In the landmark United States Supreme Court case Lochner vs. New York, 198 U.S. 45 (1905), the Court held that the “liberty of contract” was implicit in the due process clause of the Fourteenth Amendment.
This case involved a New York law which limited the number of hours bakers could work each day and each week.
The New York law prescribed maximum hours, and the Court ruled that such laws were an:
- “… unreasonable, unnecessary and arbitrary interference with the right and liberty of the individual to contract.”
Justice Rufus Wheeler Peckham, pictured here, delivered the opinion of the Court.
Nearly 30 years later, in Nebbia v. New York, 291 U.S. 502 (1934), the Supreme Court began to allow for increased regulation of economic activity and held there was no constitutionally protected fundamental right to freedom of contract.
Nevertheless, as evidenced by the Supreme Court of the United States — and otherwise — the courts in the United States have long wrestled with balancing economic regulation and the associated public good against the right to privately contract based upon mutual understanding and agreement.
In regard to our topic, we explore if “charity” auctioneers can charge a commission.
Today, many professionals are limited either by state or federal law in regard to how they charge for services and/or maximums they can charge.
For instance, many states and/or courts have set maximum fees and mandatory fixed rates for certain legal (attorney) services. As well, many fees for medical services (doctors) are limited by law.
However, auctioneers are largely (if not completely) unregulated in regard to how much they can charge, or in what manner charges can be constructed — such as a flat fee, commission, etc.
We wrote here about how auctioneers are paid: https://mikebrandlyauctioneer.wordpress.com/2011/03/08/how-are-auctioneers-paid/
It does appear that as a member of the Association of Fundraising Professionals (AFP), members cannot charge a commission or percentage fee. This would suggest that if an auctioneer was a member of AFP, then the auctioneer voluntarily accepts to act in accordance with AFP’s code of ethics (Standard No. 21.)
Further, it appears in a few states, “professional fundraisers” are limited to fixed rates, and prohibited from charging a commission. But, it is unclear if auctioneers are considered professional fundraisers within the definition of these statutes.
Therefore, it would seem clear that “by what method” auctioneers charge, and “how much they charge,” is controlled by the market and mutual agreement with their respective clients — unless the auctioneer has chosen to abide by a club or association mandating otherwise.
What is interesting, however, is a common argument against auctioneers charging commissions for charity events. This argument typically includes:
- Fundraising auctioneers don’t solely create the market at charity events.
- Bidders at charity events support causes and overpay for things they don’t need because the event is serving a greater good.
- Often times, philanthropists show up and bid far beyond market value.
These arguments lack founding; I would counter:
- Generally, auctioneers don’t solely create the market at any auction — it often requires a team effort; further why would a commission be appropriate if the auctioneer solely created the market, but not if he/she shared those responsibilities?
- Bidders at all types of auctions overpay; further why would a commission be inappropriate just because bidders overpay? What if they underpay?
- At all kinds of auctions, bidders bid far beyond expectation — so a commission is inappropriate — but if they bid far below expectation, then it’s okay?
Actually, charging a commission is intrinsically fair and reasonable. Let’s look at two examples:
Auctioneer Roger charges a flat fee of $5,000 for his charity auction services.
- His Monday evening charity event raises $100,000 and he is paid his fee of $5,000 (5%).
Charity nets $95,000
- His Friday evening charity event raises $7,500 and he is paid his fee of $5,000 (66.7%).
Charity nets $2,500
Auctioneer Andy charges 20% commission for his charity auction services.
- His Monday evening charity event raises $100,000 and he is paid his fee of $20,000.
Charity nets $80,000
- His Friday evening charity event raises $7,500 and he is paid his fee of $1,500.
Charity nets $6,000
Roger’s fixed rate compensation consumes nearly 70% of the Friday charity auction — that’s more fair than Andy’s 20%? Further, is the additional $15,000 paid to Andy for the Monday charity auction so unfair?
A commission ties the auctioneer’s pay to the event’s success or lack thereof. If the event is wildly successful, the auctioneer earns more; if the event is not so successful, the auctioneer earns less.
A commission protects a charity better than a fixed rate; as we saw, a fixed rate can result in more cost (even to the point of adhesion) for the charity contrasted with a reasonable commission rate.
It’s argued that charities want to know how much the auctioneer is going to charge. A fixed rate does less to accurately describe that amount than a commission, as a fixed rate results in a variable commission rate.
As we look back at Lochner vs. New York, 198 U.S. 45 (1905), it seems to us that associations and/or government entities dictating an auctioneer’s method of payment or amount of payment is: “… unreasonable, unnecessary and arbitrary interference with the right and liberty of the [charity and/or auctioneer] to contract.”
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 Greater Columbus Auctions and Goodwill Columbus Car Auction and. 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.