Auction Operations, Trust Funds, and Recordkeeping
Trust funds
Money held on behalf of others - down payments, earnest money, and seller proceeds - is trust funds. Know the rules: trust funds must be kept in a separate trust account, must not be commingled with operating funds, and must be disbursed promptly per the contract. Understand the auctioneer's fiduciary duty to account and the prohibition on converting trust funds (a serious violation). Know when funds may be deposited and when they must be released.
Recordkeeping
Know required records: listing agreements, settlement statements, bid records, trust account records, and contracts. Records must be retained for the period required by TDLR rule and made available for inspection. Understand the clerk's role in documenting bids and the auctioneer's responsibility for accurate settlement.
Operations
Understand bidder registration (identity, deposit, number), clerking, cashiering, and settlement. Know how to handle defaulting bidders, tie bids, and withdrawn lots. Understand escrow and the handling of earnest money in real property auctions.
Traps
Trap questions: using the operating account "temporarily" for trust funds (prohibited commingling); paying seller proceeds before buyer funds clear; failing to retain records. Watch for confusion between earnest money (held in trust) and commission (earned by the auctioneer).
Rule of thumb
If the money isn't yours yet, it goes in the trust account - never the operating account.
Worked example: Buyer deposits $5,000 earnest money. Auctioneer deposits it into the company operating account to cover expenses - violation of trust fund rules; it must go to the trust account and be accounted for at settlement.