January is nearing, and a good percentage of us will be making the annual pilgrimage to Scottsdale auction week. Great cars in the winter desert is tough to beat, especially when you board your plane in single-digit weather. But with thousands of bidders chasing fewer cars, well-stocked bidders’ bars and many millions of dollars changing hands — total sales reached $291 million in 2015 — there are plenty of things that can go wrong and create a Legal File. Do your homework If you are going to bid on one or several cars, you really need to do your homework ahead […]
January is nearing, and a good percentage of us will be making the annual pilgrimage to Scottsdale auction week. Great cars in the winter desert is tough to beat, especially when you board your plane in single-digit weather. But with thousands of bidders chasing fewer cars, well-stocked bidders’ bars and many millions of dollars changing hands — total sales reached $291 million in 2015 — there are plenty of things that can go wrong and create a Legal File.
Do your homework
If you are going to bid on one or several cars, you really need to do your homework ahead of time. Showing up the day before the auction and viewing the auction cars on display is nowhere close to due diligence. Every one of them has been expertly detailed to look as close to perfect as possible, and a lot of defects can be missed.
To be sure you are bidding on a good car, you have to go through the auction catalog weeks before. When you’ve identified the cars that appeal to you, call the auction company and speak to an auction specialist about them. Ask for copies of service records and provenance to be emailed to you. Hire an expert to inspect the car personally. If possible, make arrangements for a test drive before the auction starts. And, most important, give the car your personal close look-over — it doesn’t do any good if the expert loved it but you think it’s homely.
In addition, check into market values beforehand, so you know when to stop bidding. Everyone talks about cars that sold for too much money at an auction because two guys who had been drinking too much were trying too hard to impress their too-young girlfriends. You don’t want to get caught up in that kind of auction action.
Read the bidder contract
“Legal Files” recently wrote about bidder contract provisions that limit your recourse when a car is misrepresented (April 2015, p. 42). Read your contract and see what it says. You are always encouraged to “bid with confidence,” but those words can ring hollow when the bidder contract prevents you from relying upon what the auction company tells you about the car.
In essence, an auction company acts as a broker. They are entitled to rely upon what the owner tells them about the car. If they simply repeat what they are told, and they have no reason to disbelieve it, then they are not liable for misrepresenting the car. Your recourse is against the consignor.
That rule is, actually, as it should be. We can’t expect the auction companies to research and carefully inspect every car they sell at an auction, and we should be willing to pursue our claims against the consignors who actually misrepresent their cars. But some bidder contracts are written so broadly that they prevent the buyer from making claims against the consignor. In those cases, you really have “as-is,” “caveat emptor” and “tough luck, sucker” all rolled into one.
Authenticity issues
Authenticity issues are probably the most common complaint. We’ve all heard the saying that there are more numbers-matching 427/435 1967 Corvettes in existence today than were actually produced in 1967. The unfortunate truth is that many collector cars can be relatively easy to falsify. Before you pay extra for that numbers-matching car, make sure its numbers all came from the factory. The best approach is to ask for documentation, but still have your expert inspect the documentation and the car.
You should also read the auction catalog and other descriptive information carefully. Pay close attention to buzzwords. A “correct” engine is definitely not the engine that came in the car. It is the same type of engine, but it isn’t authentic. “Period-correct” works the same way. “Original” can mean multiple things. At the positive end, it means the exact thing that was on the car when it left the factory. But it can also mean an original (as in NOS) replacement part rather than a reproduction part. “Believed original” is a great statement. Is that a hope and a prayer? Or is it the result of a thorough inspection of a rare car where absolute certainty cannot be gained? Similar is “no known rust.” How comforting that should be depends on the caliber of the writer’s inspection and skills.
After a while, you get the hang of it. Then you can move up to the next level and start thinking about what was not said. For example, if it doesn’t say “numbers matching,” it is not. They just didn’t want to admit that.
Watch the bidding
A variety of phony bids can occur at auctions. One version is where the owner has an accomplice bid on the car, called “shill bidding.” Another is when the auctioneer manufactures bids, referred to as “chandelier bids.” Most bidders think such bidding is despicable, but the law is actually more tolerant.
When the car is being sold with reserve, this is all perfectly legal as long as the bids stay below the reserve. The logic is that no real bidder is harmed because his bid would not have bought the car. Also, many bidder contracts actually tell you that this can happen.
But once the bids reach the reserve, the law changes completely. Now, shill and chandelier bids are generally illegal. The bids have come into the deal range, and real bidders are being damaged.
If the auction is no-reserve, every bid is theoretically capable of buying the car, so shill and chandelier bidding is generally illegal from the start.
If you pay attention, you can start to feel the bidding flow. One common indicator is where the bids run up quickly and then stop abruptly, never passing the reserve. That can indicate shill bidding, but then again it might just be an example of an unrealistic reserve with the bidding stopping at full market.
After the win
Plan ahead about what you are going to do with the car after you win the bid. The law in Arizona is that if you drive or haul the car off the auction grounds, you will have to pay Arizona sales tax. The only way around that is to have it transported away by a licensed common carrier. Make arrangements for transport ahead of time. As the auction progresses, transporters get full and you may have to wait longer to get the car home, pay more, or both.
Sellers plan ahead
Auction sellers also have lots of advance homework to do. As already mentioned, the auction company will tell buyers what you told them about your car. This is not the time to exaggerate. Make sure everything you tell the auction company is scrupulously accurate.
This can be difficult for a seller because you want to be very positive about your car and provide information that makes people want to buy it. There is nothing wrong with that, but be careful not to mislead. Write out your material and then let it sit overnight. Then read it again and try to imagine what a first-time reader is going to take from it. When you think you have it right, give it to a friend and ask what he thinks it says. Remember, it’s what the reader understands that matters, not what you intended to say.
Be there
There is no substitute for just being there. You see exactly what happens and, when results disappoint, you know what the surrounding circumstances were and where things went wrong. Plus, it’s good marketing to be there with your car, showing it to interested bidders and answering their questions. If you present well, bidders will have confidence in the car because they have confidence in you — more than they would ever gain from reading the catalog and other printed literature.
Sales can fail
It doesn’t happen very often, but there are instances where the successful bidder just fails to pay for the car. The auction companies do a good job of vetting bidders, but there is not much they can do when the qualified bidder simply refuses to write the check. You can sue, of course, but that doesn’t always give you complete financial relief.
There isn’t much of anything you can do to protect against this situation. You just have to be aware that it happens once in every so many auctions.
Getting paid
Fortunately, there are very few cases of auction sellers not getting paid, but it has happened. There have been several auction companies over the years that have been very delinquent in paying their sellers, with some of them being very serious situations. All “Legal Files” can say is, try to deal with the strongest and most reputable auction companies.
If you aren’t sure about the one you want to use, talk to them about this and see if they make you comfortable. Check with state regulators, and ask other collectors about their experiences. Basically, do your due diligence in advance. ♦
John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.