III: PREPARING FOR THE AUCTION OF REAL ESTATE
3.1. The Auctioneer of Real Estate
(a) The Licensed Auctioneer
Only a licensed real estate broker or salesperson who is also licensed as an auctioneer, apprentice auctioneer or auction company within the State of Ohio may verbally call for, recognize and accept bids.7An individual who does not fall within one of the limited statutory exceptions from licensure cannot serve as an auctioneer within Ohio without first obtaining a license issued by the Ohio Department of Agriculture.8Moreover, in order to contract to sell real property at auction, an individual must maintain both an auctioneer’s license and a real estate license.9(b) In-house vs. Outside Auctioneer Under Ohio law, only a real estate licensee who is also licensed as an auctioneer may contract for the sale of real property at auction; however, a licensed real estate broker not also licensed as an auctioneer may contract to sell real property if either (1) the broker has an affiliated salesperson who is also a licensed auctioneer or (2) the broker enters into a cooperative agreement with another licensed broker associated with a licensed auctioneer.10 Therefore, two options exist for a broker who desires to use the auction method. The broker may have an inhouse agent who maintains an auctioneer’s license perform the auction. Alternatively, the broker may cooperate with an outside auctioneer, who must be associated with another real estate broker, to conduct the auction. In either case, the licensed auctioneer must be working with a licensed real estate broker.
(c) Obtaining and Maintaining an Auctioneer’s License
The Department of Agriculture may grant auctioneers’ licenses11and apprentice auctioneers’ licenses12to persons determined by it to be qualified. In order to obtain an auctioneer’s license, an individual submits an application on forms provided by the Department of Agriculture.13An applicant must generally have a place of business in Ohio.14An individual also must pass written and oral examinations given by the Ohio Department of Agriculture.15The applicant (or a licensee seeking renewal) cannot obtain (or maintain) a license if he or she has been convicted of a felony or a crime involving fraud or theft within the ten years preceding the application (or renewal).16Every applicant for an auctioneer’s license must provide proof to the Department of Agriculture, on forms made available by it, that the applicant (i) has a good reputation; (ii) is trustworthy; (iii) is at least 18 years old; (iv) has met either the apprenticeship requirement or the reciprocity requirement; and (v) has a general knowledge of the local, state, and federal statutory law governing auctions, the auction profession and the principles involved in conducting an auction.17The Department of Agriculture may issue a license to a partnership, association or corporation if 50% of the partners, members or officers are licensed as auctioneers.18 Upon issuance of a license, the corporation, partnership or association must designate one licensed individual from among its directors, partners or members to communicate with the Department of Agriculture.
Every applicant for an apprentice auctioneer’s license must pass an examination relating to the skills, knowledge and statutes and regulations governing auctioneers.19No licensed auctioneer may have more than two apprentice auctioneers at one time.20If an auctioneer wants to end his or her sponsorship of an apprentice, the auctioneer must notify the apprentice by certified mail (return receipt requested) at least 10 days prior to the effective date of termination, sending a copy of the notice and the apprentice’s license to the Department of Agriculture by certified mail.21Likewise, an apprentice wishing to terminate his or her sponsorship by an auctioneer may do so by giving the sponsor and the Department at least 10 days’ advance written notice by certified mail.22
There is a fee for each auctioneer’s or apprentice auctioneer’s license issued by the Department of Commerce.23In addition, an applicant must accompany a license application with a $25,000 bond or an irrevocable letter of credit.24If the individual’s application is accepted, a permanent license certificate is given to the auctioneer.25This certificate, as well as the appropriate portions of the license renewal card discussed below, must be displayed in a conspicuous place at the auctioneer’s place of business.
An auctioneer must renew his or her license bi-annually on the last day of June26. The Ohio Department of Agriculture will automatically renew these licenses upon receipt of the applicant’s written request and the renewal fee. An auctioneer must notify the Department of Agriculture of any change in the location of the principal place of business in order to keep his or her license valid. No examination is required for renewal unless the license has been revoked or suspended or unless the license has expired. If a license has expired, an auctioneer may not engage in any auction activity until the new license is issued.
