Increasing number of owners desiring to sell their real estate in a sluggish market are considering having their properties auctioned rather than marketed in the conventional method. This type of auction is far removed from an auction pursuant to a court order in a mortgage foreclosure or bankruptcy.
A New Jersey real estate broker undertaking to obtain listing of properties for marketing through the auction method should engage the services not only of a qualified auctioneer but also of an attorney with detailed knowledge of what is truly involved. The knowledge includes the special terms and conditions that should be part of the listing agreement with the owner, the terms and conditions of the auction, the necessary disclaimers of warranties and representations by the owner and the broker/auctioneer, the procedures for registration of bidders and real estate brokers representing bidders, the materials concerning the property which are highly desirable or required to be made available to registered bidders prior to the auction in a “bidder package” made available to registered bidders, the terms and conditions of the Contract of Sale which should be part of the “bidder package”, and the elimination of post-auction contingencies which, if not satisfied, would allow the winning bidder to refuse to close title (e.g. dissatisfaction with results of a property inspection, discovery of zoning or building code restrictions on planned use, and failure to obtain mortgage financing).
In recent years there has been a sizeable increase in New Jersey voluntary (as opposed to foreclosure) auctioning of residential, commercial and industrial real estate; However, there are no statutory requirements or regulations and almost no case law governing voluntary real estate auctions in New Jersey.
In order to avoid fruitless efforts and after auction litigation, the owner and auctioneer must be sure that:
- the Owner/Auctioneer Agreement clearly details the rights and obligations of the parties.
- the information about the property contained in the advertising materials and bid package is appropriate and accurate
- the auction guide is comprehensive and easily understood.
- for “public outcry” auctions, the special announcements are scripted and the auction is video taped
- appropriate disclaimers of warranties and representations are contained in the auction materials
For more information, send email to Philip Chapman, Esq