Houston Man Arrested for Auctioneering Without a License

The following was received from the
Texas Dept of Licensing & Regulation:

May 25, 2006
For Immediate Release
Contact: Patrick Shaughnessy
512-463-3208

AUSTIN * Although he had no auctioneer license,
Drake King of Houston opened Drakes Auction Co.
in the community of Spring and served as the
company's auctioneer. But King's father, a
licensed auctioneer, turned him in to the Texas
Department of Licensing and Regulation (TDLR)
for unlicensed auctioneering. His mother also
filed a complaint against him with TDLR.

Despite repeated warnings from TDLR, King continued
to run his auction company without a license. On
May 3, 2006, the Texas Commission of Licensing and
Regulation issued an order fining him $4,000 and
requiring him to stop acting as an auctioneer until
he was licensed.

On Tuesday, May 23, an auction King was conducting
in Spring came to an abrupt end when he was arrested
by the Texas Department of Public Safety on a charge
of acting as an auctioneer without a license, a
Class B misdemeanor punishable by up to six months
in jail.

Along with Drakes Auction Co., at 2650 Old Louetta
Road in Spring, King also operates drakesauction.com
and D&S Auction on the internet.

"Auctioneers are licensed and regulated because
they are in a position of trust that would allow
an unethical individual to take advantage of both
the buyers and sellers," said William Kuntz, TDLR's
executive director. "That's why acting as an
auctioneer without a license is a crime. And that's
also why we will take whatever steps are necessary
to shut down unlicensed auctioneers."

King formerly worked for an auction company owned
by his father and held a license as an associate
auctioneer. Associate auctioneers may work only
under the supervision and in the employ of an
auctioneer. After his association with his father's
company ended, King started his own company and
continued to act as an auctioneer. Because of this,
each of his parents filed a complaint with TDLR
accusing him of operating without a license.

King applied to TDLR for an auctioneer's license
in 2005, but his application was denied because
of prior criminal conduct. He was convicted in
2000 and 2003 on felony charges of burglary and
in 2001 on a misdemeanor charge of making a
terroristic threat.

------
If you're looking for an Honest Auctioneer,
or if you have any questions about auctions,
contact us through the Texas-National Auctioneers
website at http://www.t-na.com

How Do Reserves Work?

It seems everyone has their own idea how an auction is suppose
to work. We had this man tell us that, he felt that if an item had
a dollar bid, then it should be sold for a dollar. As we talked for
a while, he indicated that he might want to consign some things
to our auction... I asked him if we could sell his stuff for a dollar?
Of course, he said "NO!"... well, I think he finally understood.

In the State of Texas, ALL auctions are automatically considered
to be "WITH RESERVE", unless specifically stated that it is an
Absolute (without reserve). If there is only 1 item in an auction
with a reserve, then the auction can NOT be advertised as "absolute".

Now... I had another person tell me that she didn't like it when
there were bids on an item, but the item was "Passed" anyway.
The reason the item was Passed, was because the bidding didn't
reach the reserve price. Then she said that we shouldn't drop
below the reserve price. Well, as the saying goes "It doesn't
matter where it starts, it's where it ends that counts"... She felt
that we should announce the reserve. However, that isn't fair
to the consignor. Often, people don't know what something is worth,
but in a true market, it is worth "what a willing buyer is willing to
pay"... and "what a willing seller is willing to sell for". So, the seller
sets a reserve (minimum) that they are willing to accept, with the
hopes that there is 2 or more people that are willing to pay more.
The winning bidder has only paid one bid higher than someone else.
This is the fair way for an auction to work. However, if the reserve
is announced, then it may give a perceived value and it may not go
any higher, even though it's actual value may be much more...
hence, it is not fair to the seller.

This same lady told me that she goes to other auctions and they don't
Pass items... it appears that EVERYTHING is SOLD!
Did you notice that I said "appears"? The reason for this is that
most auction houses use one or more "House Numbers". If the
item doesn't reach the reserve price, it is sold back to a House
Number. This is completely legal, as long as it's announced that
the seller is allowed to bid and the "house number" is basically
used as a consignor bidder number. Then you say... but it's not
there at the next auction... true, because the auction house may
require the consignor to pick up their stuff that didn't sell after
the auction or it's sent out to another auction somewhere else or
possibly stored away for a while.

We don't always require our consignors to pick up their goods if
they don't sell. That means it might possibly be there at the next
auction (if the consignor so desires). So, if it doesn't meet the
reserve, we will "Pass" it.

