Caution: RELA applies to real estate auctions (most of the time)

Writen by Anneliese Fierstos |

Published: June 24, 2021

The current market is creating some crazy scenarios in the real estate world. Multiple offer situations are increasing and both sellers and REALTORS® are getting more creative about ways to handle multiple offer situations.

In many cases, although it may not be the original intent of the seller or listing broker, the manner in which buyers are directed to present offers might actually create an auction scenario. For example, if a seller and REALTOR® advertise that all buyers should submit sealed bids on a property, further stating that the property will go to the highest bidder, it is quite likely an auction.

Anneliese FierstosAnneliese Fierstos
Illinois REALTORS® Legal Hotline Attorney

In Illinois, licensed real estate brokers may auction real property without additional licensing. However, because it is a licensed activity under the Real Estate License Act (RELA), the listing broker who becomes involved in auctioning must comply with all duties outlined by RELA. For example, licensees must meet all of the duties to their sellers as outlined in RELA Section 15-15, which includes:

  • Performing the terms of the brokerage agreement;
  • Putting the interests of the client first; and
  • Keeping confidential information of the client confidential.

Rule Section 1450.715(g) specifically states auction advertising must contain, when applicable, the names and addresses of:

  1. The licensed broker or managing broker;
  2. The licensed auctioneer;
  3. The licensed auctioneer or any individual holding a real estate auction certification; OR
  4. The licensed broker or managing broker and any individual holding a real estate license certification, who is not exempt under 5-20(13) of the Act.

Any brokerages advertising real estate auctions must comply with RELA Section 10-30(a) which prohibits deceptive and misleading advertising. In addition, all advertising for auctions must contain all necessary information to the public in an accurate, direct and readily comprehensible manner. Auction advertisements must make it clear to the public the type of auction, terms of the auction, the amount set for presentation of minimum bids and any time frames set for acceptance. For example, under the sealed bid scenario, the buyers/bidders should be aware of all terms and conditions for acceptance and whether the seller is reserving the right to reject all bids submitted. If all bids are rejected, it will be important to inform bidders what the next steps will be and then contact the highest bidders to engage in traditional multiple offer negotiations, taking care not to sell the one property to more than one buyer/bidder.

Auction advertising should describe the type of auction as well as all applicable terms. Not all auctions involve “quick-talking” auctioneers standing at podiums, selling by public outcry. Auctions can include these types:

  • Minimum Bid – In this style of auction, a threshold price is established and if no one bids at that price, the sale does not take place.
  • Reserve Bid – In this scenario, the highest bid functions as a purchase offer, and the seller has the option of rejecting all bids (usually the seller must decide whether to accept or reject bids within a certain time frame, such as 72 hours).
  • Absolute Auction – In this case, a property will sell if someone makes an offer. (However, the seller takes a risk that he or she may receive much less than what the property is worth).
  • Sealed Bid Auction – All bidders simultaneously submit sealed offers to the auctioneer and do not know the amounts other participants have tendered. The bids are opened on the advertised date, and the highest bidder is usually declared the “winner.”

Licensees who become involved in auctioning should also become familiar with any local MLS rules which may require auctions be listed in a separate section of the MLS compilation of listings.

Here are some important points to remember if you are real estate licensee engaged in auctioning, or interested in adding auctioning to your arsenal:

  1. If the property to be auctioned will be listened in the MLS, become familiar with your MLS rules which typically require auctions to be listed in a separate section of the MLS.
  2. Remember that auctioning real estate generally requires a properly sponsored broker or managing broker’s license, subject to a couple exceptions:
    • An auction licensee is “grandfathered” into selling real estate by auction (and only by public outcry) due to many years of prior auction experience. Check the specific qualifications for grandfather “licensing.” (RELA Section 5-20(13).
    • An auction licensee under the Illinois Auction License Act has obtained the auction certification under RELA section 5-32 which only allows certificate holders to “broker” real estate by means of auction. Otherwise, an auction licensee many only auction personalty.
  3. Make sure to check with your designated managing broker to be sure this practice is acceptable for your sponsoring company.
    • All compensation for licensed activities, including auctioning real estate, must flow through your sponsoring broker.
  4. If you hold an auction license and do not have a grandfather exception or an auction certification, you could only engage in real estate auctioning as a real estate licensee under your sponsoring broker.

About the writer: Anneliese Fierstos is the Illinois REALTORS® Legal Hotline Attorney.

Your Illinois REALTORS® Legal Team