Net listings are where the agent and seller agree that the agent’s compensation will be any amount over a certain price realized by the seller. For instance, the seller says, “If you can get me $200,000 for my real property, and it sells for $231,000, your commission would be $31,000.”
While most all net listings are deemed illegal in real property transactions, are net listings legal when the subject property is personal? It’s legal outside of any state which deems it not, but is it the right thing to do? It boils down to “knowledge and consent.”
Net listings are frowned upon because the agent (real estate licensee or auctioneer) would then profit from telling the seller/owner that their property is, “only worth” a small amount. Then, when the property sells for a “higher amount” the agent’s profit is realized. This type of scenario violates the agency duty of loyalty.
However, for an auctioneer, could you work with a seller in a chattel net listing arrangement? You likely could if the client was informed of it and truly understood it — and consented to the engagement. Otherwise, this would undoubtedly be considered unethical — if not illegal — behavior.
Are there better ways for auctioneers to work with sellers? There are. For one, working on a commission sets up a clear “win-win” scenario as the more the client realizes the more the auctioneer earns. Even a buy-out often helps the client to solve a problem and then the auctioneer assumes the risk of profit or loss.
Net listings are related to “guarantee and split” arrangements, where the auctioneer guarantees the seller a certain amount and splits any excess with the seller 50/50. In these cases, the seller has the advantage of a guarantee and the auctioneer is incentivized to perform.
Net listings differ in that the seller is typically not guaranteed a sale, and rather “if the property sells,” the agent/auctioneer gets any excess. This incentivizes the fiduciary to lower seller expectations accordingly — essentially working in contrast with the seller’s interests.
Auction net listing? 05/05/20
Bottom line — when the client is fully informed and cognizant of the arrangement, almost any such plan is acceptable. However, too often net listings lack sellers with an awareness of the true market value of their property and suffer as a result.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.