NAAA Rule 1
Arbitration 101 - NAAA Policy Rule 1:
“Fair and Ethical Sale”
1. Fair and Ethical Sale The sales made at an Auction are intended to promote fair and ethical treatment to both the Buyer and Seller. If Auction determines that the transaction is not fair and ethical to either party, the Seller and the Buyer agree that Auction may cancel the sale, at its sole discretion. Federal, State, and Local laws supersede these policies where applicable.
As automotive wholesale professionals we have all read this section. What does it mean in practice?
A fair and ethical sale means the seller made every effort to appropriately represent the vehicle to the best of their knowledge, and the buyer made every effort to review the condition of the vehicle to their own satisfaction before bidding, and neither party will take action to interfere with the other party’s ability to do so. Both parties are bound to operate in good faith.
A fair and ethical sale does NOT mean no party will be losing money in the transaction. It also doesn’t mean we will feel warm and fuzzy after buying or selling - all it means is the auction has determined someone is on the naughty list.
If it doesn’t just protect me from losing money, why do I care?
Because it will protect you if the buyer or seller is actually trying to screw somebody, or when a claim is so out of the ordinary that the usual rules offer little guidance and a situation has got too out of pocket for the regular rules to apply.
Situations where I have had to use or have seen the auction use this rule is in cases where the seller withheld information from the buyer, the seller made a material misrepresentation to the buyer over text which contradicted the announced conditions on the sale listing (prompting the buyer to purchase on the seller’s word), or in cases where the buyer changed the condition of the vehicle before returning it to the auction for arbitration inspection.
While the application of this rule may seem arbitrary (hah!) there is a rubric the auction uses when determining if a claim meets the “unfair” and “unethical” metric
Did the seller have direct knowledge of an issue that was relevant to the buyer?
Now, don’t get too excited thinking this is a get out of jail free card - there must be strong evidence the seller was aware of the issue prior to selling. The auction may look for an estimate for repair from a dealership with the seller’s name on it dated before the sale or announcements from a previous transaction that the seller was involved in, or some other kind of strong evidence to confirm the seller’s foreknowledge before they will allow a claim based on Rule 1 alone
Did the buyer have the opportunity to know the true condition of the vehicle?
If you attend in person, that can be used as evidence that you had opportunity to discover the actual condition, whether you bought on simulcast or not
If you are attending in person, check the odometer for yourself before buying - you may get stuck in a car if it’s found that the miles were wrong but you were there and could have noted that prior to bidding
Please note that “I don’t look at CR images/line items/headlines before bidding” doesn’t qualify as a reason for why your claim should be valid if you are buying online
This rule comes up every so often when the auction has a claim that is not-quite-standard, for instance:
If there is some “technical” reason why the claim isn’t valid (ex. buyer out of time by 2 days) but evidence is found that there was information intentionally withheld from the sale listing
For example, a seller announced “CEL over 600” on a vehicle that had a blown head gasket and was overheating so quickly it couldn’t be started - seller knew, and chose to use an inappropriate announcement. The claim was found to be valid, and the sale voided
The claim is in a gray area that requires the auction personnel to resolve a complaint without clear policy guidance.
For example, a BMW was sold and was over 4 years old. The buyer tried to arbitrate for the sunroof not working due to a missing switch. The claim was initially declined because of the age of the vehicle, but after the buyer took the car to the dealership they found that critical connections for the wiring harness had been cut and damaged beyond repair, meaning the entire interior electrical system was toast and had to be replaced. The quote for repair was over 18,000 for just the labor (remember, this was a BMW?). While the claim was still not valid, the auction opted to use Rule 1 (as the severity was insane and the seller was aware) and the buyer was assisted with his loss in resale.
It’s important to note that the buyer was assisted and the sale was not voided, because the claim was invalid and therefore the sale was valid
Have you ever worked on or come across a claim where this rule was applied? How did it work out? Send in your stories for a chance to be on the “arbitration hall of fame” - an upcoming feature page!