Besides conspicuously displaying the appropriate portion of the annual renewal card, the licensee must carry the appropriate portion of the renewal card at an auction.27
Any change of business location without notifying the Department of Agriculture automatically cancels any previously issued license.28If notice is given, the Department will issue a new license for the unexpired period upon the licensee’s payment of a fee.29
A licensed auctioneer must maintain a trust account in an Ohio depository to be used to hold all deposits, escrow funds and other amounts received in a fiduciary capacity in connection with an auction of personal property. Any deposits, escrow funds and other amounts received in a fiduciary capacity in connection with real estate shall be deposited in the Real Estate Broker’s Trust Account as is customarily done on listed properties. Additionally, auctioneers must keep on file records related to any auction sale for at least two years from the date of auction. These records should include, at a minimum, the following: settlement sheets, written contracts, and copies of any advertising that described the property for sale.30
3.2. Creating an Agency Relationship
(a) Auction Agreements
The auctioneer’s authority is derived solely from the owner of the real estate. A proper auction agreement between the auctioneer and seller, therefore, is required prior to the auctioneer’s marketing of the property.31This contract, similar to a regular brokerage listing agreement, must be in writing and must be signed by the auctioneer who is also licensed as a real estate broker or salesperson.32
An apprentice auctioneer is not permitted to enter into a contract or agreement on a sale at auction without the written consent of the apprentice auctioneer’s sponsoring auctioneer, and all contracts or agreements must be made in the name of and on behalf of the sponsoring auctioneer. Moreover, an apprentice auctioneer cannot enter into an auction contract for the sale of real property in the name of the sponsoring auctioneer regardless of whether the apprentice auctioneer is licensed as a real estate broker or salesperson.33
The auction agreement must contain the terms and conditions on which the licensee will accept the property for sale at auction. Under the auctioneer’s license law the auction agreement must specify all of the following:
(1) The owner of the property to be sold or the owner’s agent or the consignee;
(2) The date of the auction or a termination date of the contract or agreement;
(3) The location of the auction;
(4) The terms and conditions of the auction;
(5) All of the fees to be charged by the auctioneer or the auction firm, which must include commissions, rentals, advertising, and labor;
(6) An explanation of the settlement of the auction that includes the disbursement of interest money, if applicable;
(7) A statement establishing the responsibility for bad checks, debts, and unpaid auction items;
(8) A statement indicating whether the auction is a reserve auction or an absolute auction. In addition, the statement must include the definition of reserve auction or absolute auction from the bill, as applicable.
(9) A statement of the auctioneer’s or auction firm’s policy regarding absentee bidding:
(10) A brief description of the real or personal property to be sold; and
(11) If the sale is of real or personal property at absolute auction, a statement affirming that the seller of the real or personal property has a bona fide intention to transfer ownership of the property to the highest bidder.34
Ohio law specifies that the auctioneer or special auctioneer who contract with the owner is liable for the settlement of all money received, including the payment of all expenses incurred only by the licensee and the distribution of all funds in connection with an auction.35Further, all contracts or agreements must contain a statement indicating either that the licensee is bonded in favor of the state, as required in current law, or that an aggrieved person may initiate a claim against the existing Auction Recovery Fund as a result of the licensee’s actions, whichever is applicable.36
Under the real estate licensing law, an agreement for the sale of property by auction is considered an agency agreement. As such, it must include a definite expiration date and the mandatory fair housing statement and logo. Such language is required if the property is vacant land or falls under the definition of housing covered by the fair housing laws.37
(b) Agency Disclosure
Auctioneers are primarily agents of the seller because they clearly work on behalf of the seller to attain the highest bid possible. Dual agency (representing both the seller and buyer), therefore, seems a practical impossibility in spite of being a legal possibility. The real estate licensing law requires real estate licensees to disclosure who they represent to both buyers and sellers of real estate. Therefore, in the sale of real property by auction these provisions apply.