We normally don't accept Reserves, except for expensive items.
However, we will only accept "reasonable" reserves. What do we
consider reasonable? That often depends on the particular item.
But, remember... this is an auction! It is NOT a means of getting
Full Retail Value. It is a means of moving items quickly and without
the hassles of "dickering", reducing the "holding costs" and advertising
costs normally associated with selling an item. These costs add up and
you may find that your actual profit is drastically reduced when you
add up these costs. In the normal market, a seller asks a price and
the buyer usually tries to negotiate a lower price. At the auction, the
bidders determine what they are willing to pay on a given day... the
bidding starts at whatever point the bidders wish to start the bidding
and it goes UP! until the last successful bid WINS!

We encourage people to ask questions at our auctions. If you don't
understand, we'll be glad to explain it to you... don't be afraid to ask.
I hope this helps to enlighten everyone, so that the auction experience
is FUN!

If you have any questions, contact us through the Texas-National
Auctioneers website at http://www.t-na.com

Absentee Bidding

I received an email with a question about how some auctioneers
handle Absentee bidding.

"mizbob" wrote:
I recently attended an auction where an absentee bid had been
left. I happened to be at the counter registering when someone
called to leave a bid on an art print and heard the auction house
side of the exchange. The buyer left a high bid of $970.

When the print came up, the auctioneer did not start the bidding
where he had started the other prints at $50-75, but said he had
a `sealed' bid of $970 and asked if anyone wanted to bid more.
Frankly, if the print had started at the $50 level, it probably would
have brought about $250-350, max. Of course, no one over-bid
the amount and the left bid `carried the day'.

Personally, I think this is a very ugly practice that smacks of greed.
"After all, if I can get $970, my share (commission) is higher." (No,
he didn't say that, but you know that's what he was thinking.)

Frankly, I believe that will eventually backfire on him. I, for one, will
NEVER leave a bid at his auction. Just because I'm WILLING to
pay that much doesn't mean I don't hope to buy it for less. And you
know if the buyer had been there, he wouldn't have started the bid
at that amount. The whole thing seems like cheating.

Can anyone tell me a good reason to do this kind of thing? He is
only the 2nd auctioneer I've seen do this and I no longer even
attend the other man's auctions. He has proven to be less than...
above-board, shall we say?, in other areas.

I look forward to hearing your thoughts on the subject.

Thank you,
Bobbi

My Reply:
The point you bring up is one that I've heard other auctioneers
talk about on many occassions. I'll provide the two sides of this
subject as I've heard them rationalized.

On one side... the auctioneer is basically acting on behalf of the
seller and it's the auctioneers duty to the consignor to get the best
price for their merchandise. So, if there is an absentee bid, then
that's where they start the bidding. Since this is the amount the
buyer was willing to pay, then it's fair to both parties, as it is the
price that a willing buyer and a willing seller are both agreed to
(as long as it was more than any reserve price that might be
held on the item).

On the other side... the auctioneer must be fair to the buyer. That
doesn't mean that they have to give them everything at the lowest
possible price, which is especially apparent if there is a reserve
on an item. In fact, if there is a reserve and only one person is
bidding, the auctioneer may also bid on behalf of the reserve
(the seller's minimum sale price) until the reserve is met. Of
course, in your story, the absentee bid was apparently much
higher than any reserve (if there was one)... so, where should
the auctioneer start the bidding? I suppose that is up to the
individual auctioneer.

I can only tell you how I handle absentee bids. I may take one of
two different possible actions.

In respect to your story, I may try to start the bidding on the floor,
only because similar items had already been sold. I would then
bid on behalf of the absentee bid. In this case, I feel that this is
"fair" to the buyers and the consignor (since any reserves were
apparently already met in previous transactions).

On the other hand, if I am calling for bids and backing down to
find someone to offer a starting bid, I may start the bidding at
approximately half of the absentee bid. Since the absentee
bidder was willing to pay twice that amount, then they are still
getting a deal if they get it for less than the maximum amount
they were willing to pay. It's definitely fair to the consignor, as
they received much more than expected, as long as it's above
any reserve price that they required.

I hope this provides a little insight to the auction from both
perspectives.

Jim

"mizbob" wrote:
Hi Jim
I agree wholeheartedly with your way of handling left bids. Most
of the auctioneers I've had dealings with do the same thing. It is
really unfortunate that the rest do not, as I think they lose out in
the long run. Only very rarely will I or my friends leave a bid with
them, and when we do, we leave less than half of what we're truly
willing to pay. I have passed on several things I would like to buy
because of their attitude. [Most of them seem rather arrogant as
well but that could be just because I'm irritated by the way they
handle it. :^)]

As you say, you have to be fair to both the consignor and the buyer.
The way you do it is.

