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Not surprisingly, some choose the auctioneer with the lowest commission. However, auctioneer commission is only half the picture.
Jonathan K. Wu wrote about this concept in his article titled Seller Revenue & Sales Commission in 2008.
Let’s say Gina is comparing 5 different auctioneers. One charges 10% seller commission, another charges 20% seller commission, another charges 30% seller commission, another charges 40% seller commission and the other charges 50% seller commission.
At first glance, it would seem that Gina would be best served to hire the auctioneer who charges the least commission (10%). The reasoning would be that this would leave her 90% net proceeds, which would be more than, say, the 20% seller commission auctioneer, which would leave her only 80%, etc.
But, as we’ve suggested, the auctioneer commission is only half the picture. As someone told me many years ago,
- “If you spend your time trying to save money, rather than making money … you’ll have less money at the end.”
Let’s say that the auctioneer charging Gina 10% will sell her property for a gross amount of $100,000 (netting her $90,000.) What would the auctioneer charging her 20% have to gross to net Gina the same $90,000?
What is surprising is that with this 100% increase in seller commission (10% to 20%,) the gross needed to compensate for the additional commission needs to only increase by 12.5% to net Gina $90,000 ($100,000 to $112,500.).
Here’s a table showing the increases from 20% to 30% to 40% to 50%:
- Auctioneer charging 10% needs to gross $100,000 to net Gina $90,000
- Auctioneer charging 20% needs to gross $112,500 to net Gina $90,000
- Auctioneer charging 30% needs to gross $128,571 to net Gina $90,000
- Auctioneer charging 40% needs to gross $150,000 to net Gina $90,000
- Auctioneer charging 50% needs to gross $180,000 to net Gina $90,000
What is maybe even more surprising is that with this 400% increase in seller commission (10% to 50%,) the gross needed to compensate for the additional commission needs to only increase by 80% to net Gina $90,000 ($100,000 to $180,000.)
Summarizing our findings here, as Johnathan K. Wu did in his aforementioned paper,
“Sellers can actually maximize their net seller revenue by accepting a higher sales commission from an auctioneer who has a larger buyer market capable of delivering higher auction sale prices.”
Gina is advised to hire the auctioneer charging 20% if his marketing and promotion will result in anything over 12.5% more than the auctioneer charging 10%. If the auctioneer charging 20% produced, for example, 15% more than the auctioneer charging 10% would have, Gina would net $92,000 and the auctioneer would earn $23,000.
By choosing the auctioneer charging only 10%, Gina would indeed save $13,000 in commissions, but earn $2,000 less herself — therefore our example here shows that by paying more commission, it is a win-win for Gina and her auctioneer.
Is it reasonable to assume that an auctioneer charging more will produce more in gross proceeds? Generally, it does seem reasonable. With more commissions, auctioneers are able to better market, hire more seasoned staff, and have more professional facilities and systems, such as auction software and equipment. As a result, they are more likely to garner more bidders which in turn results in more bidding, and higher prices.
Also, is it fair to think that an auctioneer earning more commission will work harder — with more passion — than one working for less? Many studies show that people work harder and/or are more productive when they are paid more, as contrasted to people who are paid less.
Sellers are advised to look at both sides of the picture. And, as that person who told me about saving money versus making money, sellers need to ask themselves a question he frequently asked me: Are you trying to save money, or make money?
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.