As I teach real estate law for Hondros College, we have discussed with students for many years — albeit briefly — “secret profits” … and as our curriculum describes it, a secret profit is:
Financial benefit an agent takes from a transaction without authorization from the principal, nor informing the principal of the benefit retained.
As such, if an agent (auctioneer) charged a buyer’s premium or received other financial benefits from the transaction (auction) without authorization from the principal (seller,) nor informed the seller of the benefit retained — that auctioneer would be earning a “secret profit.”
The courts in the United States have been rather uniform that agents (real estate agents, attorneys, auctioneers, and the like) …
… Cannot make any secret profit out of the subject of his agency. All benefits and advantages acquired by the agent as an outgrowth of the agency, exclusive of the agent’s agreed compensation, are deemed to be have been acquired for the benefit of the principal, and the principal is entitled to recover such benefits in an appropriate action. Savage v. Mayer, 33 Cal. 2d 548
Since an auctioneer cannot make a secret profit, then it seems the principal would be entitled to any such earnings. We discussed this issue with an example here: https://mikebrandlyauctioneer.wordpress.com/2022/01/19/buyers-premiums-charged-retained/.
In this regard, there doesn’t seem to be any other circumstantial factors that change this holding. In other words, it wouldn’t matter what day the auction was, how many attended, the auction total or the weather that day … a secret profit is a secret profit.
This is hardly a “new” concept, in that (for example) the aforementioned case here is from 1949. It would seem at minimum, any auctioneer with a real estate license (and related required education) should be privy to both this concept and application?
Here’s our recommendation: Put in the contract with your seller/consignee all the earnings (percentages, fixed expenses, reimbursements, etc.) that this auction will provide you, and have the seller acknowledge those amounts. Then subsequently only earn what your [this] contract specifies.
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, RES Auction Services, 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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