle inspected by a mechanic, and even take it for a test drive, prior to the auction.

The auction house may go further. For instance, Turners hangs details in each car's window, detailing the car's age and mileage (much like the window notices you see at caryards). For vehicles worth over $2000, Turners also gives details of a simple mechanical check on each car. You can pay extra for a more sophisticated check before the auction begins.

If you want to get your own expert check, you will probably have to bring the expert to the auction site.

But what if I don't do that? Can I make my bid conditional on an expert check after the auction?

No. An auction bid is an unconditional offer to buy. If you make the successful bid, you've entered into a legal contract to buy the goods. You're committed.

I watched the auction, and the cars were selling at some pretty good prices. I'd love to take part, but I stayed in the background. I was frightened that if I scratched my nose I'd find myself owning an '82 Holden!

Don't worry: auctioneers know a genuine bid when they see one. You have to make a clear bid, and if the auctioneer isn't sure if you're just scratching your nose, they will ask.

They may also try to make the auction fun, in an attempt to loosen the bidders' wallets. They may cajole the crowd to make bids, crack jokes, and increase bids in smaller and smaller increments, playing bidders off against each other to get as high a price as possible.

Items for sale are called "lots". Once the bids for a lot get over the "reserve price" (the minimum price the seller is prepared to accept), a sign may start flashing: "Now Selling!"

If you're interested in buying at an auction, but find it all a bit intimidating, go to a few as an observer first. Get used to the atmosphere and watch how others behave. Join in once you've got some confidence.

Selling

Is it worthwhile selling at auction?

For general household items and cars, we think auctions are a good, simple way to sell.

Cars, furniture and appliances are commonly auctioned, although more exotic items can also be auctioned.

To get the best price, make sure what you're selling is as good as it can be. Polish and clean the goods, and do any small repair jobs needed.

Second-hand dealers often buy at auctions. If they see items in good condition, they're more likely to bid higher, as they know they can stick the pieces straight into their showroom, without having to go to the trouble and expense of cleaning and repairing them.

What does it cost to use an auctioneer?

The auctioneer will take a commission on the sale price, usually around 10 to 25 percent, depending on the goods being sold, plus GST. The commission may have a dollar minimum and/or include a flat dollar fee.

Commissions may be negotiable for very low or high value items, or for a large amount of items

If you want the auction house to pick up the items from you (that old three-piece lounge suite, for instance), the cost of this is usually deducted from the money made at the sale.

What protection do I have as a seller?

You'll be expected to sign an agreement covering all the sale details. Make sure you read and understand it before signing.

Common clauses in sale agreements cover the commission charged, other costs (such as pick-up costs and GST) and an assurance from you that you are legally entitled to sell the goods (that is, they are not stolen or security for a loan).

Beyond this, the auctioneer is bound by the Fair Trading Act. That means they cannot mislead you in any way. Also, although the goods sold at auction aren't covered by the Consumer Guarantees Act, the services the auctioneer provides are. This means auctioneers must provide their services with reasonable care and skill.

For instance, if the goods are damaged while in the auctioneer's care, they may be liable for the cost of this. However, the auctioneer's agreement may stipulate that you pay a small premium for insurance to cover this liability.

If you end up in a dispute with the auctioneer and they won't pay up, complain to the relevant professional association or take a claim to a Disputes Tribunal.

I'd like to auction off my old car, but I don't want it going for a song.

You can usually set a reserve price. If the car doesn't reach the reserve, it will be "passed in", which means it isn't sold.

If the highest bid comes close to the reserve, you may agree to sell at that price or to negotiate further with the bidder.

The auction house can advise you on a realistic reserve. But if the goods are unique, very valuable, or special in some other way, you may want to get an independent valuation to establish a reasonable reserve.

Be realistic. The auctioneer may decline to sell your goods if they think your reserve price is too high. And remember to factor in the auctioneer's cut: the reserve price will be a gross figure

My girlfriend recently inherited some antique jewellery from a great aunt in England. She wants to auction it off, but it would look pretty weird sitting next to 20 CD players!

There are specialist auctioneers around who can handle such jobs. Some concentrate on antiques, others on military memorabilia, stamps, coins, commercial products and the like.

Specialist auctions attract specialist buyers who have a particular interest in the unusual items up for sale.

Your girlfriend should check out the Yellow Pages, the internet and newspapers for some likely auctioneers. She might also like to contact the professional associations for guidance.

Auctioneers Act

With all these auctioneers around, does that mean anyone can set themselves up as an auctioneer?

No. Those in the business of auctioneering must be licensed.

To obtain a licence, the applicant must satisfy their local District Court that they are of good character and are financially stable.

Licences must be renewed each year, and the police will vet applications and renewals.

It seems odd that the licensing system is run by the courts. I'd have thought a central government agency would do it.

You're right. The system is old-fashioned because the Auctioneers Act, the law that governs the industry, was passed in 1928.

You're kidding! Auctions in the 21st century are run under a law that was passed in 1928?

Yep. The law is long overdue for an overhaul. Not only is the licensing system clunky, but the penalties under the Act are a joke.

The fine for engaging in non-licensed auctioneering, for example, is the princely sum of $200.

Needless to say, the Act makes no mention of Internet auctions!

Action needed

We think those who buy at auction should be protected by the Consumer Guarantees Act. For one thing, the Consumer Guarantees Act covers goods sold by second-hand dealers and goods sold by retailers on behalf of private owners, so why not goods sold at auction?

Besides, buyers are increasingly being required to stump up for some of the cost of auctions. They deserve some statutory protection.

The government put out a discussion paper on renewing the Act in 2000 and in 2010, but nothing seems to have been done since then. We think it's high time action was taken to bring the law up to date.

More help

Auctioneers' Association of New Zealand

Disputes Tribunals

Fair Trading Act

Licensed Traders Association