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Real Estate - Auction Sales

( Originally Published 1911 )

Necessity for auction sales.—Another method of bringing about a sale of real property is that of selling it at auction. It may not always be possible to find a purchaser at private sale for property at the time it is desirable or necessary that it be sold, and it may then be offered at public sale.

In most cities there are auctioneers' associations which maintain public sales rooms at which property is offered for sale at public auction. Public sales may be held not only in public auction rooms, but in any place of public resort. In the country they are very often held at the railway station, the village hotel, or on the property. Auction sales are of two classes, involuntary and voluntary.

The involuntary auction sale.—The involuntary sale is not the free act of the owner of the property. It may be the consequence of a voluntary act—and usually is—or the consequence of the voluntary act of the owner or a predecessor in the title ; but the auction of the property is not by the direct desire of the person whose interest is being sold, but often is caused by a default in carrying out an obligation or by the direction of a court having jurisdiction over the property and power to force it to be sold. If property be pledged for the loan of money, and the money be not paid when due, the lender can force the property to be sold at auction. The act of borrowing the money and giving the mortgage is voluntary on the part of the borrower, but it is involuntary on his part that the property be sold.

Involuntary auction sales are required to be advertised, the advertisements usually appearing in one or more newspapers. In the cities these sales are most frequently conducted in the public sales rooms. In the country they are often conducted upon the property, at the door of the courthouse of the county in which the property is situated, or at some other appropriate place.

There are usually two persons who conduct an involuntary auction sale: First, the person who has control of the property with power to sell it over the head and against the will of the owner. He may be a referee, an assignee, a creditor, receiver in bankruptcy, a sheriff or other officer. Second, there is usually, though not necessarily, a professional auctioneer.

89. Terms of sale.—At such a sale terms of sale are read, on which bids are asked. After the property is knocked down the purchaser is required to sign a memorandum of the sale. The terms of sale given below are really the contract :

The premises described in the annexed advertisement of sale will be sold under the direction of Referee, upon the following terms:

Dated New York, 19___

1st. Ten per cent of the purchase money of said premises will be required to be paid to the said Referee at the time and place of sale, and for which the Referee's receipt will be given.

2d. The residue of said purchase money will be required to be paid to the said Referee at his office, No. in the Borough of City of New York, on the day of 190 at o'clock M. when and where the said Referee's deeds will be ready for delivery.

3d. The Referee is not required to send any notice to the purchaser; and if he neglects to call at the time and place above specified to receive his deed, he will be charged with interest thereafter on the whole amount of his purchase, unless the Referee shall deem it proper to extend the time for the completion of said purchase.

4th. All taxes, assessments and water rates, which, at the time of sale, are liens or encumbrances upon said premises, will be allowed by the Referee out of the purchase money, provided the purchaser shall, previous to the delivery of the deed, produce to the Referee proofs of such liens, and duplicate receipts for the payment thereof.

5th. The purchaser of said premises, or any portion thereof, will at the time and place of sale, sign a memorandum of his purchase, and pay, in addition to the purchase money, the auctioneer's fee of Fifteen Dollars for each parcel sold, and Two Dollars salesroom fee for each knock down.

6th. The biddings will be kept open after the property is struck down; and in case any purchaser shall fail to. comply with any of the above conditions of sale, the premises so struck down to him will be again put up for sale under the direction of said Referee under these same terms of sale, without application to the court, unless the plain-tiff's attorney shall elect to make such application; and such purchaser will be held liable for any deficiency there may be between the sum for which said premises shall be struck down upon the sale, and that for which they may be purchased on the resale, and also for any costs or expenses occurring on such resale.


_____have this day of 19__ purchased the premises described in the annexed printed advertisement of sale, for the sum of ____ and hereby promise and agree to comply with the terms and conditions of the sale of said premises, as above mentioned and set forth.

Dated 19__

19___ Received from the sum of _____ being ten per cent of the amount bid by for property sold to under the order in this cause.

The first clause provides for the payment of 10 per cent. earnest money. There is seldom an auction sale at which the deposit is less than 10 per cent, and sometimes it is more.

The fourth clause is different from the usual stipulation in contracts of sale. In an involuntary public sale, it is usual to stipulate that the referee or officer will allow only such taxes, assessments and other public charges as have accrued up to the date of the sale, not up to the date of the delivery of the deed. The fifth clause stipulates that the purchaser shall sign a memorandum of his purchase. The sixth clause provides for a re-sale, in case the purchaser does not comply with the conditions of the sale; and obligates him to pay any difference there may be between his bid and the amount realized on resale. This obligation to pay money may be enforceable, whereas the main contract to purchase the property, made by word of mouth, is not enforceable.

It is necessary that in the advertisement and in the terms of sale the limitations on ownership be set forth with the same particularity and care as in a contract. If the purchaser is to take the property subject to mortgage, it should be so stated.

Protected involuntary sales.—In an involuntary sale it is understood that persons who have interests in the property to protect will be present to bid so far as their ability goes and their interest requires. Such bid-ding is not fraud nor ground for being relieved of a purchase. The only thing required as to the character of the bidding is that it shall be free to everyone who desires to resort to the place where the sale is held. There should be no favoritism. Everyone must have an opportunity to bid as high as he will go, and until the last bidder who desires to bid has had an opportunity to do so, there ought not to be a knock-down. The parties who are on the auction stand (the referee and the auctioneer) are not the owners ; except in a partition suit, they do not even represent the owners. They rep-resent only a person who has a claim against the property. Over and above his claim are the .rights of the unfortunate owner who is being sold out, and he is en-titled not only that the debt be realized out of his property, but that it shall bring as much more as possible.

