Auction Conduct, Ethics, and Prohibited Practices
Fiduciary and fair-dealing duties
An auctioneer owes the seller fiduciary duties-loyalty, confidentiality, obedience to lawful instructions, disclosure, and accounting. Toward bidders and buyers, the duty is fair dealing and honesty. The auctioneer must disclose material facts about the property, the sale terms, any reserve, any buyer’s premium, and any interest the auctioneer or firm has in the property. Advertising must be accurate; “absolute auction” means no reserve and cannot be used loosely.
Prohibited bidding practices
The central ethics rule is that bids must be genuine. Prohibited practices include shill bidding (taking bids from the seller or someone acting for the seller to drive up price), phantom or “chandelier” bids, bid rigging, and collusion among bidders. An auctioneer may not secretly bid on his or her own account or on behalf of an undisclosed principal. If the auctioneer has an ownership interest or is also the seller, that must be disclosed. A reserve must be handled honestly; the auctioneer may not falsely claim the reserve is met.
Other traps
Do not commingle client money, make false promises about value, discriminate, or misrepresent the auction’s terms after the fact. A frequent exam trap is a seller who asks the auctioneer to “run the bid up” to a target; agreeing is shill bidding even if no sale results. Another is an auctioneer buying an item at his own auction through a friend.
Rule of thumb: if a bid would not exist but for the auctioneer’s or seller’s attempt to create artificial competition, it is improper. Worked example: At an absolute auction, the auctioneer sees bidding stall and accepts a bid from the seller’s brother, who never intended to buy. That is a phantom/shill bid; the sale is tainted and the licensee is subject to discipline.