Maine Antique Digest April 2015

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Maine Antique Digest, April 2015 25-B
- AUCTION -FEA URE
Canadian author Janette Oke needed
just nine words to explain why
some of the biggest blunders are
committed and to warn others that unre-
strained enthusiasm can lead to the same
mistakes. Impatience is seldom the right
path for an important matter, and that’s
true with valuable auction consignments.
This is another installment on consign-
ing to auction. We’ve been looking at how
clear thinking, planning, research, analy-
sis, and careful preparation are keys to a
consignor’s finding a suitable auctioneer
and achieving the consignor’s goal at
auction. The impatient fail, while the pre-
pared prevail. You can quote me.
Looking Back
In March, we framed the pivotal ques-
tion that a consignor should answer in
searching for an auctioneer: Who do I
trust to properly handle my property and
the money from its sale? The answer
should be an auctioneer that is competent
to market the assets and trustworthy to
hold the sale proceeds. Here are several
other points we covered.
A consignor should conduct due dili-
gence to identify a small list of auctioneer
candidates from which to select the one
best suited to handle a consignment. The
extent of the research to be done parallels
the perceived value of the property. The
higher the value of the consignment, the
more in-depth the research needed for
each candidate.
Written inquiries seeking information
from auctioneer candidates are an import-
ant part of this process. While something
as informal as an e-mail can serve the pur-
pose, a business letter is better because of
its formality, first-impression quality, and
the serious response it’s likely to trigger.
For high-end consignments, a consignor
might want to create a “Request for
Quote” package that seeks this informa-
tion in an even more comprehensive and
businesslike manner.
The inquiry sent to an auctioneer
should include a copy of the consign-
or’s inventory of the property. Not only
is the inventory an essential record of the
property, it’s also a prime “pitch” to an
auctioneer. Next only to a selling com-
mission, an auctioneer’s top priority is
finding consignors with quality assets.
The latter yields the former, so an “excit-
ing” inventory will elicit a like response
from an auctioneer.
My March column ended just before
we got into the topics that a consignor
should include in the letter or “Request for
Quote” to be sent to auctioneers. Here are
six areas to address. A consignor wishing
to expand the inquiry into additional areas
should do so.
Auctioneer
First, a consignor needs to learn about
an auctioneer’s background, professional
training, and other qualifications. It’s
instructive to discern what expertise and
experience an auctioneer has with the con-
signor’s type of property. The consignor
should ask about the types and frequency
of auctions conducted, plus the gross sale
amounts realized from these events.
The consignor also needs to know
what services the auctioneer provides. A
description of the auctioneer’s staff and
management would give insight into the
team that would handle the consignment.
If the auctioneer has a specialist that
will assist with the consignor’s property,
that person’s name, contact information,
and credentials should be requested. The
consignor also wants to receive a copy of
the auctioneer’s brochure and associated
materials.
The initial inquiry is also a good oppor-
tunity to ask each candidate to provide
copies of letters of reference from past
clients. While these let-
ters will be self-serving,
recent examples can
yield valuable insights,
as we’ll see later.
Property
How will the property
be delivered to the auc-
tioneer? Once it is, how
will it be handled, stored,
and safeguarded against
the risk of damage or loss attributable to
negligence, fire, theft, or other hazards?
Does the auctioneer carry insurance that
protects consigned property, and, if so,
with what insurer, for what risks, and with
what policy limits? Would the insurer
pay a claim directly to the consignor? A
consignor cannot prudently turn valuable
property over to anyone without knowing
these answers.
(Tip—a consignor should also explore
insurance options on his or her end. A lot
of $10,000 cars are insured, while a lot
of $100,000 consignments are not. This
makes no sense, and a consignor should
avoid the risk of loss that could result
from the property being uninsured or
insufficiently insured.)
Market conditions change. The con-
signor should request the auctioneer’s
current and future appraisals of market
conditions for the type of property to be
sold to help the consignor evaluate its
present attractiveness at auction.
Marketing
Auctioneers refer to themselves as
“auction marketers.” This connotes exper-
tise in marketing the property they handle
for consignors. Nothing is as important to
the success of an auction as the marketing
campaign conducted by an auctioneer.
A consignor should query auctioneer
candidates on the details for a campaign
design for the property, including (a) a
descriptive “buyer profile” for prospects;
(b) whether the campaign would be local,
state, regional, national, or international;
(c) time frame for the marketing; (d)
projected costs (including photographs,
marketing highlights, and lot placement
in the auction) and party responsible for
costs; and (e) examples of comparable
campaigns for like assets, with sample
materials.
Auction
The consignor should request informa-
tion about the auction, including location
and dates. If the consignment will include
a large number of pieces, how will the
auctioneer offer the pieces (individually
or grouped), what is the length of time
needed for the auction, and would the
auction need just one or multiple ses-
sions? Other worthwhile questions are
where in a multi-consignor auction would
this consignor’s pieces appear (beginning,
middle, end), as well as whether other
consignors with similar goods might be
included and create adverse competition
that could dilute demand and reduce bid-
ding results.
If a consignor has been methodically
preparing for placing a consignment, the
consignor should have a good idea which
of the two auction methods the consignor
wants to use—an auction with reserve or
an auction without reserve. Nevertheless,
the consignor should ask for the auction-
eer’s advice and rationale on this point.
