And sellers are right to ask what commission the auctioneer will charge for that service. Most of the time, a fixed percentage is charged.
For example, maybe an auctioneer charges 25% for consignments, so the glassware, compressor and car will realize a 25% commission, or alternately some auctioneers charge different rates for different types (values) of property; for example, 35% on the glassware, 25% on the compressor and 15% on the car.
The important lesson in this treatise is that if different commissions are being charged for different items, an incremental scale will produce more in commission for the auctioneer than a sliding scale.
Brandon Harker with AuctionFlex wrote an excellent analysis of this here: http://blog.auctionflex.com/2013/01/sliding-scale-commission-debacle/
Let’s contrast an auctioneer charging on a sliding scale (Auctioneer S) versus an auctioneer charging on an incremental scale (Auctioneer I.)
- Auctioneer S charges 35% up to $500, 25% for total sales more than $500 and less than or equal to $1,000, 20% on total sales more than $1,000 and less than or equal to $2,000 and 15% on total sales in excess of $2,000.
- Auctioneer I charges 35% on first $500, 25% on an amounts more than $500 and less than or equal to $1000, 20% on any amounts more than $1,000 and less than or equal to $2,000 and 15% on any amounts over $2,000.
- Example A: The depression glass sells as one lot for $600:
Auctioneer S earns $600 * 25% = $150.
Auctioneer I earns $500 * 35% + 100 * 25% = $200.
Auctioneer I earns $50 more.
Example B: The air compressor sells for $1,200:
Auctioneer S earns $1,200 * 20% = $240.
Auctioneer I earns $500 * 35% + $500 * 25% + $200 * 20% = $340.
Auctioneer I earns $100 more.
Example C: The car sells for $4,500:
Auctioneer S earns $4,500 * 15% = $675.
Auctioneer I earns $500 * 35% + $500 * 25% + $1,000 * 20% + $2,500 * 15% = $875.
Auctioneer I earns $200 more.
Said another way, however, the clients of Auctioneer S pay $50 less in commission to sell their depression glass, $100 less in commission to sell their air compressor and $200 less in commission to sell their car.
The issue of fiduciary duty suggests to some that the incremental scale is appropriate as the interest of the auctioneer is aligned with the seller. But, a longstanding foundation of fiduciary duty is that compensation and representation are mutually exclusive.
It appears this theory comes from the sliding scale auctioneer (our Auctioneer S,) for example, earning $175 on a $500 sale, but only $125.25 on a $501 sale. Our Auctioneer I earns $175 on the $500 sale and $175.25 on the $501 sale.
The legal premise despite common interpretation is that regardless of the amount of compensation and who is paying it, representation should be constant; for an auctioneer, that representation must include desiring to get the highest price for the seller for whatever is crossing the block.
One only has to think about the real estate industry — brokers representing buyers earn less the better the deal their clients secure, and conversely earn more the less desirable their clients’ agreement. Yet, as clients, the broker owes the same fiduciary duties nonetheless and regardless.
Should you as an auctioneer utilize a sliding scale or an incremental scale? You shouldn’t necessarily do one or the other, but rather do what is best for you and your clients. Yes, the incremental system earns the auctioneer more, but nets the client less.
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. He serves as Adjunct Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.