Auctioneer Bond

What is an Auctioneer Bond?

Apply »

To work as a professional auctioneer or auction house operator, in most states you need to be licensed. To secure the proper license, it’s fairly common to need to file a type of surety bond known as an auctioneer bond first.

Auctioneer bonds—also known as an auction bond—are designed to protect consumers from fraud and unethical behavior conducted by the auctioneer or auction house worker. For example, this bond helps protect against the substitution of goods and the misrepresentation of auction items by the auctioneer. 

Keep reading to learn more about what an auctioneer bond is, how this type of surety bond works, and what it can cost to purchase one. 

What is an Auctioneer Surety Bond?

Again—an auctioneer bond is a type of surety bond that many state governments require auction house operators and auctioneers to hold in order to become properly licensed. The goal of this specific type of surety bond is to help protect consumers from bad business practices such as auctioneer fraud, false advertising, and the misrepresentation or mishandling of items.

To get an auctioneering business license it’s often necessary to post an auctioneer bond during the licensing process. The local Licensing Board, the Secretary of State, or another similar institution may require this. If you are unsure if your state requires an auctioneer bond, you can consult your local licensing board to find out if you need one to get licensed. 

Essentially, an auctioneer bond guarantees that licensed and bonded auctioneers will comply with state regulations pertaining to their business, like properly accounting for all received payments. If a customer feels the auctioneer has committed illegal behavior that leads to them experiencing financial damage, they can file a claim against the auctioneer bond. 

There are different types of auctioneer bonds and which type or types are required for licensing once again vary by state. For example, certain states require bonds for individual auctioneers and for auction companies. In other states these bonds cover different industries and what type of goods you intend to auction determine what type of surety bonds you need. 

How Auctioneer Bonds Work

There are three parties involved in an auctioneer bond:

    • Surety. The company that issues and backs the auctioneer surety bond.

      • Principal. The party that needs to take out the bond to become licensed.

        • Obligee. The party requiring the bond—this is usually a state government in the case of auctioneer surety bonds. 

        If an auctioneer or auction house operator breaches their obligations, a consumer has the option to file a claim against the auctioneer bond. The surety will investigate this claim and if they find it to be accurate, they will pay out the claim up to the bond amount (aka the amount the bond is worth). The principal isn't free and clear here. They will need to pay the surety back for the claim amount and risk incurring fines or interest charges. 

        This threat of financial punishment helps ensure that an auctioneer or auction house operator will comply with all rules, regulations, and laws that relate to the running of their business. 

        How Much Does an Auctioneer Bond Cost?

        The cost of an auctioneer bond can vary greatly based on a few different factors. Before we dive into what an auctioneer bond can cost, it’s helpful to understand the following terms. 

          • Bonding capacity. The maximum amount a consumer can claim against an auctioneer bond. For example, if the maximum bonding capacity is $10,000 then a claim can’t be filed for more than $10,000.

            • Bond term. This term represents how long the auctioneer bond is active.

              • Bond premium. How much the principal needs to spend to purchase the auctioneer bond is referred to as the bond premium. 

              The bond premium—aka what you will spend to secure the auctioneer bond—is based on a few different factors. To start, the bond premium is usually a certain percentage of the bonding capacity. Usually this percentage is 1% to 5%. For example, if the bonding capacity is $10,000 and the surety offers you a rate of 3%, you would spend $300. Bonding capacities can vary greatly by state and usually range between $2,000 and $5,000. In California, this amount is $20,000, but in Louisiana it is only $10,000. 

              The percentage you’re offered varies based on a few different factors:

                • Personal credit score. Your personal credit score plays the largest role in pricing and the higher your credit score is, the lower your bond premium will be.

                  • Business financial history. The longer you’ve been in business and the more stable your finances are, the less you’re likely to spend. Your business financial statements and your level of industry experience will be taken into account. 

                  Taking some time to improve your credit score and business finances before applying for an auctioneer bond can help you improve the bond premium you’ll be offered.