We thought it might be a good time to define some terms auctioneers are using on a somewhat regular basis regarding real property auctions. These include “deposit,” “down payment,” “earnest money,” “good faith deposit,” “hammer price” and “buyer’s premium.”
Deposit is an amount paid by an auction buyer to the seller (and typically held in escrow) to incentivise the buyer to close. Deposits are sometimes known as “earnest money” or a “good faith deposit.”
Down payment is an amount an auction buyer using financing would pledge to bring to closing, and as such when coupled with the loan amount, would likely constitute the total contract price.
Earnest money is an amount paid by an auction buyer to the seller (and typically held in escrow) to incentivise the buyer to close. See “Deposit” above.
Good faith deposit is an amount paid by an auction buyer to the seller (and typically held in escrow) to incentivise the buyer to close. See “Deposit” above.
Hammer price is the amount the auctioneer announces after saying “Sold!” The hammer price is payable per the auction listing contract, assuming there’s a closing. See “Buyer’s Premium” below.
Buyer’s Premium is an amount that is added to the “hammer price” which constitutes the total contract price. This buyer’s premium is ultimately paid (and/or retained) per the auction listing contract, assuming there’s a closing.
As we’ve suggested above, the “deposit” (earnest money/good faith deposit) would be collected at the time the sales/purchase contract is signed. A “down payment” and “buyer’s premium” would be collected at closing, and applied/paid as expressed in the related contracts.
In regard to buyer deposits and the like, the question is often asked when (if) this money can be distributed prior to closing because of a breach of performance. While some breaches might be clearly identified, others may not be entirely unmistakable.
As such, we recommend auctioneers only direct release any deposits with the mutual assent of both parties (or court order.) We previously wrote about so-called “non-refundable” deposits (and the like) and feel this strategy is dangerous at best — as again — breaches are not always clearly defined https://mikebrandlyauctioneer.wordpress.com/2020/06/10/auctions-non-refundable-deposits/.
Could an auctioneer pay himself (or herself) [retain] a buyer’s premium lacking a closing between the buyer and seller? It seems unlikely any earned commissions would be payable lacking a closing unless the auctioneer/seller contract specifically stipulated this same amount to be paid otherwise.
We wrote about “secret profits” being an issue, as these are profits an auctioneer earns without the seller’s (client’s) knowledge and consent. There are considerable precedents secret profits cannot be earned in concert with agency roles: https://mikebrandlyauctioneer.wordpress.com/2022/01/22/auctioneers-and-secret-profits/.
Lastly, as we have noted prior, just by calling a “deposit,” “good faith deposit,” or “earnest money” something else — a down payment, or administrative fee, for example — may not change the issue of it being non-refundable if this same money is being used to incentivize the buyer to perform.
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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