Buying and Selling Horses at Auction

In the late 1970’s and 1980’s auctions provided a valuable means for marketing horses.  While the horse industry witnessed an absence of quality auctions for a period after the 1980’s, many people are using auctions to market and purchase quality horses.  Auctions again provide a viable means for the transfer of ownership.  Just like any other horse sale transaction, however, certain precautions will assist in producing a successful transaction when buying or selling  a horse on an auction.  This article will take a look at some important aspects for buyers and sellers in an auction setting.

Determining if an Auction is Right for You

Buying or selling a horse at auction carries different risks and rewards than doing so in a private transaction.  If you sell a horse at auction, you have the obvious risk of what your horse will bring at auction.  Certain precautions can be taken to ensure you do not receive substantially lower than your horse’s value (i.e., a reserve amount), you still run the risk of having your horse valued significantly lower than what your opinion of the horse’s value.  With this being said, a properly promoted and noticed sale usually produces a fair market value for your horse.

Buyers also take certain risks when buying horses at public auction. People who purchase horses at public auction usually do not conduct the same due diligence (see below for recommended due diligence) as do private purchasers.  The diminished due diligence, while not intentional, usually results from the lack of time to conduct full due diligence.  Often times a potential buyer will simply not have time to try out, research and examine the horse as he or she would if buying the horse privately.  The unsure nature of an auction also contributes to the lessened due diligence.  A potential buyer cannot be sure if he or she will purchase the horse, making it difficult to expend a great deal of money for pre-purchase examinations.  Thus, buyers take on additional risk when buying horses at auction.  However, if buyers takes the additional risk of buying a horse at auction, they may be able to purchase a better horse for the money.

Sales Brochures – Terms and Conditions

All sales brochures or catalogs contain terms and conditions.  A prospective buyer must thoroughly review these terms and conditions prior to the auction.  The key provisions in this section will include the warranties which accompany the horse in the sale.  Most commonly, you will find that all warranties are waived by the buyer when purchasing the horse.  Thus, buyers must do their homework before the auction.  Not only must the potential buyer research the horse (see below), they must carefully review the brochure to identify what warranties are included or have been waived by the seller and auction company.

Another area of particular interest is the terms of sale provision.  Specifically, this section will identify the different types of payment accepted by the seller and auction.  Rarely are terms allowed in auctions, and charging a sale to a credit card often incurs a fee with the auction company.  Additionally, potential buyers should check to see what they must do immediately after the sale.  Most sales require the buyer to take possession and responsibility for the horse immediately.  Buyers should know and be prepared for their immediate obligations after a purchase.

Consignment Agreements

All sellers considering consignment to an auction should carefully review the consignment agreement or contract.  This agreement will contain the terms of your agreement with the auction company, as well as the terms under which you agree to sell your horse.  The agreement will contain the consignment fee and/or commission you will incur by selling your horse at the auction, as well as the ramifications to you imposing a reserve amount on the sale.  You should note that some sales impose a penalty or increased fee if the horse does not sell at the auction.  Additionally, some  auction companies do not allow for sales prior to the auction, requiring the horse to sell through the auction.  All of these provisions are important in your evaluating the use of an auction for your horse.

Buyer’s Due Diligence

“Due diligence” is a term used in business transactions which basically means that the parties have researched the impending transaction to ensure they have full knowledge of the circumstances surrounding the transaction, as well as the subject of the transaction.  In this case, it means that the potential buyer has thoroughly researched and evaluated the horse.  Buying a horse at auction is not different than buying a horse from an individual.  As the price increases, so should the amount of research.  While auctions do not lend themselves to a great amount of due diligence, a potential buyer should not skimp on the due diligence when the price mandates proper investigation.

1. Identify Your Goals

Horse auctions are addictive, making it easy to get caught up in the events of the day.  You should identify your goals and objectives of going to the auction, and stick to those identified goals.  These goals can vary greatly.  One person may go to an auction with a mind to buy a show horse, while the next person may want to look for a good investment.  While each of these goals are valid, your actions at the auction will differ greatly.  Identification of your goals at the beginning of your auction experience can greatly improve your results.

