Auctioneer bonds are a type of surety bond that helps to regulate the auctioneering industry. Any individual that wishes to become a licensed professional auctioneer or an auction house operator must purchase an auctioneer bond in order to assure a satisfactory transaction and protect its consumers. An auctioneer bond will regulate the business and the services the auction house or the professional auctioneer offers, and it is required in most states as an obligation prior to approving or renewing an auctioneer license. As with most surety bonds, the exact conditions and expectations required by the auctioneer bond will depend on the specific legal language in which the bond is underwritten. These expectations are dependant on state laws and regulations, and the particular conditions of the auctioneer, but they always aim to provide a financial guarantee that the auctioneer will act within the law. When an auctioneer bond is issued, there are three parties involved in the process. This is a standard for any surety bond.
The first party is known as the Principal. In an auctioneer bond, the principal is the professional auctioneer or the auction house operator that looks for the approval or renewal of his professional license. When purchasing a bond, the principal will agree to deliver his services in full accordance to the state and federal laws and regulations that are involved in any of its transactions. It is a financial guarantee that every auctioneer must offer before starting any auction-related business.
The second party is the Obligee. The obligee is usually represented by a government entity, most of the time a state government agency. The obligee is the party that requires the bond to be purchased in order to issue a professional license. This is done in order to protect the consumer from possible fraudulent transactions or misleading sales. It is also a protection for the obligee if there is a claim against the principal.
The third and final party is the surety. It is the agency or company to sell, underwrite and issue the bond. Since the surety must have a strong financial support, insurance companies are the usual player for this party. The surety has specific obligations for any auctioneer bond. As the issuer of the bond, it is the party that guarantees to the obligee that the participant will act and provide its services keeping within the frame of the involved laws and regulations. It is also the party in charge of solving any claim made by the obligee against the bond. In an event of a claim, the surety has the obligation to study the situation and determine if it is a valid claim. If the claim turns out to be valid, the surety will pay the obligee for the damages or harms provided in the claim. The surety will then ask the principal for a reimbursement of that payment plus any legal fees incurred because of the claim.
The prices for an auctioneer bond will vary according to two things: the state in which it is issued and the duration of the bond. Most bonds coverage price range from $2,000 to $10,000 annually. Some states issue auctioneer bonds for longer periods of time and thus have higher coverage prices. The risk of the business –the probability of the auction house or professional auctioneer of being successful– is also a determinant aspect that directly impacts the price of the bond. In the state of New York, for example, where auctions seem to be very popular, there are bonds granted for as low as $100.
An auction bond is a protection for both consumer and obligee, and it is a requirement for any professional that wishes to start or continue a business within the auction industry. Compared to insurance –where there are only two parties involved: insurance company and insured– an auction bond is also an assurance of good service. It is a contract that helps improve business relationship between the professional auctioneer and his customers, and achieve efficient industry regulation by the government agencies.