Licensees selling property at auction must provide the seller with their “Consumer Guide to Agency Relationships” before they market or show the property.38At the auction, they must verbally disclose to the audience that they represent the seller. Then the auctioneer/REALTOR must provide a “Consumer Guide” and an Agency Disclosure Statement to the successful bidder, prior to the bidder’s signing a purchase contract.39
3.3. The Method of Auction
(a) Reserve Auctions
Ohio Auction law defines “reserve auction” as an auction in which the seller or an agent of the seller reserves the right to establish a stated minimum bid, the right to reject or accept any or all bids, or the right to withdraw the real or personal property at any time prior to the completion of the auction by the auctioneer.40It then requires an auction to be a reserve auction unless explicitly stated otherwise in the contract for the auction and in the terms and conditions governing the auction. For purposes of a reserve auction, there need not be an announcement or indication that the reserve is attained.41
(b) Absolute Auctions
Under Ohio law an “absolute auction” is defined as an auction of real or personal property to which all of the following apply: (1) the property is sold to the highest bidder without reserve, (2) the auction does not require a minimum bid, (3) the auction does not require competing bids of any type by the seller or an agent of the seller, and (4) the seller of the property cannot withdraw the property from auction after the auction is opened and there is public solicitation or calling for bids.42
No person licensed under the Auctioneers Law can advertise, offer for sale, or sell real or personal property by absolute auction unless one of the following applies: (1) except for current tax obligations, easements, or restrictions of record of the seller, there are no liens or encumbrances on the property in favor of any other person; (2) Every holder of a lien or encumbrance, by execution of the auction contract or other written agreement provided to the auctioneer, agrees to the absolute auction without regard to the amount of the highest bid or to the identity of the highest bidder; or (3) A financially sound person, firm, trust, or estate, by execution of the auction contract or other written agreement provided to the auctioneer, guarantees the complete discharge and satisfaction of all liens and encumbrances, as applicable, immediately after the absolute auction or at the closing without regard to the amount of the highest bid or to the identity of the highest bidder.43
Further, before property can be sold at an absolute auction the auction contract must specify that it is an absolute auction and not a reserve auction. It must also prohibit the seller or anyone acting on his behalf to bid or participate in bidding at the auction.44
Finally, the seller must have a bona fide intention to transfer ownership of the property to the highest bidder regardless of the amount of the highest bid and without reliance on any agreement that a particular bid or bid level be attained in order to transfer the property.45
(c) Bidding by seller or licensee
Ohio auction law authorizes a seller or a person on behalf of a seller to make a bid if the auction is a reserve auction and the auctioneer provides full disclosure before bidding begins that the seller retains the right to bid. It prohibits any person licensed under the Auctioneers Law from knowingly receiving such a bid in the absence of full disclosure.46
With respect to absolute auctions, Ohio law states that neither the seller or anyone acting on behalf of the seller can bid or participate in the bidding process of an auction.47
However the auction license law does not prohibit any of the following:
(1) The bidding of a secured party or lien holder, other than the seller, at an absolute auction, provided that the bids are bona fide offers, that the bidding does not constitute bid rigging or a reserve for the seller, and that the bidding is not for the purpose of aiding or assisting or on behalf of the seller or the auctioneer;
(2) The bidding by an individual or party to a dissolution of marriage, partnership, or corporation on real or personal property being sold at auction pursuant to the dissolution; or
(3) The advertising of real or personal property to be sold by absolute auction and by reserve auction within the same advertisement or for auction on the same date and at the same place. However, the advertisement cannot be misleading and must clearly identify the property that is to be sold by reserve auction.48
At an absolute auction it is a violation of auctioneering laws for an auctioneer to knowingly receive a bit from a seller or someone acting on their behalf, except in the case of a dissolution.49 Finally, Ohio’s auction law addresses whether an auctioneer can bid for himself on property he/she is auctioning. It permits a bona fide bid on the licensee’s own behalf at an absolute auction and at a reserve auction, provided that the licensee provides full disclosure that the licensee may make a bona fide bid to the seller and at the auction.50
3.4. Location for the Auction/Posting Sign
Auctions can be conducted on-site or off-site. The location may depend on one or more of several factors. When selecting an auction location, an auctioneer must consider parking, neighbors, crowd control, restroom facilities, food facilities in some instances, weather and aesthetics. An off-site auction may give an auctioneer better control over the auction environment including audience comfort so that the trend is moving toward off-site auctions. Off-site auctions may also be used when multiple parcels are being sold, as such auctions may last several hours and conditions, especially weather, may become less predictable. On-site auctions are best when the seller wants to capitalize on the condition and appearance of the property. In contrast, off-site auctions work best when the seller wants to de-emphasize the condition of the property. For logistical reasons, off-site auction locations also work best for large sales. For example, multiple property sales (most common for investment purposes) and multiple parcel sales (most common for investment or farming purposes) are generally conducted off-site.
