Contracts, Escrow, Trust Accounts, and Recordkeeping
Written contract with the seller
Before conducting an auction, the auctioneer or firm should have a clear written agreement with the seller. The Act and rules emphasize written contracts because they establish the parties, the property, date/time/location, commission or fee, settlement date, reserve or absolute status, buyer’s premium, and who bears expenses. Exam traps: relying on an oral agreement; failing to disclose a buyer’s premium; treating a reserve as absolute; and making unilateral changes without written consent. The contract should also address the auctioneer’s authority to accept deposits and the handling of unsold property.
Escrow and trust accounts
Funds received on behalf of a seller, buyer, or third party-earnest money, deposits, settlement proceeds-are trust funds. They must be deposited into a federally insured escrow or trust account and kept separate from the licensee’s operating and personal funds. Commingling is prohibited; so is using trust funds for business expenses. Disburse only as authorized, keep a ledger for each transaction, and reconcile the account. A common trap is putting a buyer’s deposit into the firm’s general account “temporarily”; even a short commingling can be a violation.
Recordkeeping
Maintain records of each auction and each escrow transaction: contracts, settlement statements, bid records, deposit receipts, disbursements, and correspondence. Records must be retained for the period required by the Act and rules and produced on request during an IDFPR investigation.
Rule of thumb: other people’s money never touches your money. Worked example: A firm receives a $25,000 real estate auction deposit and deposits it in its payroll account to cover cash flow, intending to repay it in two days. That is commingling and conversion risk; the deposit belongs in escrow immediately.