Query each auctioneer candidate about
the qualifications that bidders must meet
to register for the auction. A consignor
also should know how bidding could
be done—i.e., on site,
absentee, telephone,
via the Internet. Ask
whether the auctioneer
or staff would be eligi-
ble to bid for the prop-
erty or whether an agent,
contractor, employee,
or other representative
could bid for them.
Money
A consignment to auction is primarily
about the M-word (Money!), and a con-
signor should never forget it. The con-
signor needs to know all related details.
Ask what selling commission rate
would be charged for sales made and
whether it is fixed or variable. Also
inquire as to whether a charge would
be assessed for lots that are passed (not
sold). Some auctioneers use convoluted
calculations that can mask true charges.
The math ought to be straightforward and
easy. If it’s not, that’s a red flag.
(Tip—if there’s any doubt what the
charge[s] would be in a given situation,
prepare several examples and submit a
follow-up question asking the auction-
eer to calculate the total charges for the
examples. Where it seemed helpful, I
have included examples like this in con-
signment contracts.)
The consignor wants to know what,
if any, buyer’s premium the auctioneer
proposes to use. The buyer’s premium
is paid by the buyer as part of the pur-
chase price for an auction lot. The money
belongs solely to the seller and not the
auctioneer. Many auctioneers want to
retain some, or all, of the buyer’s pre-
mium collected, as selling commission.
This is properly done in the terms of the
consignment contract, and there’s noth-
ing wrong with this concept, so long as it
is understood and agreed to by the con-
signor. The consignor also should know
whether the auctioneer’s selling com-
mission is calculated on the “hammer
price” (i.e., selling price for a lot before
the addition of the buyer’s premium)
or “total sale price” (i.e., hammer price
plus the buyer’s premium). It makes a
difference.
Where the sale of a consignment is
expected to yield a large sum of money,
the consignor should know the full details
of how the money will be collected, han-
dled, and kept on deposit, including what
safeguards will exist to protect the con-
signor against loss for any reason. This
might be done by surety bond, or using
an independent escrow agent, or paying
the consignor what is due immediately
following the auction. It’s a dangerous
world, and people make money-handling
mistakes, thieves steal, and businesses can
get into trouble with creditors, tax author-
ities, and other claimants. No consignor
wants to suffer a financial loss for any
reason, so a consignor must ensure that
sale proceeds are protected at all times.
The details of the settlement process are
essential, including the date settlement
will occur, how the accounting will be
done, and when and how the consignor’s
funds will be remitted.
Proposed Documents
A consignment to auction will com-
mence a process that will ultimately
include a number of written documents.
The consignor wants to receive copies of
these documents in order to compare each
with the other to see what is common and
what is different—what is acceptable and
what is not. The consignor should request
a copy of all documents to be used,
including the (a) consignment contract,
(b) terms and conditions for auction, (c)
bidder registration form, (d) absentee and
telephone bidder information, (e) on-line
bidder information, (f) any contract or
memorandum for-sale form, and (g) sam-
ple settlement statement.
Formality and Value
Consignments often need far more for-
mality than consignors accord them. The
approach being urged here is intended to
change the consignor’s mindset toward
such an important matter. A consignor
will not be disadvantaged by handling a
consignment in a businesslike way, but
many set the wrong tone, take the wrong
steps, and end up with the wrong result
for exercising too little care.
A chief goal of a well-planned consign-
ment is to protect the property from dam-
age, loss, or diminution of value, along
with the cash that it represents. This is
where a lot of consignors run off track. A
consignor should never look at an item as
only that. An auction is not about creating
a marketplace for merely trading artwork,
collectibles, furniture, and sundry other
things. An auction is conducted for the
purpose of liquidating hard assets into cash
money—the consignor’s cash money.
A Chippendale chest is an old piece
of furniture, but if someone will pay
$100,000 to buy it, the chest represents
1000 one-hundred-dollar bills. How
insouciant would you be about handing
that wad to a stranger? The visualization
of passing $100,000 in greenbacks to an
auctioneer to hold and safeguard should
lever the consignor’s caution and pru-
dence to the highest level.
Too many consignors lack this vision
and the high degree of prudence that
should accompany it. They see their
assets as simply tangibles that they hope
to sell, and they address consigning them
with nonchalance. If consignors main-
tained the proper “it’s really cash” view
throughout the process, they would be far
more thoughtful and careful and suffer far
fewer mistakes and losses.
Conclusion
Gathering information on each auctioneer
candidate is essential to assist the consignor
in finding the one best suited for the assign-
ment. Next month we’ll consider what to do
once we have narrowed our list of auction-
eers down to the top two or three.
That’s it until the May issue of M.A.D.
Until then, good bidding.
Steve Proffitt is general counsel of
J.P. King Auction Company, Inc., Gads-
den, Alabama. He is an auctioneer and
instructor at the Reppert School of Auc-
tioneering inAuburn, Indiana, and at the
Mendenhall School of Auctioneering in
High Point, North Carolina. The infor-
mation in this column does not represent
legal advice or the formation of an attor-
ney/client relationship. Readers should
seek the advice of their own attorneys on
all legal issues. Proffitt may be contacted
by e-mail at >.
Auction Law & Ethics
Prepare to Gather
by Steve Proffitt
“Impatience can cause wise
people to do foolish things.”
Gathering
information
on each
auctioneer
candidate is
essential.