CONTRACTING AUCTIONS

An Auction Listing Agreement (“ALA”) is the “kickoff” document for an auction

Poses tremendous opportunity for auctioneer to:

Position the item of business for success

Protect self against issues, problems, and risks that can spin out of listing property for sale, conducting an auction, and selling real estate

Key opportunity to shape and mold deal and build in important provisions and protections to best serve auctioneer’s interests and objectives

Set out full details of parties’ agreement to guard its integrity

Protect each party against misunderstanding, forgetfulness, confusion, incapacity, death, wrongful action, and death of another party

Define rights and responsibilities of parties

Anticipate issues, breach, etc. And provide for remedies

Provide disclosures and other information regarding property

Provide disclaimers and other protection against claims and liability for seller and auctioneer

Serve as valuable evidence should dispute arise

Contract becomes compass for all that follows and sets a straight and narrow course from starting point (parties’ execution of ALA) for marketing and auction to proceed through finish – all that follows execution must follow this course

General Guidelines

Do not use store-bought, generic contract forms

Do not use same contract for every auction – sellers, properties, circumstances, auction methods, commission & buyer’s premium rates, etc. All subject to change

Auction listing agreements should be customized for seller, property, auction, jurisdictional requirements, and auctioneer’s needs

Seller Considerations Include

Wants, needs, and circumstances

Property Considerations Include

Title and other material facts, disclosures, and disclaimers

Auction Considerations Include

Auction method, permitted bidders, auctioneer’s discretion

Jurisdictional Considerations Include

Specific laws and rules and contract requirements

Auctioneer Considerations Include

Listing period, selling commission rate, buyer’s premium rate and use

Remember

The auctioneer is agent for the seller and vested only with limited authority the seller gives

Auctioneer does not want discretion and does not want to make important decisions – this is seller’s role and should be left to seller for protection of auctioneer

Do not soft-soap thorny issues – address them to avoid misunderstanding and conflict

Significance of value and sensitivity of issues involved with real estate dictate extreme care must be exercised in drafting ALA

If you operate your business from your home, it is worth noting that homeowners’ policies do not generally cover home-based businesses. This is another consideration to discuss with your insurance agent. It is also important to determine whether your seller, especially a business or corporation maintains adequate General Liability Insurance coverage. In the event an accident takes place at their business location and they lack coverage or have no coverage, you can expect your General Liability policy to be the primary target of the attorneys representing the damaged party.

Rule of “Three c’s” – clear, complete and correct

Keep language simple, direct, and compact

Write so public can understand – and the public is my Cousin Junior!

ALA should be subject to change if discovered facts and circumstances indicate need

Use care to avoid ambiguities and contradictions both within ALA and also with other docs (e.g., terms of auction, disclosures, and contract for sale)

Never want anything subsequent to execution to cause issue with ALA – all actions, communications, other documents, etc. Must be consistent with ALA’s terms and support it

Marketing plan should be made part of ALA to ensure its components, costs, etc. Are acknowledged and agreed to by the seller and this is not some point of discretion or responsibility for auctioneer

Identity of Seller

It is imperative that the full and correct name of each owner of the Property be made a party to the listing agreement for the Property and auction. An error here could result in very damaging consequences.

Property

Sample provisions:

Seller solely owns the Property or has the right to sell it and receive the proceeds. There is no claim, dispute, lien, or security affecting the Property, unless disclosed by Seller in writing and Seller will allow none during the period of this Agreement.

Seller will disclose all known material conditions, dangers, defects, and hazards that might affect the Property.

Marketing

Sample provisions:

Auctioneer may use Seller’s name in marketing, press releases, the sale result, and invite the news media to attend the auction.

The final marketing plan and associated budget with costs, as agreed to by Seller and Auctioneer, are attached and marked “Attachment ++” and incorporated into this Agreement by this reference.

Seller will promptly refer to Auctioneer all inquires received about the Property.

Term (of agreement)

Sample provision:

During the Listing Period, if Seller enters into any contract or other arrangement that results in a sale or other transfer of interest in the Property, or any sale or other conveyance or transfer of interest in any entity having an ownership stake in the Property, upon that transaction being completed, Seller will owe and immediately pay to Auctioneer its selling commission, as provided herein.

Auction Preparations

Sample provision:

Within 15 days after the effective date of this Agreement, Auctioneer will order, at Seller’s expense, a title insurance commitment for the Property to be issued by …

Note:

Seller typically pays third party title examination fee, title search fee and the title insurance premium and are responsible for curing title related defects prior to the auction.  Buyer pays recording costs and taxes due upon filing the deed.  Seller and Buyer may elect to share other closing fees in a split manner, or additional closing fees may fall to one single party (negotiate this with Seller). Current year taxes are prorated through the closing date.

Mutual Agreements

Sample provision:

The Parties mutually agree: (a) to be competent and have full authority to make and perform this Agreement; (b) to fully comply with all applicable rules and law; (c) to immediately notify the other of any concern or complaint with the other’s performance under this Agreement, and (d) to neither directly nor indirectly bid in the auction or otherwise wrongfully attempt to influence the bidding or sale of the Property.

