From Kevin Kaiser of SuretyBonds.com
As with many other professions, auctioneers and auction houses rely on surety bonds in order to conduct business. Required in businesses as diverse as janitorial services, car sales, construction, and nursing homes, surety bonds protect consumers from fraud and misconduct and also ensure that the company required to have the bond adheres to state, local, and federal laws pertinent to their business. The auctioneer bond , therefore, protects consumers against misrepresentation of auction items and goods substitution as well as providing an added layer of reassurance that the auction house will adhere to state and local legislation.
Surety bonds are purchased by the company required to obtain the bond, and generally are bought from a company who specializes solely in bond sales, though occasionally insurance companies also sell surety bonds. Auctioneer’s bonds are executed between the auctioneer, the obligee (the person or entity which requires the bond, generally the state or local government), and the surety bond company itself, and is purchased for a set face value. If, in the event of misconduct or fraud, a claim is filed against the bond, the wronged party can receive up to the face value of the bond in restitution. While at first glance, surety bonds seem like a type of insurance, they should absolutely not be mistaken as such. Claims on the bond are paid by the auctioneer, not the surety company, and provide no coverage or reimbursement to the auctioneer for damages or litigation stemming from the claim.
Just like other surety bonds, auctioneer bonds are subject to credit approval. The application process for the bond includes a credit check and financial analysis to ensure that the auctioneer is financially capable of paying up to the full face value of the bond should it become necessary. The required amount of the bond varies from state to state but can range from $2,000 to $50,000. For example, in the state of California, auctioneers have to have a $20,000 California surety bond to operate legally. Actual costs to execute the bond vary widely based on the auctioneer’s credit score, but auctioneers can expect to pay at least $350 to become bonded, and companies with poor credit scores can often expect to pay at least $700. The bond will most likely need to be renewed every two to three years, and the process may require additional credit checks.
Auctions should be fun for all parties involved and the bond helps make sure that happens.