2. Determine if You Need Assistance

Unless you have significant experience in the horse industry, you should seriously consider enlisting the assistance of a consultant or trainer.  The trainer or consultant will likely assist you in discovering any defects with the horse.  The trainer or consultant will also help the potential buyer in evaluating the type of auction they are attending.  If the auction often has problem horses, the trainer will help the potential buyer keep a watchful eye on potential problems.

3. Try Out the Horse

You should thoroughly “try out” the horse you intend to purchase.  This includes the potential buyer riding or handling the horse as the potential buyer intends to use the horse, if purchased.  Undoubtedly, this test drive will present several questions about the horse, which should be addressed with the seller.  This step proves critical in auction situations.  Just as in a private sale, the buyer needs to try the horse prior to purchasing.  Obviously, the try out will vary greatly depending upon the intended use of the horse, existing knowledge of the horse and the potential purchase price of the horse.

At public auctions, you may not be able to thoroughly test or try out the horse, due to time constraints or other potential buyers wanting to try out the horse.  You should try out the horse to the extent permissible, as well as watching other people try out the horse.  This will give you a good idea how the horse reacts to different situations and riders.  Additionally, watch the handling of the horse before and after you try the horse to see how the seller (or the seller’s trainer) handles the horse.

4. Research the Horse

You should always research a horse you intend to purchase at auction.  As the dollar value of the horse increases, so should the research.  On an expensive show or breeding horse, the potential buyer should attempt to confirm the horse’s history by contacting previous owners or trainers.  If the horse comes from outside of your geographic area, contact someone you know in the horse’s area to see if the horse has any bad habits.  This can prove especially helpful in buying an older show horse, who could possibly have ring habits.  You can make contact with these people in advance of the sale, increasing your knowledge of the horse prior to sale day.

If the seller claims the horse has an extensive show or reproduction record, contact the applicable breed registry to verify such assertions.  Again, in an auction setting, this research usually occurs well before the auction.  Potential buyers should target their potential purchases well in advance of the sale and begin their research and background checks before attending the auction.

5. Pre-Purchase Exam

Research regarding the horse’s health takes you part of the way to verifying the horse’s history.  There is no replacement for a veterinarian pre-purchase examination.  Especially in an auction setting, you must balance the cost of the pre-purchase examination with the cost of the horse.  Nearly every auction requires the buyer to waive all warranties of health and soundness.  Thus, the buyer bears the burden to identify all problems prior to purchase.

In some cases, veterinary exams and reports are kept on file by the auction company, and made available to potential buyers.  If such information exists, potential buyers undoubtedly should review the information.  Usually, however, veterinary exams are not performed by sellers at auction.  Thus, the potential buyer must carefully evaluate the situation to determine if a veterinary pre-purchase examination is necessary.

Sellers’ Representations at Auction

As with any sale, all sellers should ensure the correctness of all information provided to potential buyers.  This includes (but is not limited to) the horse’s breeding, show record, health history, training background, breeding ability, nominations and eligibilities.  Just because a horse sells at auction with large disclaimers, it does not mean that the sellers can lie about such information.  Several court cases exist where a court awards damages to a buyer where a seller makes many misrepresentations, even where there have been waivers and disclaimers signed by the buyers.

Conclusion

Auctions create a useful and valuable method for transferring ownership of horses.  Before buying or selling a horse at auction, you should make sure that the auction is right for you.  Sellers need to be aware of the risks and costs associated with the auction.  Buyers also need to evaluate the benefits and detriments of buying at auction, as well as conduct proper due diligence to ensure they purchase a horse suitable for their needs.  If buyers and sellers follow the proper steps, it will assist in a successful auction experience.

DISCLAIMER

This article provides general coverage of its subject area.  It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service.  If legal advice is sought or required, the services of a competent professional should be sought.  The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

© September, 2003.  All rights reserved.  This article may not be reprinted nor reproduced in any manner without prior written permission by the author.