AUCTIONS:  How they work.



Types of Auctions

All auctions are presumed to be with reserve unless they are explicitly absolute or without reserve.

  1. Auction with Reserve
    The auctioneer may withdraw the goods at any time until he/she announces completion of the sale. The goods may be put up subject to the seller's confirmation or subject to a certain reserve price. At an auction with reserve the seller has the right to reject or confirm a bid. This does not automatically give the seller, or anyone acting on the seller's behalf, the right to bid. It is not required to announce the reserve price when it is met.

  2. Auction with Reserve and the Seller Reserving the Right to Bid
    The auctioneer may withdraw the goods at any time until he/she announces completion of the sale. The goods may be put up subject to the seller's confirmation or subject to a certain reserve price. The seller, or someone acting on the seller's behalf, may bid, provided that full disclosure has been made that liberty for such bidding is retained. A licensee shall not knowingly receive such a bid without this full disclosure.

  3. Absolute Auction
    It is the auctioneer's and the auction house operator's responsibility to make sure that the seller fully understands the law regarding absolute auctions. After the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless a bid is not made in a reasonable time. An auction without reserve means an absolute auction. 1. An auction cannot be advertised absolute or with similar meaning unless (a), (b), and (c) are met. (a) There cannot be any liens or encumbrances, except current taxes; or All lien holders sign the absolute auction contract or a binding commitment agreeing to sell to the highest bidder; or A financially responsible person, firm or corporation signs the absolute auction contract or a binding commitment to guarantee that the liens will be paid regardless of the high bid. AND (b) There must be a bona fide intent to transfer ownership at the time of advertising and at the time of the auction regardless of the bid or bidder. AND (c) The listing contract must state that the auction is absolute or without reserve and that in no way shall the seller, or anyone on the seller's behalf, bid. 2. The above does not prohibit: (a) A secured party from bidding as long as this does not establish a reserve. (b) An individual involved in dissolution of marriage, partnership, or corporation from bidding following that dissolution. (c) The non-misleading advertising, with equal emphasis, of absolute and reserve items in the same auction. 3. Except as noted above, the seller may not bid at an absolute auction, nor may anyone bid upon his behalf. A licensee shall not knowingly receive such a bid by or on behalf of the seller.

Buyer's Premium

A fee charged to buyers at some auctions. The buyer's premium is a percentage that is added to the last or final bid to determine the actual selling price. If the item selling is personal property, the sales tax is figured on the bid price plus the premium. If the item is real estate, the sale price (what is recorded on the deed) is the bid price plus the premium. Using the buyer's premium is the seller's decision and should be clearly stated in the auction-listing contract.

Goods

Real and personal property including chattels, merchandise, and commodities of any form or type which may lawfully be kept or offered for sale.

Personal Property

All goods and interests other than real property including chattels and commodities. Title for personal property sold at auction passes when the auctioneer accepts the final bid and announces the item sold (at the fall of the hammer).

Chattels

Moveable personal property, such as furniture, automobiles and livestock.

Commodities

Interest in agricultural products, silver, gold, and other products customarily sold or traded in commercial markets; may or may not be chattels.

Real Property/Real Estate

Land and all interests therein, including all improvements to the land, such as buildings, fences, and fixtures. Title for real estate sold at auction passes at closing with delivery and acceptance of the deed.

Consignor

The person or authorized agent or entity that consigns goods to an auctioneer. The consignor is usually the seller.

Consignee

The auctioneer or auction house operator to whom goods are entrusted by another (consignor) for sale at auction.

Contract

A voluntary oral or written mutual agreement by competent parties with mutual promises upon legal consideration, that creates, modifies, or destroys a legal relationship.

Auction-Listing Contract

The agreement between the auction house operator or the auctioneer and the seller (or his/her agent) where the parties agree to the offering of certain goods at auction as set forth in the contract. All auction-listing contracts are required by law to be written and should include: - a detailed description of the goods to be sold; - who will be responsible for all appropriate auction expenses such as advertising, hauling or moving fees, clean-up fees, costs of survey, livestock testing, auction preparation and set-up, and auction labor; and when these expenses will be paid; - when the auction accounting and settlement are to take place; - must clearly reflect what type of auction. There must be a signed auction-listing contract before any advertising. If the auction includes real estate, an auctioneer-broker or both an auctioneer and a real estate broker must sign the auction-listing contract. A copy of the contract must be given to the seller immediately after signing. An auction house operator is required to provide a receipt(s) to all individuals or businesses placing merchandise with him/her for sale at auction, as well as keeping a copy of each receipt.

Listing Contract Discharge and Termination

Generally, most auction-listing contracts are discharged or terminated in one of the following ways: 1. Completion of the auction followed by a proper accounting and full settlement. 2. A contract can be terminated by the mutual agreement of all parties. If the auction has not yet been advertised, the auctioneer or the auction house operator and the seller can mutually agree to cancel the auction and terminate the contract. 3. The withdrawal of the seller or the resignation of the auctioneer or auction house operator if either can demonstrate that the other is not properly discharging his/her duties under the listing contract. 4. By court order.

Auction Sales Contract

The agreement to sell and buy certain goods between the seller and the buyer, with the auctioneer acting as the seller's agent. The majority of auction sales contract for personal property are oral when the auctioneer announces the item sold or by the fall of the hammer. All auction sales and purchase contracts for real property are required to be in writing.

Encumbrance

Any binding adverse interest, claim, charge, or liability on an item which in some manner burdens or diminishes the value of that item. The most common encumbrance is a lien.

Lien

An adverse claim or charge against an item when that item is being used as collateral for a debt.


Source: Kentucky Board of Auctioneers - web site



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