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  • Writer's pictureMike Brandly, Auctioneer

A preposterous commission structure

We previously wrote about so-called “tiered” auctioneer commissions utilized to [properly] address uncertainty: In that writing, we noted the following passage:

Lastly, and maybe most importantly, auctioneers are not to use this “tiered” system to their unfair advantage. For example, an auctioneer charging 25% or $10 per lot (whichever is greater) and then taking an otherwise 100 lot auction valued about $10,000 (25% — $2,500 in commission) and making it a 1,000 lot auction (breaking these lots into smaller ones) valued about $10 each and thus earning 100% — $10,000 in commission.

Relatedly, we’re privy to another commission structure that appears to be even more preposterous. That is, charging a minimum fee to sell worthless property. In other words, a $10 fee per lot, where each lot doesn’t sell for want of bids, and the auctioneer earns $10 commission, presumably for “trying to sell” any subject lot.

While it’s certainly possible that particular lots will receive no bids when a significant number of salable lots are broken into smaller lots with the intent to reduce (or eliminate) their value (or an auctioneer knowingly accepts consignments that he knows won’t sell — without seller knowledge/consent …) we would hold that such a commission structure is illegal (fraud?), unethical, and unreasonable.

This unfortunate scheme is not limited to personal property. We’ve seen auctioneers charge very meaningful marketing fees to publicize real property auctions for which the auctioneer knows will result in no sale — due to the subject property having no value and/or a value far less than the minimum bid.

We have been in the auction business for decades, and have certainly earned commissions for not selling property — but not once where we knew for sure the subject property would not sell and not once where our seller lacked knowledge and didn’t consent to the auction nonetheless.

For instance, we were hired to sell an immense amount of real property in the 1990’s and early 2000’s by several attorneys practicing probate law, and thus managing estates and guardianships. Sometimes property would be appraised too high, and thus the minimum bid (2/3 or 80%) would be too high, but the attorneys wanted the auction to occur nonetheless, to then show the court the appraisal was indeed incorrect.

These attorneys consented to a marketing fee for each property as we had expenses to conduct the auction, and had otherwise recommended these properties be reappraised before an auction was held. As such, these attorneys had the knowledge of the incorrect appraisal amounts, and consented to our fees and having the auction regardless.

As well, we’ve held some personal property auctions where the seller’s goal was to clean out or empty a location, knowing (with knowledge and consent) that the fees to discard the debris would likely exceed the auction’s proceeds. Sometimes net proceeds aren’t the money, and rather a readied location to remodel, rent, or sell.

We’ve written about agency duties auctioneers owe clients (sellers, owners) here: The one duty we’re referencing in this article today, in particular, is “disclosure” in that an auctioneer is required to disclose to his client the expected result of a proposed auction — and at minimum, if an auction will benefit the seller or only the auctioneer. Incidentally, “loyalty” is another important agency duty.

The absolute best auctioneer/client relationships result in a “win-win” result for both (or all) parties. The vast majority of auctioneers conduct business with this endeavor. Those auctioneers seeking “win-lose” scenarios can and should do better for their own long-term benefit and the health of the auction industry overall.

Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.

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