In previous articles I looked at problems that can arise in horse sales in general. However, there is one form of horse sale not considered but which certainly merits a bit of attention —the auction.
Horse auctions provide both buyers and sellers with certain advantages to private sales, but also come with their own set of pitfalls. For anyone considering purchasing or selling a horse at auction, there are factors that should be taken into account in order to avoid legal troubles and disappointment.
Sellers Point of View
For a seller, auctions offer the opportunity to reach a large number of potential buyers with a minimum of time and effort. However, sellers can expect to pay for that convenience and accessibility. Depending on the auction house, a flat fee per head is charged or a percentage of the sale price is taken as a fee. A seller can attend the auction himself or leave the horse(s) with the auction company on consignment basis.
From a legal standpoint, when selling a horse at auction, it’s important to clarify beforehand what type of fee arrangement the auction house has, and to make sure it is in writing. Some auction houses may tell you that there is a flat fee per head, but after the sale, you may find that the flat fee applies only up to a certain monetary amount, after which the auction house takes a percentage in addition to the flat fee. Thus, it is always important to clarify the terms of sale before the horse goes into the ring.
Most auction companies allow sellers to set a “reserve” on their horse(s). Basically, a reserve is a minimum price a seller is willing to take for the horse. If the horse comes into the ring for auction and the reserve is not met, the horse is typically put on an RNA (“Reserve Not Attained”) list. Again, depending on the auction house, interested buyers may have the option of contacting a seller after the auction to strike an independent deal. Keep in mind, though, that as a seller, you may still be responsible to the auction company for fees even if the reserve is not met and/or the sale proceeds independently. In fact, some auction houses charge sellers a percentage of the highest bid price, even when a reserve is not met and the horse is not sold. There have even been instances where, after a reserve is not met and an independent sale takes place, the auction company requests a percentage of the full sale price, even though the sale occurred post-auction. Again, it is important to clarify what the policies of the particular auction house are prior to signing your horse up for auction.
Auctions range in size and variety and are often specialized in nature, selling only certain types of horses. For instance, Keeneland (based in Kentucky) is one of largest thoroughbred sales companies in the world, catering to those primarily interested in thoroughbreds. On the other hand, Billings Livestock Commission Co. (BLS), located in Montana, specializes in Western-type horse sales. Obviously, if you want to sell a barrel-racing horse, you wouldn’t list your horse with Keeneland since the buyers there are looking for thoroughbreds. It’s important to know beforehand what type of horse a particular auction specializes in because once you sign the contract, you may be stuck. A quick Google search will give you a fair idea of what a particular auction company specializes in. Today, most reputable auction houses have websites and online catalogues, so you can check out what types of horses are sold. As a seller (and especially if the auction is taking place on consignment), you want to be certain that the auction company will provide you with a viable pool of potential buyers, and that they will use their best efforts to sell your horse.
Buyer’s Point of View
For buyers, auctions also provide certain advantages over private sales.
Generally, with a private sale, it is a one-on-one transaction between buyer and seller. With an auction, the auction company provides an extra layer of protection. Many auction companies offer a “soundness guarantee.” They warrant that a horse purchased at auction will be in “sound” condition. Remember, though, that this doesn’t necessarily mean the horse will be suitable for the purpose for which you are buying it. Rather, most guarantee that the horse will not be lame, will have good air, good eyes, and no undisclosed medical conditions.
In addition, many auction companies require sellers to provide documentation above and beyond what you might expect. For instance, Keeneland asks their sellers to provide x-rays of their horses’ limbs so that buyers (or their vets) can take a look.
Most auction companies offer online or hard-copy catalogues so that buyers can peruse the horses before the auction. Buyers are also encouraged to arrive early enough to observe any horse they are interested in. This way a buyer can talk to the sellers or handlers, and see the horse in action. This is very important since once the horse enters the auction ring, things move quickly and, as a buyer, you usually won’t have time to adequately assess the horse.
Auctions also provide buyers with the benefit of other buyers who are usually quite willing to offer advice and assistance. Still, if you are not familiar with auctions, they can seem intimidating. If you don’t prepare beforehand, you run the risk of getting caught up in “auction fever.” After all, it is the auctioneer’s job to generate excitement and a sense of urgency. Remember, though, when that gavel comes down, an enforceable oral contract is formed, and you will be legally on the hook. The time to plan your strategy is before the bidding starts. It is important to do your research on the horses you really want and to stick to your budget.
One particular tactic used by sellers is the use of “shills.” Basically, a shill is a person sent in by a seller who has no intention of buying the horse but bids in order to bump up the price or meet the reserve. Sometimes auctioneers themselves are permitted to bid against a buyer if they believe it will get the buyer to meet the seller’s reserve. You should find out whether an auction house is known for these practices and be aware of them when you are bidding so as not to be pressured into bidding more than you are comfortable with. More than a few cases have ended up in court because a buyer who fell prey to shilling tried to back out of the deal.
Buyers generally won’t know if a reserve is set on a horse until the auction is concluded. The only exception is if an auction is listed as an “absolute” auction, which means that no reserves are allowed. Often, “absolute” auctions are used for loose auctions, where a horse is sold as is, with no soundness guarantee.
Keep in mind, also that auction houses can sometimes be breeding grounds for disease. All it takes is one sick horse to infect the herd. It is important to have your vet check the horse before a soundness guarantee expires, and to keep the new horse sequestered from your other horses until you know for sure it is healthy.
Mati Jarve is the managing partner of the Marlton, New Jersey law firm of Jarve Kaplan Granato, LLC. He is certified by the New Jersey Supreme Court as a Civil Trial Attorney and the National Board of Trial Attorneys as a Trial Advocate. Licensed in New Jersey, Pennsylvania and Arizona, he maintains a national practice in civil litigation, including equine related issues. This article is for informational purposes only and is not intended to be legal advice.
If you have a specific legal question or problem you should consult with an experienced and knowledgeable equine law attorney. Questions, comments or suggestions can be e-mailed to firstname.lastname@example.org, by visiting www.nj-triallawyers.com.