We would suggest every auctioneer has an escrow account (sometimes called a special account or trust account) for other people’s money — and in the case of auctioneers, sellers’ money — regardless of some states’ laws silent on this issue.
For instance, let’s say an auctioneer contracts with a seller to conduct an auction, and is charging a 15% seller commission and a 10% buyer’s premium. The contract also has the seller paying the auctioneer $2,500 in various expenses.
In this example, the auction’s gross proceeds are $424,050.00 (including the buyer’s premium.) This means the buyer’s premium ultimately going to the auctioneer (or seller) is $38,550.00 and the seller’s commission is likely $57,825.00.
If the buyer’s premium, seller’s commission, and expenses go to the auctioneer in entirety, the seller nets $325,175.00, and the auctioneer is paid $98,875.00. So, where does this $424,050.00 go? Where and how is it deposited?
We have held for decades that the entire $424,050.00 should go into the auctioneer’s escrow account, as all this money belongs to the seller initially. Then, as the contract dictates, the buyer’s premium, seller commission, expenses, and the seller are paid from the escrow account.
For example, if the auctioneer is due the buyer’s premium, seller commission, and expenses of $98,875.00 then two checks (or transfers otherwise) would be drafted — one to the auctioneer for $98,875.00 and one to the seller for $325,175.00.
As a side, we are privy to auctioneers charging a buyer’s premium without their client’s knowledge. This results in the buyer’s premium belonging to the seller/client with other possible damages due. It is widely held that auctioneers in an agency relationship must disclose to their principal all fees earned or forgo those fees: https://mikebrandlyauctioneer.wordpress.com/2022/04/18/buyers-premiums-agency-duty/.
There are other issues as well. Many times payments come from various sources and at different times. As well, some payments are never made, or made and then canceled. There could also be cases of buyers deserving a refund.
As a result, we hold that these escrowed funds should remain as such for a sufficient time to allow for all deposits and other issues to be resolved. We would suggest the auctioneer (agent) should not be paid until the principal (client) is paid.
It is important for every auctioneer to have a complete accounting of all deposits, payments, interest, fees, etc., and memorialize all accounting procedures in the contract gaining the seller’s knowledge and consent.
Too, it is paramount that auctioneers not commingle nor convert: https://mikebrandlyauctioneer.wordpress.com/2013/05/21/auctioneers-cant-commingle-nor-convert/. Commingling is putting personal funds in with escrowed monies and conversion is putting escrowed funds in with personal funds.
Three issues where auctioneers can find themselves in peril include lack of documentation/accounting, commingling, or converting funds. This is most easily managed with auctioneers having an escrow account for all gross auction proceeds, with disbursal thereafter.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at Mike Brandly, Auctioneer, Brandly Real Estate & Auction, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.
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