BUYING OR SELLING REAL PROPERTY AT AUCTION

By: Roman P. Mosqueda, Esq.

Real Estate Broker and Attorney

            You receive a brochure or pamphlet advertising a real property auction in the mail, or you read such an advertisement in the newspaper.

            Such an auction conducted by an auctioneer or auction company is regulated by the California Civil Code, Commercial Code and the Penal Code.

            An auction is defined by Section 1812.601(b) of the Civil Code as: “a sale transaction conducted by means of oral or written exchanges between an auctioneer and the members of his or her audience, which exchanges consist of a series of invitations for offers for the purchase of goods made by the auctioneer and offers to purchase made by members of the audience and culminate in the acceptance by the auctioneer of the highest or most favorable offer made by a member of the participating audience.”

Duties Of Auctioneer

And Auction Company:

            Every auctioneer and auction company are required to maintain a bond in the sum of twenty thousand dollars ($20,000.00) issued by a surety company admitted to do business in California, per Section 1812.600(a) of the Civil Code.

            Every auctioneer and auction company must disclose his or her name, trade or business name, telephone number, and bond number in all advertising of auctions, per Section 1812.607(a) of the Civil Code.

            Every auctioneer and auction company have to post a sign (at least 18 inches by 24 inches) at the main entrance to each auction, stating that the auction is being conducted in compliance with California laws, per Section 1812.607(b) of the Civil Code.

            Every auctioneer and auction company must post or distribute to the audience the terms, conditions, restrictions, and procedures whereby goods will be sold at the auction, and announce any changes to those terms, conditions, restrictions, and procedures prior to the beginning of the auction sale, per Section 1812.607(c) of the Civil Code.

            Every auctioneer and auction company must immediately, prior to offering any item for sale, disclose to the audience the existence and amount of any liens or other encumbrances on the item, unless the item is sold as free and clear (all liens and encumbrances on the item are to be paid prior to the transfer of title), per Section 1812.607(k) of the Civil Code.

            Every auctioneer and auction company shall, within two working days after an auction sale, return the blank check or deposit of each buyer who purchased no goods at the sale, per Section 1812.607(l) of the Civil Code.

            And every auctioneer and auction company shall, within 30 working days of any auction sale, refund that portion of the deposit of each buyer that exceeds the cost of the goods purchased, per Section 1812.607(m) of the Civil Code.

            Aside from the above-stated disclosure requirements, it is a misdemeanor subject to fine to place or use any misleading or untruthful advertising or statements or make any substantial misrepresentation in conducting auctioneering business, per Section 1812.608(c) of the Civil Code.

            And every person who obtains any money or property from another by means of any false or fraudulent sale of property or pretended property, by auction, or by any of the practices known as mock auctions, is punishable by imprisonment in state prison, or in the county jail not exceeding one year, or by a fine not exceeding two thousand dollars ($2,000) or both, and is disqualified for a period of three years from acting as an auctioneer, per Section 535 of the Penal Code.

Auction Bidding

Procedures:

            Participation in a real property auction requires registration in  all inspections and at the auction.  A registered member of the audience is given a card with a number.

            All bidding is open to the public.  A bidder must be a ready, willing and able buyer.  The sale is not contingent upon the buyer obtaining financing.  So, a bidder should have a pre-approved loan, or enough cash reserves to close at the purchase price.

            A successful bidder is required to deposit the stated down payment (10% or 20%), which is nonrefundable, on the day of the auction.  The closing of the sale (or escrow) is usually within 30 days, at which time, the balance of the purchase price should be paid by the buyer.

            The property is sold “as is and where is.”  The bidder is responsible for inspecting the property as to location and condition.  Inspections of open houses are scheduled, or private showings arranged with the auctioneer or auction company.

            It is the bidder’s responsibility to make his or her bid known to the auctioneer by raising his/her hand or numbered  card, or saying yes, as calls for bids are made by the auctioneer.

            The buyer obtains clear and marketable title to the property upon close of sale or escrow.  Seller and buyer are responsible for payment of their own closing cost.

            A real property auction is a one-day only opportunity.  Under Section 2328(2) of the California Commercial Code, a sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner.   An auction sale may also be conducted by sealed bids.  The highest bidder gets the property.

            The terms and conditions of an auction sale of real property may provide a “buyer premium.” It is an amount (usually a percentage, such as 3%) that is added to the winning bid to determine the actual purchase price the buyer pays for the property sold at auction.

Advantages And Disadvantages

Of Buying Or Selling Real Property

At Auction:

            One of the advantages of real property auction is the element of certainty:  purchasing and closing dates are known.  The seller knows that the property will sell at auction without reserve (cannot be withdrawn), unless no bid is made at all, because the starting bid is too high.

            For the buyer, an auction reduces the time to purchase property, knowing that the seller is committed to sell.  Long negotiation periods are eliminated.

            For the seller, quick disposal through auction reduces carrying costs (taxes and maintenance) and eliminates numerous showings.

            For the buyer, who can be represented by an agent at auction, he or she determines the purchase price of the property.  For the seller, he or she is assured that the property will be sold at true market value.

            As an advantage to the seller, the auction price may exceed the negotiated sale price due to competition among buyers, who are competing fairly and on the same terms as all other buyers at auction.

            This is so, because an aggressive marketing program of an auction company exposes the property to a large number of pre-approved buyers, ready and willing to buy the property at auction.

            But, as a disadvantage to the seller, the auction price may be less than the fair market value of the property, if there are few bidders willing to compete with each other above the starting bid.

            A disadvantage to the buyer is that the property is sold without any implied warranties.  There may not be enough time to properly inspect, investigate, do an appraisal, get pre-approval of a loan without conditions.

            Ultimately, there is the peril that failure to close the sale within 30 days will result in loss of the downpayment of the buyer.

            Sometimes, haste makes waste in buying or selling real property. 

            (The Author, Roman P. Mosqueda, has been a real estate broker and attorney, representing and advising sellers and buyers of real estate property in New York and presently in California.)