Thank you for your reply,
Bobbi

---
If you have any questions about auctions, contact me through
the Texas-National Auctioneers website at http://www.t-na.com

Garage Sale Guru

Unfortunately, there are times when we have all
entered into contracts, which we may not read
thoroughly or understand everything we are
agreeing to. While trust can be a good thing,
you should also ensure you know what the terms
of the agreement entail, whether it is on paper
or just a handshake. In most cases, I always
try to go through my contract with my clients,
so they understand what they are signing. It's
also the reason I go over the buyer terms of the
auction before we start and encourage my buyers
to ask questions.

The following is an email correspondence with a
lady who felt she had been mis-led...

mary brown wrote:
I have just had a horrible experience with an
"estate sale" professional in Edwardsville,
Illinois. I was misslead by this garage sale
guru. No pre sale inventory was done.  The
"sale" was conducted as if it was truely a
garage sale.  I was told that I would have
a final accounting of the items purchased
and now three weeks later, I can not get
this person to respond to my requests for
the records.

His card says that he is a member of the
antique & appraisors association - Mid-Am. 
I can not find this association and was
wondering if you are familiar with them
or could direct me to the appropriate people
that could take action and make sure that
another person does not have the horrible
experience that I have had.

During one of the most stress full times of
my life, I was miss led by a "family friend"
and my family has been VIOLATED. 
Please help me.
---

my reply:
I'm not familiar with Mid-Am. An Estate Sale
is basically a garage sale type of event,
which is conducted by a third party on your
behalf. Whether or not they did a "pre-sale
inventory" would only be required if it were
specifically indicated in a contract. However,
they should normally provide an accounting of
all items sold.

As far as the terms of your estate sale, I
hope you had a written contract, as that
would normally determine the time that he
has to complete the accounting.
---

mary brown wrote:
Jim - thank you so much for responding to
me.  When an estate sale is held, do you
price items at or near the appraised value? 

Here are three examples from my experience: 
Seven years ago two copper "horse head"
pictures were appraised at $250 each. 
They were sold at the estate sale for
$10 each.  At the same time seven years
ago, an antique cupboard was appraised at
$3,000 - estate sale price was $125.

Does this sound right?
---

my reply:
Since I am only responding to the info
you have provided and did not see the
merchandise, it is difficult to determine
whether the appraisals or the price it was
sold for was the "proper" value.

There are various factors that may be used
in an appraisal and they do not always
reflect the actual Market Value. Market
values also fluctuate. Right now, antique
values have diminished considerably compared
to 3-5 years ago. Art is always a difficult
product to sell at market value, as it may
take a long time to find the Buyer that will
pay the price.

An appraisal is one persons "opinion" based
on their particular efforts to determine a
value.... some are more thorough than others
and may have different results, so it is
difficult to determine whether the appraised
value would be considered "fair market value".

Appraisals are often based on data collected
and it depends on the source of the data and
how many comparisons were used to determine
the "current value". Often, an appraiser may
only be able to find one comparable that is
similar to the one he/she is appraising and
will use that value for the appraisal, but
it may not reflect the current Market Value,
as the item used in the appraisal may have
been slightly different and unique and/or
it's condition may have been pristine and
therefor command a higher value than the
one being appraised.

Estate Sales and Auctions are "liquidation"
efforts. I try to educate my clients so
they better understand the sale. With either
form of sale, the price of a single item
should not be looked at, but instead the
client should look at the end result (the
overall amount that the sale brought in),
as an average of all the items sold to
determine if the sale acheived the desired
results. While some items may not bring what
may have been expected, other items may sell
for more than expected, therefor the overall
average value at the end of the sale is what
should be the determining factor for a
successful sale. If there were items that
you would have kept rather than selling for
less than a specific price, that amount
should have been made known prior to the sale.

Given the above statements and from my
experience as an auctioneer, the pictures
probably would not have sold for even half
of the appraised value in this form of sales
event. By the same token, it is not possible
for me to determine if the cupboard was
accurately appraised or if the appraisal
value was a "true market value" for the
item on today's market.
---

mary brown wrote:
Thanks, Jim.  I appreciate your help - wish
I had known you last month at this time - I
would have brought the items down to TX and
asked for your help - anyway, I guess you are
right - the end result is what matters -
31 pages of inventory for the post sale were
sent to me today - net value was 11,000.
---

As I said at the beginning, sometimes it
just helps if you know what to expect.
ASK questions BEFORE you enter into any
agreement.

