Disclaimer: The video and information below are for informational purposes only and are not legal advice.
One of the most frequently asked questions from companies at EstateSales.NET concerns their business contract and how they can protect themselves. We enjoyed sitting down with Adam P. O’Dell, attorney at law for Gordon Law Group, to discuss potential legal issues estate sale companies face. Attendees submitted their questions, and Adam graciously answered them. You will find a summary of his answers below. However, we recommend watching the video for more detailed responses. The video and information below are for informational purposes only and are not legal advice. Many of the questions discussed in this article are state-specific, so it is even more important to contact a local attorney before applying them to your business.
The most commonly asked questions for estate sale companies are what to include in their contract. The short answer is to cover every possible scenario in your contract. The long answer is to sit down with a local attorney knowledgeable in estate planning to draft your company’s contract.
A contract protects you, your business, and your client if problems arise before, during, or after the estate sale. It also serves as a guide for your client concerning how you manage the sale. For example, it could (and likely should) cover topics such as removing items from the home before the sale, attending the sale, and when the client will receive their payment from the sale. Below are a few topics Adam covered about things to include in your contract.
Many companies submitted questions about how to handle item removal. Adam suggested that the contract language might include a clause stating item removal could result in added fees to the client or charging commission for the pieces removed. If charging commission for items removed is at your discretion, include that in the contract. Adam also suggests adding a line that there is no bailment. No bailment means you are not taking possession of the items and are not liable for items removed from the home before the sale.
You likely will not be held liable for theft if you do everything reasonable to protect the property, such as locking the home when you leave. However, it is a good idea to have a bond or insurance policy in place (whichever your state allows) to cover the cost of the items if theft occurs. Having a bailment disclaimer in your contract is also helpful.
If items are sold after the first meeting with the client and before the sale, it could affect your bottom line. One way to protect your company is to include a lien provision in your contract stating that you have a lien on all the items for sale, and that your company is entitled to a commission on those items sold. Each state has its statutory time limits for liens, so be sure to note those windows.
If the client violates your contract, you could put a lien against the estate. If the estate is still open and is in the creditor period, you could file a claim against the estate. Be sure to note the creditor period for your state should you need to pursue this option.
Estate Owner Death
In the rare instance where the estate owner dies before payment to the client, the contract would still be upheld. Generally speaking, the contract survives death. However, this would be a great piece to add to your contract to ensure your company’s covered. If family members begin to pull items and your contract states that you should receive a commission for those items, you will still be owed compensation.
Homeowners Insurance vs. Liability Insurance
Which insurance coverage will handle the claim if an accident occurs during a sale? If an accident occurs during a sale, the two insurance companies will likely point fingers at each other. Suppose the accident was due to a defect in the home (ex: faulty hand railing). In that case, homeowners insurance will likely cover the accident. If the accident occurred because of how your company set something up, such as a table falling and crashing into a patron, the liability insurance will likely cover the accident. It comes down to the type of injury and what caused it.
Separating Labor From the Sale of Goods
Having contracts specific to the services you are offering is best. If you are selling items in the home and then moving them to a showroom if the items don’t sell, create two separate contracts. Add an addendum if you plan to move unsold items to an auction or store. Adam suggests creating a separate contract specifying which items will be transferred to and sold at the second location. Clear delineation between each type of sale will better protect your company.
Executor of the Estate
It is best to request some paperwork showing the client is the estate’s executor. Proof of the executor will protect your company from any family member who may claim your company does not have the authority to host the estate sale. Each state may have different terminology and paperwork. Three terms your state may use to designate the executor of the estate are letters testamentary, letters of administration, or designations of trust.
Adam believes adding the no bailment disclaimer is vital to ensure the client understands you are not taking ownership or possession of their items. The payment structure should be well laid out. A few lines about what state laws you will abide by should you go to court are also imperative. The biggest takeaway is that you are responsible for your contract even when an attorney helps you create it. Take the time to ensure there are zero ambiguities to mitigate future problems. You can never be too specific in a contract.
Estate Sale Business Legalities
Non-compete clauses are enforceable if they are limited in scope and range. For example, there will be a time limit and a distance limitation based on the region you regularly conduct business. A non-compete clause stating a former employee cannot compete within the entire country will likely not be upheld. A reasonable radius within the state, however, might.