If a sale be unsuccessful by reason of fraudulent or circumscribed bidding, it may be set aside by the court. If, however, a bidder has been successful, no matter how cheaply he gets the property, if he be guilty of no fraudulent act and comply with the conditions of the sale, he is entitled to performance. The memorandum of sale at the bottom of the form is to be signed by the purchaser, and he receives a counterpart signed by the referee or assignee or seller, who is the agent of the parties interested. This memorandum of sale is the contract, and both parties may be charged with its performance in the same manner as if it were a con-tract of sale.

Voluntary auction sale.—The voluntary auction sale is a sale by a person who for his own purposes and by reason of his own desire voluntarily puts his property up at auction. It partakes more of the elements of private contract than does the involuntary sale. A voluntary sale may be by a seller acting in his own interest and offering his property apparently unrestricted and unprotected; or it may be by a fiduciary acting voluntarily within the terms of his discretion, but still by some compulsion of the power under which he is acting.

Protected voluntary sales.—An executor may have a direction in the will under which he is acting to sell the property of the decedent at public or private sale, and may choose the medium of a public sale. He may be under compulsion to raise money either to pay the debts of the decedent or to make a division of the funds. In cases of that sort, while the method, the time and manner of sale are in the discretion of the per-son offering the property, still there are interests under-lying those which he represents which in the nature of things have a right to protect themselves, and which deprive the sale of the character of a free and unprotected auction sale. In a sale of that sort it is understood and known that the persons whose interests are represented —creditors, heirs whose property is being sold, devisees who are to get the division of the fund—will be present to bid, either directly or through persons representing them, in order to protect their interests. Such protected sales are not fraudulent, and cannot, because thus protected, be set aside.

But if the sale be a purely voluntary sale by a person acting under no compulsion, representing no other interests than his own and taking all the increase which comes by reason of raising the bids, then, unless it be expressly advertised and understood that the sale be protected, a protected sale of that sort is not a fair, unrestricted sale at public auction. If a purchaser finds that he has been led to raise his bid by reason of a seller protecting the sale up to the point at which he was willing to let the property go, he will be relieved from his contract. Unfortunately, there seems to be a habit of protecting sales which ought to be unrestricted. The owner who puts his property on the block ought to have sufficient confidence in it to let it go for what it will bring, or withdraw it, if he finds the bids are not coming up to the amount for which he is willing to sell the property. By-bidders, "boosters"—whatever they may be called—are frauds, and ought not to be permitted to bid. It is not always the auctioneer's fault if there be by-bidding, as he may not know of it, but when it can be controlled, auctioneers who are careful of their reputation do not permit it.

Secret of successful sale.—The principal thing in a voluntary auction sale is to attract bidders. At an involuntary sale there is often no desire to get the general public to bid. The persons interested protect up to the amount of their interests, and the rights in the property are cleared under the sale. While the form is that of a public sale, as a matter of fact the public has not been attracted and has not bid. But a voluntary sale is an offer to the public to bid, and the public is induced to buy by advertising. The secret of success in auction sales is advertising, and the most successful auctioneers of the present time are the most persistent advertisers.

The booklets gotten up to advertise auction sales are sometimes very elaborate, showing reproductions from actual surveys, detailed description of the character of the building and rentals, pictures of the property—everything necessary for a buyer to know, so that a man who has one of these booklets knows as much with regard to the property as if he had been going to a broker for six months.

Having the crowd before him, the auctioneer must draw the bids from them. This is a secret of personality. The successful auctioneer can draw a crowd up and let it down again, until he has gotten the very last bid there is in it ; then he will knock down the property.

Terms of sale.—The principal difference between the terms of sale in a voluntary and an involuntary sale is that in the referee's sale the 10 per cent is paid to the official making the sale : at an involuntary sale the money is paid to the auctioneer, who holds it for the interest of the parties interested. He ought not to part with it until the title has been closed. The practice is that a receipt for this 10 per cent shall be surrendered by the purchaser to the seller when the deed passes; and that receipt given to the auctioneer when he passes the 10 per cent on to the seller. The auctioneer protects himself by providing that he shall not be responsible for any interest on that money.

Another difference between the terms of sale of an involuntary and a voluntary sale is that in the latter there is an express arrangement that rents, premiums on insurance policies and interest on mortgages will be apportioned. In an involuntary sale these matters are allowed to take their due course, as the law requires.

In a sheriff's sale bids are asked only for the right, title and interest of the party being sold out, but in any sale where the entire title is purported to be sold, all taxes, assessments and other liens are allowed out of the total purchase price, unless bids are expressly taken for the equity over and above stated encumbrances.

The terms of sale are usually signed by the seller, his attorney or by the auctioneer. If signed by the auctioneer he is constituted the attorney of the seller, and that makes the contract enforceable. Offering the property through a public auctioneer and permitting him to sign the terms of sale raises the presumption of due authority to bind the seller. On the other hand the purchaser signs the terms of sale at the bottom of the sheet, whereby he certifies that he has purchased the property, and binds himself to pay the balance of the consideration, and comply with the conditions of sale. The terms of sale should be written as carefully and with as much particularity as in a contract of sale.

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