Many auctioneers have auctions at facilities such as a fairgrounds, community center, and the like. These facilities charge rent — say $1,000 — and that cost has to be paid by someone.
Other auctioneers attempt to share this cost between the various consignors — for example, with five consignors, each paying $200 towards the rent.
Today, we explore this sharing concept and the inherent problems with such an arrangement. First of all, it is fair and reasonable that each consignor pays 1/5th of the rent? Probably not.
Let’s say we have five consignors — Bob, Rick, Tina, Jerry and Sarah. What if their consignments are materially different in some way?
- The gross proceeds are: Bob $200 (1.69%,) Rick $1,500 (12.66%,) Tina $700 (5.91%,) Jerry $7,250 (61.18%) and Sarah $2,200 (18.57%.) Do we divide the rent accordingly?
- The number of items consigned are: Bob 300 (74.63%,) Rick 4 (1%,) Tina 73 (18.16%,) Jerry 2 (0.50%) and Sarah 23 (5.72%.) Do we divide the rent accordingly?
- The time needed to prepare and market is: Bob 50 minutes (11.90%,) Rick 30 minutes (7.14%,) Tina 120 minutes (28.57%,) Jerry 210 minutes (50%) and Sarah 10 minutes (2.38%.) Do we divide the rent accordingly?
Looking this over, Bob, Rick, Tina, Jerry and Sarah have questions:
- Bob says, “I should only pay $17 in rent based upon my minimal (1.69%) gross proceeds.”
- Rick says, “I should only pay $10 in rent as I only consigned a small number (1%) of the total items.”
- Tina says, “I should only pay $59 in rent based upon my minimal (5.91%) gross proceeds.”
- Jerry says, “I should only pay $5 in rent since I only consigned two (0.50%) items.”
- Sarah says, “I should pay only $24 in rent as it only took 10 minutes (2.38%) to prepare and market my items.”
Of course, an auctioneer can charge based upon any criteria and if the consignors have knowledge and consent to those charges, all is fine.
However, if an auctioneer is charging proportionally based upon costs to put on the auction, consignors have a right to full disclosure: How exactly are the charges being apportioned and is that fair and reasonable?
In our example, Bob and Tina think it should be based upon gross proceeds; Rick and Jerry think it should be based upon total items (lots) consigned; Sarah thinks it should be based upon time needed to prepare and market.
Allocating aggregate expenses in a shared fashion to consignors is difficult, messy, and often misunderstood. Would it be better for this auctioneer to charge each consignor a [the same] percentage of gross proceeds and pay the $1,000 facility charge himself? Probably so.
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 Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.