Supreme Auction Outcome

• By: admin
• On: 04/15/2024 14:59:37
• In: Real Estate

The bidding results were akin to a windfall – a real estate sale projected to garner upwards of $900,000 at auction had a winning bid of $1.2 million. It's an auctioneer's dream, right? Sure, if the dream includes the buyer backing out and six years of lawsuits taking the slow path all the way to the Supreme Court of New Jersey.

Max Spann, Jr., CAI, a fourth-generation auctioneer, knows all too well that having safeguards in place and the backing of the NAA will help you in court.

“It's a litigious world,” Spann said. “You have to be disciplined.”

It all started in 2016 with the sale of a home on five acres on Bernardsville Mountain in New Jersey. Spann's clients had grown up in the house, and with both parents now deceased, they sought to monetize the property by selling it at auction.

“It went to market with tremendous response,” Spann said. “(The auction) was a ballroom event, and there were a dozen or so bidders.”

Nobody expected the bidding to go as high as it did, but the winning bidder put down their 10 percent deposit, signed the contract, and all that was left to do was “wait for closing.” That closing never came, as the buyer was unable to satisfy the obligation of the contract, thereby forfeiting their deposit, which was to be split by the auction company and the client. And thus began a sixyear journey, the outcome of which has set legal precedent.

Traditional vs. Auction Real Estate Sales

There are many reasons sellers choose the auction method to offload their properties. A big one is that they have control over the timing of the sale, which is an as-is, no contingency sale.

“When the gavel falls,” Spann said of the auction process, “it's sold. There is no negotiation.”

The auction method offers the ultimate price discovery, but the auction also creates excitement, as the advertising and marketing are aggressive. Sellers know this method forces the buyer to be decisive and that the process, from start to finish, lasts between 30 to 45 days (on average).

Furthermore, and perhaps most importantly in this case, the buyer at auction doesn't have three days following the sale for the attorney review, which is standard in traditional real estate transactions. However, this was the basis for the buyer's lawsuit to reclaim their deposit.

“The buyer felt the contract was null and void due to no attorney review,” Spann said. “New Jersey law provides an attorney review for traditional real estate.”

Spann's lawyer objected to that claim, as in auction law, especially with an absolute auction, when the bidding is completed, “that's a binding contract right then and there,” Spann said.

Transparency is crucial, Spann said. His company includes lines like this in their pre-auction documentation that bidders must sign: “I recognize that this is an Auction Sale and is not subject to an attorney review period. I will review the contract of sale prepared by seller's counsel prior to the auction.”

The court ruled in Spann's favor, but the case didn't end there. The buyer, still intent on getting back their $120,000 deposit, took the case to the appellate court, where three judges decide cases. After hearing arguments, two judges sided with Spann, but the third abstained, citing jurisdictional reasons. Non-unanimous decisions automatically go to the state's supreme court, which would finally take up Spann's case in 2021.

“As soon as it hits the state supreme court,” Spann said, “it becomes big news. The NAA – they came to back us 110 percent. They composed a very strong endorsement letter, and these things matter; it's like a stamp of approval.”

Spann said that when you're in front of a judge or a government entity, having credentials, such as various NAA designations, and backing an organization like the NAA (the New Jersey Realtors Association also provided a statement of support) is extremely helpful.

Finally, in June 2022, the state supreme court ruled in favor of Max Spann Real Estate and Auction Company.

"They recognized the difference between traditional real estate vs. auction," Spann said of the decision. "Why have an auction if there is an exit clause and one of the parties can just change their mind? That would ruin the whole reason for an auction and obviate the need for any of us to be here. The court recognized that and it was part of their discussion with the opposing counsel."

Spann calls the state supreme court decision a "major win" for the auction industry and should dissuade similar lawsuits in the future. "This is important because it set precedent," he said.