Tags

, , , , , , , ,

Laura Mantle, AuctioneerAuctioneers often pay some out-of-pocket expenses prior to the auction. Some examples:

  1. Florence is an auctioneer and gets a call from David regarding being their auctioneer for a benefit auction. Florence must rent a formal outfit (expense: $250) and drive 110 miles to the auction location (expense: $50). Total expenses prior to auction: $300.
  2. Albert is an auctioneer and contracts with Ken to do an auction onsite at Ken’s deceased father’s home. Albert has to setup and organize the auction (expense: $500), advertise the auction (expense: $475) and haul debris away from the property (expense: $300). Total expenses prior to auction: $1,275.
  3. Harry is an auctioneer and Molly, his client, wants him to pickup items from her home and sell them at his auction house. Harry sends his truck and staff out (expense: $900), later advertises the auction (expense: $600) and has his staff organize and ready the merchandise for auction (expense: $400). Total expenses prior to auction: $1,900.
  4. Laura is an auctioneer and is hired to be such for two produce auctions per week. Her contract with the produce auction owner dictates that she supply sound amplification equipment (expense: $1,000), advertise the first two auctions in several regional publications (expense: $1,500) and drive to both locations to do inventory (expense $300). Total expenses prior to auction: $2,800.
  5. Carl is an auctioneer and is hired by Jerry to sell 460 acres of farmland at auction. He has to survey the property (expense $2,000), advertise the auction (expense $10,000) and hold two previews (expense: $500). Total expenses prior to auction: $12,500.

Sometimes auctioneers charge a commission sufficient to cover most or all of the expenses; other times auctioneers change a commission plus expenses as part of their contract with their seller. And as these examples show, there can be a wide range in the amount of expenses auctioneers sometimes pay prior to auction.

Some important considerations:

  • Will the property sell? If it sells, then presumably the expenses will be paid back to the auctioneer from the proceeds, either directly as expenses, or part of the total commission. However, sometimes property does not sell because:
    1. No bids (for want of bids)
    2. Highest bid doesn’t satisfy the reserve
    3. The seller withdraws the property
    4. The seller doesn’t, can’t or refuses to close
    5. A court or other third-party does not approve the sale

  • Will the auction total be sufficient to pay the expenses? Typically, expenses are tailored in relation to the reasonably expected auction total. It would not make much sense to pay $10,000 in expenses to sell a $5,000 property.
  • Will the seller pay the expenses after the auction? Auctioneers often times collect all the money for personal property auctions, and then pay the seller the net proceeds (minus expenses). However, most real property auctions (and some personal property auctions) provide the seller the total proceeds of the auction, with then the auctioneer being paid directly from the seller following that settlement.

In light of these considerations, auctioneers are more and more requiring their clients (sellers) to advance expenses before any work is completed.

In other words, in our prior example of Carl selling Jerry’s 460 acres of farmland, Carl might require that Jerry pay the $12,500 to him prior to any surveying, advertising and previewing.

This way, an auctioneer is assured to receive at least these expenses — in the event:

  1. The property doesn’t sell
  2. The auction total is insufficient
  3. The seller doesn’t pay

Of course, it is prudent for the auctioneer and client to document any advanced funds — either in the auction contract itself, or possibly a separate document. The monies advanced should be matched with the services provided, with the exact terms regarding.

Lastly, auctioneers say this advancing of funds can have another profound effect. A seller with money, “already out-of-pocket” may be much more inclined to accept the final bid price at auction (in a, “with reserve” auction) and/or be less inclined to otherwise cancel the auction. Thus, the advancing of funds can help ensure both the auctioneer and seller share a stake in the auction.

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.