Auctions are a unique marketing and sales technique.
Property owners typically contract with an auctioneer and then that auctioneer offers that property for sale …
Or do they? Actually, that’s not quite right.
Property scheduled for auction is technically intended to be sold — but it doesn’t have to be.
Further, it’s not offered, but put up with an invitation to offer — bidders offer, not sellers nor auctioneers. This is the same model of offer and acceptance as traditional real estate as sellers don’t offer their real property for sale, but rather invite offers.
This was first codified by the English courts in Harris v Nickerson (1873) LR 8 QB 286 and remains the common law in the United States today.
Despite this similarity, auctioneers typically get paid quite differently than traditional real estate brokers. Auctioneers generally get paid upon the settlement of the auction, when the auctioneer takes his commission and/or other fees.
In traditional real estate brokerage, brokers earn their commission when they produce (procure) a ready-willing-able offeror at the full price set by the seller — even if there is no closing or settlement. The implications?
Quite simply, if a broker procures a full-price offer on a traditional real property listing, he has typically earned a commission. On the contrary, an auction works differently. At auction, the seller has the right of withdraw (no sale) unique to the type of auction:
In a with reserve auction, the property may be withdrawn any time up until the fall of the hammer (auctioneer announces “Sold!”)
In a without reserve auction, the property may be withdrawn prior to being put up, and then again if no bid is received within a reasonable time.
Therefore, the only way an auctioneer can bind the seller in a without reserve auction is to receive a bid within a reasonable time, or in a with reserve auction, deem the property “Sold!”
Consequently, there is little way to guarantee a commission outside of actually declaring the property sold — thus putting the seller and buyer in contract — unless the contract is worded in some other fashion.
Further, some auctioneer contracts say the auctioneer is paid as a percentage of the gross proceeds; thus if the buyer and seller don’t close the deal, there are no commission for the auctioneer as there are no gross proceeds.
In light of all this, auctioneers should endeavor to carefully consider what their compensation is based upon. Is it due only if the buyer pays and the seller conveys title? Is it due if the buyer and seller enter into contract? Is it due no matter if the property sells or not — as in a hourly rate or flat fee?
In other words, are you as an auctioneer being paid to market an auction? Conduct the auction? Find buyers for the seller? Facilitate a closing? As such, if the criteria for your compensation isn’t met, you aren’t getting paid.
It is best to discuss your particular agency contract and terms with an attorney to ensure it reflects your wishes. Inform your attorney of the various possible outcomes your auctions have, and see if you can tie your compensation to any/all appropriate results.
This exercise should be done in light of the UCC 2-328 which provides certain rights to sellers and bidders which can likely not be upset by private agreement. For instance, while a good “bluff,” prescribing a withdraw fee if a seller withdraws property prior to auction is almost assuredly unenforceable as the seller has that right per state law.
Remember, sellers at auction are merely inviting offers; in a without reserve auction, the seller can withdraw the property unless a bid is received within a reasonable time — and further, in a with reserve auction, any offers can be declined anytime before the hammer falls.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.
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