Auction Method

Sample provision:

The available methods for conducting the auction are: (a) “Auction Without Reserve” where the Property will sell to the highest bidder regardless of price (aka, “Absolute Auction”), or (b) “Auction With Reserve,” or (c) combination of (a) and (b). Auctioneer has explained the potential benefits, detriments, and risks of these methods and Seller has made a voluntary and informed decision to use …

Commissions

Note:

This section needs to be set out in careful detail so that accurate calculation of the auctioneer’s selling commission can be easily accomplished without misunderstanding.

No Guarantee

Sample provision:

Neither Auctioneer nor any agent or representative of it warrants any bid amount, offer, or selling price for the Property. The Parties agree that no appraisal of value made for the Property has any relevance to the bid amount, offer amount, or selling price for the Property.   

Agency Disclosure

Sample provision:

Except as disclosed herein, no agent or other broker is a sub-agent or co-broker of Auctioneer and Auctioneer will have no liability for same. Auctioneer is acting solely as a single agent and exclusively representing Seller and not acting as a sub-agent, buyer’s agent, or limited consensual dual agent. 

Limitation on Advice

Sample provision:

Auctioneer is acting solely as a marketer of real property for Seller. Seller should obtain all other advice needed from advisers of its choice.  Seller should obtain legal advice from an attorney on all matters.  Auctioneer will provide Seller with certain auction-related documents for review, approval, and use.

Assignment and Third Parties

Sample provision:

A Party may not assign, delegate, or transfer any interest, obligation, or right in this Agreement, without the prior, written consent of the other. A change in control of a Party will be deemed an assignment without consent.  This Agreement does not create any right in a third party.

Hold Harmless and Indemnification

Sample provision:

Each Party agrees to defend, hold harmless, and indemnify the other for any action, claim, cost, damage, injury, judgment, liability, loss, suit, or obligation of every kind, including attorneys' fees and costs, caused by, or related to, any act, breach, default, error, omission, performance, or work of the indemnifying Party; likewise, Seller will hold harmless and indemnify Auctioneer for any matter arising out of an agreement, contract, or other relationship that Seller has, or had, with another agent or broker in relation to the Property, its listing, or sale.

Dispute Resolution

Note:

Include descriptive details for the manner and mechanism of dispute resolution you want in effect (e.g., jury trial, bench trial, non-binding mediation, or binding arbitration

Limitation Period for Action

Sample provision:

Any action must be commenced within two (2) years from the date when the cause of action accrues or it will be forever barred. The right of action will accrue, and the two (2) year limitation period will begin to run, on the date the breach, damage, or injury is sustained and not when the resulting damage or harm is discovered.  

Limitation of Damages

Sample provisions:

To the fullest extent allowed by law, neither Party will be liable for any consequential, exemplary, incidental, indirect, punitive, or special loss or damage, including, but not limited to, damage to property or loss of income, revenues, time, or use that might arise out of the Auction, offering or sale of the Property, or any related matter, whether such action be in contract, tort, strict liability, or other legal or equitable theory.

Any award sought by Seller against Auctioneer and/or Auctioneer’s Broker, with the exception of Seller’s attorney’s fees and costs of such an action, will be limited to the sum actually paid by Seller to Auctioneer for the Engagement Fee and selling commission. Any award sought by Auctioneer against Seller, with the exception of Auctioneer’s attorney’s fees and costs of such an action, will be limited to the amount owed by Seller to Auctioneer for the Engagement Fee and any selling commission that Auctioneer is due under the terms of this Agreement.  This section is a material inducement for each Party to enter into this Agreement and neither would have done so without it being included.      

Choice of Law, Jurisdiction, and Venue

Sample provision:

Any Auction matter will be exclusively construed and governed in accordance with the laws of the State of + + +, without regard to its conflict of laws principles. The exclusive jurisdiction and venue for any controversy or claim between the Parties will be the City or County of + + + in the State of + + +.

Construction

Sample provision:

The terms of this Agreement are severable and, if any term is held illegal, invalid, or unenforceable, the remainder of the Agreement will not be affected and, in lieu of the illegal, invalid, or unenforceable term, will be added a term as similar in effect as is possible, legal, valid, and enforceable. Referenced “Attachments” are fully incorporated into this Agreement.  Words used in the present tense include the future tense, the singular includes the plural, the plural includes the singular, and pronouns are read as masculine, feminine or neuter, as the context requires.  The Parties jointly negotiated and drafted this Agreement and no rule of draftsmanship, construction, or interpretation will apply in favor of, or against, either of them.

Miscellaneous

Sample provision:

This Agreement contains the complete, exclusive, and final agreement of the Parties and supersedes all other negotiations, understandings, and agreements, whether oral or written, and such are merged into this Agreement and do not survive its execution.  This Agreement may be amended only by a writing executed with the same formality as this Agreement.  No waiver of a breach of this Agreement will be a waiver of any other breach, and no waiver of a right will be a waiver of any other right.  Each Party has consulted legal counsel or voluntarily forgone such advice knowing the risk, and each has received a copy of this Agreement, read it, and agreed to all terms.  Time is of the essence.  This Agreement is binding upon the Parties, their administrators, agents, assigns, attorneys, beneficiaries, brokers, directors, employees, executors, heirs, members, officers, representatives, and successors in interest.  This Agreement may be signed in multiple counterparts with each being an original and all constituting a single instrument.  A facsimile signature is as valid as an original.