Anyone licensed under the Auctioneers Law that conducts or is involved in an auction jointly are responsible for the posting of a sign at the auction. The sign must contain the name of all licensed persons involved in the auction, a statement that the persons are licensed by the Department of Agriculture, and the address of the Department. The sign must be posted at the main entrance of the auction, at the place of registration for the auction, or by the cashier for the auction. It must be of a size no smaller than eight and one-half inches by eleven inches. The letters and numbers on the sign must be of adequate size to be readily seen by an individual with normal vision when viewing it.51
Practical Considerations: Multiple Property/Parcel Sales
Using a multiple property auction method can help maximize the sale price for the owner. Through this method a buyer has the option to bid on one property, a combination of properties, or all of the properties offered.
3.5. Advertising an Auction
Any advertising for an auction must comply with laws applicable to both auctioneers52 and real estate brokers.53Under these laws an advertisement for the sale of real property at auction must contain the name of the licensed auctioneer who is entering into the auction contract and the name of the real estate broker licensed under the Real Estate Brokers Law who is involved in the sale.54The ad must also state that these individuals are licensed as an auctioneer and/or broker. Any apprentice auctioneer who advertises must also comply with these requirements and must disclose the name of the auctioneer under whom he/she is licensed.
Often advertising materials will announce the terms and condition of the sale and describe the property being sold. If the property is being sold by absolute auction , the auction laws require that this fact be “unequivocally” stated in the ads.55
The ORC also requires that if an advertisement for an auction contains the words “estate auction,” or words to that effect, the person licensed under the Auctioneers Law who advertises do both of the following: (1) enter into an agreement directly with the executor, administrator, or court appointed designee of the estate property, and (2) list prominently in the advertisement the county in which the estate is located and the probate court case number of the estate.56
3.6. Cooperating with Other Brokers
The common courtesies and ethics that apply in the traditional real estate setting apply equally in the auction context. Thus, the code of ethics and rules of arbitration derived from the Board of Realtors govern brokers involved in auction transactions.
Auctioneers are noticing a trend toward more cooperation between auctioneers and other agents. Brokers list auction properties in multiple listing services with the noted classification as “auction property” and the status of the transaction (i.e. whether set for auction, contract pending, etc.) so that buyers’ agents have an opportunity to recommend these properties to their clients.
Prospective buyers who attend an auction are usually asked to register prior to bidding. This registration requirement satisfies the auctioneer/broker’s duty to the seller to be informed about who is bidding, ensures to the auctioneer that the pre-registered bidder has the information packet or due-diligence package containing the agency disclosure form, and gives the buyer an opportunity to disclose whether he or she is represented by an agent. As is evident, therefore, the rules of “procuring cause” apply, and any real estate agent properly responsible for bringing a buyer to the auction will be entitled to a commission upon making the winning bid. It is recommended that REALTORS representing buyers attending an auction advise their clients to prequalify for a home loan or line up financing and if possible do other due diligence such as a home inspection in advance of the auction.
REALTORS experienced with auctioneering have disclosed a practice of charging a “buyer premium”, which is a fee paid by a buyer on top of the purchase price which may be as high as 5 to 10 percent of the purchase price. Any such fee should be disclosed in any ads and in the bidder package.
Practical Considerations: Registration of Represented Buyers
In order to make sure that an undeserving “buyer’s” agent does not receive a commission, a seller’s agent sometimes requires represented buyers to preregister at least one day in advance. By forcing buyers’ agents to forward their agency disclosure forms to the seller’s agent prior to the auction day, the seller can protect against agents improperly roaming through the auction crowds to find bidders to represent.