Trust and Escrow Accounting, Settlement, and Funds Handling
Trust funds and account structure
Money the auctioneer receives for others-buyer deposits, earnest money, sale proceeds, and funds held for lien payoffs-is trust money. It must go into a separate trust or escrow account, not the auctioneer's operating account. No commingling with business funds, no use of trust money for advertising or payroll, and no 'borrowing' even for a short period. Maintain a ledger by auction or client showing each receipt and disbursement.
Settlement and disbursement
A settlement statement should show gross sale price, buyer's premium, sales tax, commission, advertising and other authorized charges, lien payoffs, and net to seller. Disburse only when the sale is final and authorized; obtain lienholder payoff letters and releases. Issue receipts for cash. Reconcile the trust account monthly and keep bank statements, canceled checks, and ledgers. Records should be retained at least three years and produced for Commission examination.
Worked example
An auctioneer collects a $10,000 buyer deposit, deposits it in the business checking account, and uses $4,000 to pay auction advertising. That is commingling and conversion of trust funds. Even if the auctioneer repays the money after settlement, the temporary use is a violation and supports license discipline. The deposit should have gone into trust, with advertising paid from operating funds.
Traps that cost marks
Do not net commission before depositing gross receipts. Do not treat cash as 'off the books.' Do not pay a seller before buyer funds clear unless the contract and risk rules permit it. Do not assume a general business account qualifies as a trust account.