Auction Fundamentals, Terminology, and Auction Types
What the exam tests
Auction Fundamentals, Terminology, and Auction Types tests the vocabulary and mechanics that make an auction enforceable. Expect terms such as lot, reserve, opening bid, bid increment, hammer price, buyer's premium, seller's commission, consignor, clerk, ringman, and bid calling. You must distinguish auction formats and know default legal rules.
Core rules and terms
- A lot is the unit sold. Each lot is generally a separate sale.
- Reserve is the minimum price the seller will accept. A sale is with reserve unless the goods are explicitly put up without reserve. In a reserve auction the auctioneer may withdraw a lot before completion; in an absolute (no-reserve) auction, once bidding is called, the lot cannot be withdrawn unless no bid is made within a reasonable time.
- Hammer price is the bid; buyer's premium is added to the buyer's invoice; seller's commission is deducted from seller proceeds.
- Formats include English ascending auction, Dutch declining-price, sealed bid, timed online, live simulcast, absentee or proxy, foreclosure, bankruptcy, and charity auctions.
Worked example
A lot is offered with reserve. The highest bid is $4,000, but the confidential reserve is $4,500. The auctioneer says 'pass' and withdraws the lot. No sale contract forms because completion was never announced and the reserve was not met. If the same lot had been explicitly offered absolute, the auctioneer could not withdraw it after calling for bids merely because the price was low, unless no bid came within a reasonable time.
Traps
Do not confuse opening bid with reserve. Do not add the buyer's premium to the hammer price when reporting the contract price unless the terms say so. Do not call an auction absolute if a seller confirmation or reserve exists. Do not assume a seller may bid freely; seller bidding requires notice.