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Bidding on a high-ticket item at an auction is thrilling. You’re competing with a few other participants as the dollar amount climbs ever higher. Soon, it’s just you and one other bidder. The price is beginning to exceed what you’re comfortable paying, but you can’t help it—you continue outbidding the other person until they finally concede the win to you.
But when the hammer falls, reality sets in, and you realize you actually have to pay. What if you change your mind or truly can’t afford to buy an item you won in an auction? Here’s what you need to know.
The Problem of Failed Bids
While many auction houses prefer not to publicize them, non-paying auction winners are a significant problem. Incidents have been on the rise as online auctions grow in popularity. After all, it’s difficult to research and vet every bidder who wants to participate in an online auction. It’s easy to remain anonymous online, and bidders are just one click away from deciding they don’t want to pay the agreed price.
Yes, auction houses require deposits, references, and bidding contracts, but there’s still plenty of room for bidders to retract their offers. The only way to correct the problem of non-paying bidders is to force them to attend in person and pay immediately with cash before leaving the premise. But this would mean stepping away from the online auction market, where a huge percentage of bidders like to participate.
Most auction houses choose not to pursue complicated, expensive, and time-consuming lawsuits, so failed bid cases rarely end up in court. Instead, unpaid items are usually returned to the original consignor, put into a future auction, or sold privately. Often, these backup plans result in a significant loss for the seller—and the winning bidder is obligated to make it up to them.
Consequences for Failing to Pay a Winning Bid
If you win something at an auction, you are legally bound to pay the agreed price once the hammer falls. You’re liable for the deposit on auction day and the rest of the purchase price, plus fees, by the completion deadline (typically 28 days after the auction).
If you can’t pay the deposit, you may face legal consequences. The auction house and seller can demand that you pay the amount specified in your contract. It’s hard to fend off this demand, considering that you already agreed to the terms simply by participating in the auction.
If you can’t pay the remaining purchase price by the completion date, you may be served with a Notice to Complete. This legal document demands that you complete the purchase within a given time frame, typically 10 business days.
If the deadline comes and goes, you’ll most certainly lose your deposit. You may also face financial penalties, including having to pay the seller for damages. These penalties stem from the following costs:
- The seller may incur more fees for having to sell the item again.
- It may cost the seller more to hold onto the item while waiting for it to sell.
- The item may depreciate in value after you agree to purchase it.
- The seller risks a lower winning bid the second time around.
Depending on the terms of your auction contract, you may have to cover these costs if you attempt to back out of your winning bid. You may even be charged interest every day until the item sells to someone else.
What to Do If You Win an Auction and Can’t Pay
Clearly, it can be incredibly costly not to complete an auction purchase. Even so, some buyers see an item they want at auction and bid before their finances are in order, hoping to get the money they need before the completion date. This is a risky strategy because if the finances don’t materialize, the bidder will be unable to pay.
So before you raise your hand to bid at an auction, make sure you have enough money to pay and that you really want the item for sale. If it’s too late and you’re already committed to an auction purchase you can’t pay for, here’s what you can do:
- Demand to get out of the auction contract based on proof that the auction house or seller misrepresented the item, and that’s why you bid on it. Challenging the premise of the sale can be complicated, so be sure to consult a lawyer.
- Arrange short-term financing. This way, you can complete the purchase and decide what to do next without facing the fees and penalties associated with breaking an auction contract.
- Try taking the item back. Auction houses are typically willing to repurchase items from bidders now facing buyer’s remorse. Just be prepared to receive an offer below your winning bid.
- Request that the item be put in a future auction. This is the best way to recover a similar amount to what you paid for the item. And who knows? The value may go up in the meantime, increasing the chance of the winning bid being higher than what you paid.
- Wait it out and see what happens, especially if the item is likely to appreciate. In this way, a bad bid today could end up providing a good return on investment later on.
- Learn from your mistake and vow never again to bid on something you can’t afford or don’t really want.
Bid at an Auction in Oklahoma City
Dakil Auctioneers, Inc. is Oklahoma’s premiere, full-service auction company. We specialize in heavy equipment, real estate, cars, guns, and many other types of auctions. Whether you’re a regular auction attendee or a newcomer on the scene, we invite you to check our upcoming auctions page to stay informed. You can also contact us at (405) 751-6179 for more information about selling your items at an auction.
