Fiduciary Financial Concerns

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UNIT 3: Fiduciary & financial concerns:

Risk reduction for auction marketers UNIT 3: Fiduciary & financial concerns MODULE FIVE

Fiduciary & Financial Concerns:

Fiduciary & Financial Concerns Risk reduction for auction marketers Legal issues you need to understand keeping track of your funds & the funds of others Insurance needs Keeping a paper trail 2

Fiduciary Responsibilities:

Fiduciary Responsibilities A person who engages the professional services of another. A buyer, friend, business associate, marketing draw or a potential client. Client – Seller Customer – Buyer Auctioneers have an obligation to both buyer and seller. You are the agent of the seller Under legal precedent: You have an obligation to the buyer, in that, YOU must guarantee delivery of the goods or clear title of the property to the buyer.

Fiduciary Duties to Client:

Fiduciary Duties to Client Duty of loyalty The client is your “boss”- he comes first! Duty of obedience All lawful instructions must be followed Duty of confidentiality Information gained from the client is confidential & remains so forever Unless written release is given by the client or their demise occurs Duty of skill and care As a professional you are expected to exercise due care and skill in your auction marketing practices. May be defined by license law Duty of accounting for all monies The use of the “trust or escrow” account Critical to the reputation of the auction practice

Fiduciary Duties to Customer:

Fiduciary Duties to Customer Diligent exercise of reasonable skill and care in exercise of your duties Duty of honest and fair dealing Fair conduct at the auction event Duty to disclose all known material facts regarding the condition of the property being sold Duty to recognize all legitimate bidders

The Duty of Skill & Care:

The Duty of Skill & Care Perform all aspects of the auction marketing function in a professional manner Must have the basic knowledge of what agency law expects of you You are holding yourself out as a professional...You need to work like one Eyes of the law hold you to a higher standard Your “sphere of influence” expects it You only have one reputation- it is, in fact, what you have to “sell” every time you step forward as an auction marketer

The Trust/Escrow Account:

An arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually-agreed conditions by the transacting parties The Trust/Escrow Account

I. The Duty of Accounting:

I. The Duty of Accounting Utilizing the “trust account” A. What is deposited in the trust account? 1. Earnest money deposits for real estate 2. Closing escrows 3. Non-disbursed sale proceeds for personal property 4. Any funds belonging to others

II. Commingling of Funds:

II. Commingling of Funds Trust accounts hold OPM (other people’s money) You cannot pay YOUR bills from this account! State license laws have strict guidelines for these accounts… Many times you MUST have two separate trust accounts if you sell Real Estate AND personal property

III. Creating a Trust Account:

III. Creating a Trust Account A. The account must be a demand account - the funds must be deposited with an insured bank or savings and loan association. B. Only one account is required, although good practice may dictate the need for separate accounts for various types of transactions. For example, one for real estate transactions and one for personal property transactions. C. The account must be designated as a “trust” or “escrow” account. D. The auctioneer is responsible for any service charges on the account and may usually keep up to $100 of personal money in the account to cover these charges. (Check state law requirements) E. Interest or non-interest bearing trust accounts are permissible (as long as disclosed to client AND acceptable under state license laws )

IV. Record Keeping:

IV. Record Keeping The trust account record keeping system should show: A. Date funds received B. Amount, nature, and purpose of funds C. Date funds deposited D. From whom funds were received E. To whom, amount, date, and purpose of each withdrawal F. Current running balance in trust account

V. Depositing Funds:

V. Depositing Funds Auctioneer (firm) is the trustee or escrow agent and should be identified as such in the proper transaction documents. This is usually an escrow contract that is included on the auction sale contract form. The funds should be deposited on the same or next banking day. Check state license laws to be compliant

VI. Disbursing Trust Funds:

VI. Disbursing Trust Funds The transaction documents state when and how the funds will be disbursed. Auctioneers should not deduct their commission from the account until the settlement or closing has taken place and they have permission to disburse the funds. It is recommended that the funds then be transferred into the operating account of the auction marketing firm. Access to the funds should be controlled and limited. The access should be watched closely by the managing auctioneer. If there is a dispute between buyer and seller, funds should not be distributed until directed by the proper authority, i.e. court, auction commission, etc.

UNIT 3: Fiduciary & financial concerns:

COMPLETE. UNIT 3: Fiduciary & financial concerns MODULE FIVE