Writing Your Own Will
Each state will vary on accepting handwritten wills. Some states do honor handwritten wills. In other states, it is not acceptable. If the will is handwritten and notarized, it could be adequate for some states. The best course of action is to have an attorney write up a will to prevent it from being contested.
Benefits of Creating a Trust
Trusts offer greater control over the distribution of your assets. They typically do not have to go through probate. In most states, trusts “allow for an ease of transfer to beneficiaries while there is still a creditor period.” This means you do not have to wait for court approval to begin selling items of the estate.
Not Responsible for Accident Signs
Many estate sale companies have signs throughout their sales stating they are not responsible for accidents. But do these signs protect the company? The answer is yes and no. It depends on what is causing the accident. The best plan of action is to ensure your contracts state that you are not assuming liabilities if accidents occur and that the homeowner's insurance and your liability insurance is up-to-date.
Wills vs. Trusts
Trusts are a great way to get everything out of your estate to your loved ones without the need for court intervention. However, they cannot designate guardianship. For younger people with minor children, a will is needed to determine guardianship.
What Items Should You Avoid Selling
Certain items are prohibited for sale in each state. It is best to check with your state and local government concerning what items are illegal to sell. Use caution when selling firearms—some states are very strict about that. Avoid selling anything that could cause anyone a reasonable likelihood of harm, such as chemicals and medicine. You can be held responsible should the customer's use result in injury.
One of the best ways to protect your business and your clients is to create a contract. Laws vary from state to state, so consult with a local attorney familiar with estate planning to help you draft the document. You can never be too specific. Any ambiguity could cost you in the future. Take plenty of time to cover as many bases as you can. Finally, it is never a bad idea to revisit your contract yearly to ensure nothing is missing.
Questions and Timestamps:
- Is it Legal to charge a client if they pull an item during the sale? (2:04)
- What recourse do you have if a client sells items out from under you before the estate sale occurs? (3:19)
- Can I be held liable for items that family members take after the contract is signed? (6:01)
- Can I be liable for theft from the sale? (7:41)
- If a contract is violated and you are owed money for your services, can you place a lien on the estate? (8:58)
- What can be included in a contract that provides a solution if the estate owner passes after signing a contract? How do you handle families that may demand items already included in the sale? (10:58)
- How do you negotiate a contract you want to get out of due to conflicts? (11:47)
- At what point does the homeowners' insurance take over vs. liability insurance. For example, someone is waiting in line for the sale and falls off the porch. (13:31)
- As far as contract format, what would you suggest for a company whose business encompasses more than estate sales? In other words, I facilitate many "downsizing" estate sales, and the customer is still living. I help them with all aspects of the moving process and then hold a sale; afterward, I clean. Should my contracts separate the labor from the sale of goods? (15:02)
- We do not request the contract signer show they are legally the executor or have the authority to sell the contents of a home. What would you ask to see? (17:00)
- We are unique in that we have a store and auction house. Should we have separate contracts for client's items that did not sell at the estate sale that we move forward to sell in the store or by auction? (19:21)
- What legal language is a "must" to include in a contract? (20:55)
- Can you legally designate through your contract when a client can be at the estate? Can you keep your client away from the sale through the contract? Is it enforceable? Would you need to specifically state what the outcome will be if the clause is violated? (24:21)
- Are non-compete clauses enforceable? (26:22)
- Can one write their own will without an attorney's assistance? (28:00)
- Interested in the benefits of creating a trust. (30:03)
- Best way to prospect probate and estate attorneys to offer services for both real and personal property (31:36) (36:12)
- Do "Not responsible for accident signs protect me?" (34:18)
- When conducting the sale at the client's home, what is our insurance liability vs. homeowners policy? (37:24)
- What should I do if someone gets hurt in the house while I am conducting the sale? (38:40)
- What is better for estates: wills or trusts? (39:52)
- Are there items you would recommend not selling from a legal point of view? (41:31)
- In states that have a state tax, do trusts bypass that tax? (43:19)
- How would you handle discounting items in your contract? (45:03)