I Submitted the Highest Bid at the Auction. Did I Buy the Property or Not?

Following the onset of the COVID-19 pandemic, many jurisdictions put moratoria in place prohibiting foreclosure sales. However, most moratoria have expired and foreclosure sales, conducted at public auction, are ramping up as lenders work their way through a backlog of delinquent loans. Property owners, hoping to take advantage of a hot real estate market, are also offering their own properties for sale at public auction. An October 20, 2022, decision by the Virginia Supreme Court of Appeals demonstrates the importance of clear terms of sale when a property is offered for sale at public auction.

In Janson v. Williams, David Williams and Frank Hendrick decided to offer real property that they owned for sale at public auction. They advertised the auction by a mass mailing. The mass mailing directed interested parties to contact Williams for further information about the sale.

John Janson received the advertisement for the sale. He attempted to contact Williams to obtain further information about the sale, but Williams did not respond. Janson decided to attend the auction based solely on the information in the mass mailing.

When he arrived at the sale, Janson approached Williams who told Janson that he was “going to announce all the conditions and everything at the beginning.”  When Janson asked whether there was anything in writing, Williams responded that there was an after the sale agreement that he would read out loud before the auction.

Janson recorded the auction. Before bidding started, Williams announced:

All right, so we’re going to auction this off. The high bidder today will be required to pay a five thousand dollar deposit due today or at the time of the commencement of the sale. It has to be in cash and certified funds. They have fourteen days to complete the sale. There’s an agreement to be signed at the end of the sale.

After bidding had commenced, Williams said:

All right, I’ve got a bid of thirty…We’ve got a bid of forty. All right, somebody is going to have to bid here or we’re going to call this a no sale so. Anybody want a shot, give forty thousand.

Janson then bid $35,000. After Janson had made his bid, Williams said:

All right, I’ve got thirty-five, do I hear forty, forty? Forty-five?  Anybody want to bid forty-five thousand? All right, well if nobody else is going to bid, I’m going to give you a last chance here to bid again or else we’re going to call this a no sale. Nobody wants to beat forty-five. Going once, going twice, I guess we’re going to have to no sell it. All right.  I’m sorry [unintelligible] coming out.

Janson then approached Williams and asked Williams to confirm that Janson’s bid was the highest bid. Williams confirmed that it was, but that he and Hendrick were not willing to sell the property at that price.

Janson sued Williams and Hendrick seeking an order compelling them to execute a deed conveying the property to him as the high bidder at the auction for $35,000. The trial court ordered Williams and Hendrick to convey the property to Janson for $35,000. Williams and Hendrick appealed to the Virginia Supreme Court of Appeals.

The Supreme Court began its analysis by explaining that there are two types of auctions. In an “auction with reserve,” the owner or auctioneer invites offers from bidders, but no offer is deemed accepted until the completion of the auction. In an “absolute auction,” the property is sold to the highest bidder “regardless of the amount of the highest and last bid.”  The offer of the owner or auctioneer to sell property at an absolute auction is “a continuing offer by the owner subject to acceptance by the submission of a bid.”  “[N]either the owner nor the auctioneer can withdraw the property after the first bid has been received in an absolute auction, nor may they reject any valid bids or otherwise nullify the sale.”  Janson contended that the auction at which he made the highest bid was an absolute auction.

The Supreme Court noted that the “advertised terms of an auction dictate the type of auction that will be conducted.”  However, the auctioneer “may…prior to opening the bidding, make oral modifications and additions to the advertised terms, which will be binding upon the bidders.”  The presumption is that an auction is with reserve. The Supreme Court said that an “auction is with reserve unless the advertisement or the auctioneer explicitly indicates that it is an absolute auction or an auction without reserve.”  Although the intent that the auction be absolute must be explicitly stated, the words “absolute auction” or “without reserve” need not be used. The Supreme Court cited as an example of an advertisement that overcame the presumption that an auction is with reserve one that provided that the “Contract will definitely be awarded on [the auction date] to the highest responsible bidder.” Merely stating that the property will be sold to the highest bidder is not enough because there is a highest bidder at either type of auction.

In Janson’s case, the mass mailing that he received said nothing about whether the auction was an absolute auction or an auction with reserve. Janson argued that Williams’ statement that the high bidder was going to be required to pay a deposit and sign a written agreement overcame the presumption that the auction was with reserve, but the Supreme Court said that only amounted to a statement that the property would be sold to the highest bidder which case law established was not enough. Although the Supreme Court did not emphasize the point, Williams’ announcement that “somebody is going to have to bid here or we’re going to call this a no sale” after saying that bids of $30,000 and $40,000 had been received but before Janson submitted his $35,000 bid, put him on notice before he bid that Williams and Hendrick were not willing to sell the property to whomever submitted the highest bid, regardless of amount.

Auctions are exciting. Auctioneers call for bids at a fast pace and competing bidders can get caught up in the frenzy of competition. The lesson of Williams is that sellers and auctioneers need to be careful about setting forth the terms of sale. What Williams said at the sale was enough to convince the trial court judge that the sale was an absolute auction. If Williams had said “This property will definitely be sold today” or “You will own this property if you are the highest bidder,” even if the mass mailing had said that the auction was with reserve, the Supreme Court would have agreed with the trial court judge.