Will Gas Prices Effect the Auction Industry?

Another auctioneer brought up this question:
"I wonder if any auctioneers are seeing any decrease in
attendance at auctions attributable to the current high
gas prices? Do you think we will be affected seriously?"

Wow! Talk about a topic! Although, this isn't even
one that the economists can agree, as to the particular
impact that this is going to have on our economy. However,
we can look back on a little not-too-distant history and
see how it has impacted us in the past.

We go back to around 1973 (or was it 74? how time starts
to become just one big blur)... Some of you may remember
the big Oil Embargo!!! Gas prices shot up and everyone
couldn't understand how they were going to afford it. Of
course, we've seen this same scenario to some degree in
the not-so-distant past. How did it effect us overall?

Well, it DOES effect us... at least for a little while.
Then it just becomes a matter of what we learn to
live with.

Of course, it may also cause the next recession to come
about just a bit sooner. Yep! A Recession! Another one
of those "normal" occurances that are just part of the
economic cycle. Remember the mid-80's? The bottom fell
out on the S&L's... (I remember another auctioner was
doing pretty darn good back in the S&L crisis) and then
a long stretch of excessive growth through the 90's...
and a "correction" (mild recession?) around 2000-2001.
They usually pop up about every 10 years or so.

How will we be effected? About like most other businesses
to some degree. At first, we will see a short period that
our buyers will slow down on their spending. Maybe a few
more than usual will stay home. But as time passes and
they get used to the idea that life goes on, they will
start coming out again.

The key to making it through the slow-down that this may
cause, is just being able to sustain through the short
term... although sometimes it may seem like a long time
while we're bearing it out.

Just keep in mind, if worse comes to worse, and the
potential recession becomes the next great depression...
The money doesn't go away, it only changes hands. While
some may suffer, others will profit and capitalism will
live on. At the same time, while prices may dump, there
will be a lot more product to sell and maybe different
people to sell to. It just means more work to make the
same amount of money and to a few, maybe a lot of money.
You've just got to try to keep your finger on the pulse
and be ready to act whether it picks up or slows down.

Well, that's about how I see it anyway.

Running the Bid to Protect a Reserve

The following is my response in a forum, concerning the way some auctioneers "run the bid". Some auctioneers feel that this is okay, because so many others do it, as well as some of the "big" auction houses. As you will note in my response, I do not concur with this manner of auctioneering.
- - - - -

Just because a particular "big" auction company does something, does not make it right, ethical or legal. You will recall that it wasn't so long ago that one of the "big auctions" was fighting court battles due to their "normal" activities, not to mention selling illegal/stolen goods. The old adage, "just because everyone does something, doesn't make it right" certainly applies to this.

As I stated, no one is reinventing the wheel. Some auctioneers sell to a house number, while some "pass" the item. We use the "pass" as opposed to using a house number. It doesn't make things flow any differently. However, this is not the point that I find a problem with.

One of the most controversial subjects about auctions is the use of phantom bidding, which is utilized in "running" a bid. There are a lot of articles on the internet, many from law firms, discussing the legalities of this practice and it's associated meaning.

Steve Proffitt is general counsel (lawyer) of J.P. King Auction Company, Inc. is also an auctioneer and instructor at the Reppert School of Auctioneering in Auburn, Indiana, and at the Mendenhall School of Auctioneering in High Point, North Carolina. As a Virginia auctioneer and lawyer, Steve Proffitt, makes some good points in some of his articles. As he states in one article...
"History shows that auctions have a long record of bad conduct. Indeed, I have often said that when it comes to auctions, fraud is Public Enemy Number One. This includes the widespread use of shills, phantom bids, hidden buy-ins, selling unannounced reproductions and fakes, allowing unannounced seller bidding, abuses in the advertising and conduct of absolute auctions, intentional clerking errors, and other forms of deceit, misrepresentation, and trickery that often occur."

Let's take a closer look at the phantom bidding practice and similar practices used by various auctions.

Auction sales psychology works because it is based on perceptions of the the public (as does all other marketing and sales). This is also where problems lie and potentially bear the implication of dishonesty and possibly fraud. Yes, the auctioneer posts notices of reserve bidding in their terms and conditions (as required by law) and they may even announce it at the beginning of the auction. But, we also know that most people don't necessarily understand what it means, nor do they question it. Most sit through the opening announcements chatting with others, while they wait for you to get through the boring statements and 'get on with the auction'. They come to the auction with the perception that "everything sells to the highest bidder and there are BARGAINS! to be had". So, when bidders start looking around and notice that no one actually seems to be bidding, they feel that the auctioneer is just another one of "those crooks."

