Absolute Auction Ad, Undisclosed Reserve, and a Buyer's Premium Surprise
Piedmont Realty & Auction advertises a 12-acre farm with a house as 'ABSOLUTE AUCTION - SELLS TO THE HIGHEST BIDDER REGARDLESS OF PRICE.' The ad lists the firm name but no license number and no buyer's premium. The written listing agreement with seller Hayes contains a $290,000 reserve and a seller-confirmation clause. At the auction, high bid is $265,000. Auctioneer Lane says, 'We will present it to the seller,' then returns and announces the seller accepted. Buyer Whitfield refuses to close, saying she bid only because the auction was absolute and she did not know a 10% buyer's premium would be added. Lane says the premium was 'customary' and the ad was just marketing. The earnest money check for $10,000 was deposited into the firm's operating account.
1. Analyze the absolute-auction advertising and the reserve/confirmation clause. What violations are presented?
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'Absolute' is not marketing puffery; it means no reserve and no seller confirmation. The ad promised a sale to the highest bidder regardless of price. The listing agreement had a $290,000 reserve and a confirmation clause, so the ad was false. Lane's announcement that he would present it to the seller confirmed there was no absolute sale. The ad also failed to disclose the 10% buyer's premium, which is a price term and must be disclosed before bidding. Omitting the license number, if required by Commission advertising rules, is another defect. The conduct implicates Chapter 85B advertising/ethics rules and the Chapter 75 Unfair and Deceptive Trade Practices Act. The firm cannot rely on customary to add a premium after the auction; customary terms still must be disclosed.
2. Is Whitfield bound to close, and on what terms?
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Whitfield has strong grounds to refuse to close on the announced terms. She bid in reliance on an absolute sale and without notice of the premium; a buyer's premium materially changes the price. The seller's acceptance at $265,000 did not create an absolute sale, because the ad and the listing conflicted. Whitfield may rescind and demand return of her earnest money, or she may offer to close at $265,000 with no premium if she chooses. The seller may argue the listing controls, but the firm's advertising created the apparent terms. Because the misrepresentation was material, a court or the Commission is likely to treat the firm as responsible. The firm should not threaten to keep the deposit as liquidated damages without a proper contract and disclosure.
3. How should the earnest money have been handled, and what should the firm do now?
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Earnest money on real property is trust money. It should have been deposited in the firm's real-estate trust account, not the operating account, and ledgered for Whitfield and the seller. Because the dispute is about the sale terms, the firm should hold the $10,000 in trust and not disburse it to the seller or keep it as a fee. The firm should give both parties a written accounting, obtain a written rescission or closing agreement, and return the deposit if the sale is rescinded. It should also correct the ad, disclose the premium in writing in future sales, and review the listing agreement to ensure the reserve and confirmation terms match advertising. If the firm cannot resolve the dispute, it should consider interpleader rather than self-help.