WHAT IS YOUR STAND ON SHILL BIDDING?

WHAT HAVE YOU DONE TO ENSURE IT DOESN'T HAPPEN AT YOUR AUCTIONS?
 

Shill bidding is defined as the utilization of a "plant," or a non-good-faith bidder (commonly referred to as a "shill," a "capper," or a "booster,") whose sole purpose is to artificially inflate the bid and who has no intention of buying the property.  Only two parties have a vested interest in shill bidding:  the seller and/or auctioneer.

Auction Sells Fast views shill bidding as despicable, dishonest, unethical and fraudulent, and a source of justifiable scorn on the part of the bidding public toward the auction industry.

To illustrate how tempting shill bidding can be for an auctioneer, suppose a real estate property being auctioned has a reserve (the minimum the seller will accept) of $500,000, and the bidding is at $460,000 with a 10% buyer's premium and the legitimate bidding has completely stalled.  Factoring in the 10% buyer's premium, the contract price is $506,000 ($460,000 x 1.10), which IS ENOUGH to meet the reserve of the seller.  The only problem for the auctioneer is that would mean having to collapse his/her commission from $46,000 down to $6,000.

Suppose, however, that a shill bid is utilized to get the bid from $460,000 to $480,000, with the hope of getting the legitimate bidder "back in" at $500,000.  If the ploy works, the contract price becomes $550,000 ($500,000 x 1.10), which means the auctioneer's commission SKYROCKETS from $6,000 to $50,000!!!  That's EXACTLY what may motivate an auctioneer to engage in this practice.  When an auctioneer gets within striking range of the reserve (i.e. within the buyer's premium range), he/she has reached "pay dirt territory," meaning that everything obtained from that point forward until the reserve is met is essentially coming to him/her!!!  What's the downside?  Unfortunately, in Louisiana, not much.  Shill bidding is presently punishable only to the tune of a misdemeanor conviction (which most DAs won't likely pursue due to the time and energy required to get a shill conviction) and a $500 fine!! 

We at ASF will NEVER, and we do mean NEVER be tolerant of shill bidding.  We will STEADFASTLY REFUSE to accept a listing by any prospective seller who suggests shills be deployed.  Obviously, we make our promise to you that we will NEVER knowingly allow a shill bid to transpire at one of our auctions.  NEVER!!

Beyond that, however, we have taken another important step to help ensure the bidding public is not subjected to this despicable practice:

We've modified BOTH our listing agreement and our purchase agreement to SPECIFICALLY ADDRESS the issue of shill bidding. 

In our listing agreement sellers attest, in writing, that shill bidding is prohibited.  The agreement also contains language that states the following:

1.  If a cause of action (i.e. lawsuit) arises alleging shill bidding has been utilized to artificially inflate the bid and a court deems that in fact shill bidding was used for that purpose, then:

2.  The responsibility for payment of the FULL buyer's premium shifts away from the purchaser and to the party the court deems to have engaged in shill bidding.

Our purchase agreement contains the same language, and we call this our "No Shill Guarantee"  <SM>. We are proud to implement it as a means to help assure bidders at our auctions that, under NO circumstances, will we be tolerant of shill bidding!!

<SM> The phrases "No Shill Guarantee," "No Booster Guarantee," and "No Capper Guarantee" are all service marks registered to Auction Sells Fast by the Louisiana Secretary of State's Office.

At the Louisiana Auctioneer's Association (LAA) 2010 Convention, a resolution was proposed to vigorously oppose a bill (HB 1439) calling for significantly stiffer penalties for shill bidding.  The LAA membership voted 27-1 (with 4 abstentions) in favor of the resolution.  Soon after the convention, ASF President Rev. Freddie Phillips opted to resign from the LAA and form a second auction trade association in Louisiana:  The Louisiana Association of Professional Auctioneers (LAPA).  LAPA membership requires signing an oath to adhere to six (6) fundamental tenets, and # 1 on the list is adamant opposition to shill bidding.  CLICK HERE to view Rev. Phillips LAPA profile.  To view Rev. Phillips' signed LAPA Oath, CLICK HERE. 

Also during this same timeframe, Rev. Freddie Phillips, was one of only two (2) members of the Louisiana Auctioneer's Licensing Board to support a motion at the May, 2010 LALB meeting to propose a statute to go before the Louisiana Legislature to increase the maximum fine for shill bidding for real estate auctions from $500 to $10,000.  ASF's lead bid assistant, Mr. Robert Burns, was the only other supporter of the motion, and it failed by a vote of 5-2.

Interestingly enough, also during that same timeframe, Mr. Steve Proffitt, Legal Counsel for J. P. King, arguably the most dominant real estate auction company in the world, wrote a SCATHING article in Auctioneer Magazine (the official publication of the National Auctioneer's Association) regarding shill bidding.  Here is a brief quote from Mr. Proffitt's article (Mr. Proffitt gave written permission for reproduction):

  "Auctioneering is no longer the parochial activity that it largely was 60 years ago. Auction marketing has evolved into a sophisticated process that is now employed by skilled professionals to liquidate valuable property of every type. The old smoke-and-mirrors tricks, like shill and phantom bidding, were never lawful and should have never been tolerated. Today, there is no room for these crooked practices and Auctioneers and the industry alike should strongly denounce them and all other activities that would undercut the legitimacy of the auction markets. The auction profession can never be stronger than the public's perception of it and honest practices and ethical conduct are what the public requires in modern commerce."

Ask the auctioneer at the next auction you attend, "Are you tolerant of shill bidding?"  Then follow that question up with "What have you specifically done to help ensure it doesn't transpire?"  In doing so, we ask that you play a role in helping  eradicate an INSIDIOUS CANCER that we believe threatens to destroy the auction industry in Louisiana!!