The problem: "running" a bid, when no one is bidding... How can this be justified?
At auction, it is the "competitive" bidding which determines the final selling price. Of course, if there is a reserve (and appropriate notice is given in the terms of sale), then the owner or agent, i.e. auctioneer, may bid against other bidders, up to the reserve price. They may do this if they are BIDDING against someone who is actually bidding, which in effect means the seller is "buying back" their own property if it does not reach the reserve.

Is "running the bid" ethical? If you are calling for the next bid, and the current high bidder mistakenly holds up their bid card again, do you accept this bid against their previously held bid? I assume most auctioneer's answer to this is "NO", as most ethical auctioneers will let the person know that they already "have the bid".

The act of competitive bidding must occur between two or more persons. How can one person (the seller) bid against their self, as is the case with "running" the bid?
Therefore, how can an auctioneer justify "running" the bid against the reserve? This in effect is the seller bidding against himself, as there is no competing bid.
Since this implies that the seller is bidding against their self, this is where it becomes phantom bidding, which makes it appear unethical.

Now, keeping in mind the previous statements about marketing psychology, we have to look at it from the buyer's perceptions...
To make the point, I'll reference another article from Steve Profitt, in which an auction-goer sends him the following question:

I've been going to auctions with reserves for over 20 years. What's bothered me all this time is how auctioneers deal with reserves when the reserve price is not met.

I have no problem with the practice of using reserves. Reserves are part of the auction business because they protect the seller against a weak market where there is little or no demand for the item. However, in my experience, the majority of auctioneers call "sold" and use a "buy-back" number when the reserve is not met. Most bidders assume the item has been sold. In my area, I know of only two auctions where the auctioneer explicitly states, "Pass" or "The reserve has not been met." In these auctions, the bidders know the item was not sold.

Webster's dictionary defines "sell" as: "To give up to another for money or other valuable consideration." An owner cannot buy something he already owns. So to use the term "sold" as a buy-back for the owner is deceptive and misleading. It causes bidders to falsely believe that the auctioneer actually sold the item for the price stated. I think this practice is as egregious as phantom bidding.

What is the legality of "buy-back" bidding? If it's legal, wouldn't it be more ethical for an auctioneer to let bidders know that an item did not meet the reserve, rather than call "sold" under a phantom buy-back number?

You can read the entire article and Steve Proffitt's response at:
Auction Law and Ethics: Do You Want to Know a Secret?

I provided this reader's question only to show my point, that even educated auction-goers find such tactics as potentially dishonest.

Therefore, this is where I try to set myself apart from others. I do not "run the bid", although I will bid on behalf of the reserve only against a sole bidder. If the item doesn't make it to the reserve, I normally just "pass" the item, rather than sell to a "house number." Of course, I've also had bidders complain about this and heard such statements as "wasting their time". So, one might question if their perception of an item being "sold" is worth their time.

I have to agree with Steve Proffitt on this particular point:
"The knowledge that many auctioneers have about legal requirements and ethical duties has largely come from other auctioneers. That's unfortunate, because a good amount of this "knowledge" is wrong. Indeed, some auctioneers have done so much wrong for so long they've come to believe it's right—but it's not. It's just repetitious wrong."

The biggest problem with the "norm" is that it can continue to cause potential damage to the auction industry due to the public's perception. My biggest advantage to the "norm" is that, as more people learn about these things, the more I will benefit, as I will be one of the few that they will be seeking out as an "honest" auctioneer. I am not implying that all other auctioneers are dishonest, but you can bet that I'll use that perception to my own marketing advantage to stand out from the rest. One of the best testimonials I ever received was when a retiring auctioneer, Del Lemons, announced to his crowd at his last auction "Folks, I want to introduce you to an honest auctioneer... Jim Ford. If you want to attend a good, honest auction, then see him and get one of his business cards." I want all my customers saying the same thing!
- - - - -

If you're looking for an Honest Auctioneer, you can find me at http://www.t-na.com

Welcome to Texas Auctioneer

Since this is my first entry, I will start with... Welcome to the Texas Auctioneer blog.
This will be used to provide my thoughts on the Live Auction industry, as well as information that will help to educate the general public about auctions. Keep in mind, topics are based only on my opinion, understanding or knowledge and are not to be used as legal opinions. However, I feel I have a fairly good grasp on this business and don't mind sharing the pro's and con's of the industry.

Bookmark this one and check back often.