Auction Law & Ethics
A lot of folks complain about auctioneers. Auctioneers have complaints too.
Remember when you were a kid and another youngster came along and grabbed something that should have been yours. Maybe it was the next ride down the sliding board that a line-cutter snatched from you. Perhaps it was the last cupcake at the picnic, when you hadn’t gotten one yet, and your mean-as-a-snake cousin had already scoffed down several before taking the one you should have had. Whatever the event, do you remember how you felt? You likely felt as any normal person would—bad and sad—because what had happened to you was a personal violation. Selfishness is all about raw greed and grabbing, which causes one to seek more than a fair share of something at the expense of another who would end up with less than a just share as a result. It’s wrong, but it’s also commonplace.
As a writer, I state my opinion on numerous matters. In exchange, I frequently hear the opinions of others. Sometimes folks support my point of view, while other times they oppose it. One thing I have learned is that a lot of people forgo analysis and reason to leap straight into emotion and reflexive reaction in forming and expressing their opinions. This is the reason for the old caution against discussing politics or religion. To that couplet I add pocketbook issues. If you address a point that stands to charge someone more money for something, brace for blowback.
Take the buyer’s premium in auctions. The mere mention of it sends a lot of people into an emotion-charged frenzy. I’m a staunch proponent of the buyer’s premium when correctly used, but I don’t attack anyone who holds a counter view. Why should I? I respect the opinions of others, but many aren’t willing to accord auctioneers the same understanding on this issue. They just see the premium as a charge they don’t want to pay and get mad about it.
The buyer’s premium is a percentage surcharge added to the hammer price of an auction lot to form the lot’s sale price. It is widely used and is in effect at many auctions. The buyer’s premium is fully disclosed by the auctioneers who employ it. There is nothing hidden or secretive about it. A buyer who incurs the charge does so voluntarily by purchasing in an auction, where notice has been given that the add-on will be applied. Consequently, it has long puzzled me why people get so angry about a disclosed term of sale. No one is forced to buy at an auction. If a prospective bidder feels that strongly against paying a buyer’s premium on a purchase, the bidder should skip that auction and look for another buying opportunity where the premium is not in effect.
I would like to have popcorn and soft drinks when I’m at the movies, but I’ve got seven children. If I take them to the theater and I’m paying, we’ll see the flick, but any snack will be ice cream later at McDonald’s. Theaters announce what they charge for snacks, and I’m not going to pay those prices when I have to use a multiplier of eight—my seven kids, plus me. It’s a simple issue, and I don’t complain about concession charges. I just choose not to buy their snacks in order to avoid the cost.
I have paid a buyer’s premium on many purchases, and it has never bothered me an iota. The charge was openly disclosed before the auction, so I knew in advance that the surcharge would be in effect. I accepted it in order to try to buy something that I wanted.
Imagine that the buyer’s premium wasn’t disclosed in advance, you didn’t know it would be charged, and then you got hit with it on an auction purchase. What would you think about that? You would almost surely be shocked and probably furious—and rightfully so. An auctioneer would have taken advantage of you by levying an extra cost that you never expected, nor bargained for, nor agreed in advance of bidding that you would pay. This would be unfair and wrong to an extreme degree.
Focus on how bad that feeling would be and remember it, because I’m going to transition now into a comparable issue. This issue is triggered by some sellers, and it costs other parties dearly. (Note that I said “some” sellers—not all sellers.) I’m referring to an extra “charge,” such as with the buyer’s premium, but there is no advance notice that such a charge will be made, nor agreement to pay it by the party called upon to do so. This leads to a really bad surprise for those adversely affected—auctioneers.
When I was six, our family pediatrician told my Momma that I needed to have my tonsils removed. That was apparently a big moneymaker for physicians back then, because all the kids I grew up with lost theirs too. But all of my kids still have their tonsils, and I haven’t heard of a child going under the knife for that since I don’t know when. Anyhow, that medical procedure is called a “tonsillectomy.”
Four years later, my Daddy had a terrible pain strike in his lower right side late one Friday night. I awoke Saturday morning to the news that Daddy was in the hospital. Momma told us kids that before dawn Daddy had been operated on for the removal of his appendix, a procedure known as an “appendectomy.” It was then that I realized anything with an “-ectomy” attached meant you were losing something.
Enter the “commissionectomy.” If a tonsillectomy is the extraction of the tonsils and an appendectomy is cutting out the appendix, it follows that a “commissionectomy” is the removal of a commission. The procedure is performed by a seller on an unwilling patient—an auctioneer for the seller who, once the procedure is performed, becomes the big loser on the surgical table.
Here’s how a “commissionectomy” works. Following an auction and sale of goods or other property, the seller acts to short the auctioneer. The seller does this by removing all, or part, of the selling commission from the “due auctioneer” column on the settlement sheet and transferring it to the “due seller” total. The auctioneer’s loss becomes the seller’s gain.
A “commissionectomy” takes money from an auctioneer who expects to be paid for work done on behalf of a seller and allows the seller to keep the money for himself. It does so without advance notice or agreement by the auctioneer. Nifty, huh? Not many auctioneers would agree to do all the work and take on the other burdens that an auction requires for little or no pay, but that’s the upshot when an auctioneer is victimized by a “commissionectomy.”
Why do some sellers victimize auctioneers with a “commission-ectomy?” The reasons can be as broad as their imaginations, but the hands-down leading cause is a seller’s dissatisfaction with sale prices. A disgruntled seller’s thinking goes like this: “The sale prices for my property were way too low. That’s not my fault. It’s the auctioneer’s fault. I need and deserve the money I expected to receive from this auction, so if anyone is going to come up short, it won’t be me. It’ll be the auctioneer.”
It’s an easy rationale for a greedy seller to make, because the seller thinks nothing of the many factors involved with an auction, e.g., terms of the auction contract, the auctioneer’s risk and work, the auctioneer’s expectations and needs, the value the auctioneer generated for the seller, the size of the marketing budget, market conditions for the property, the desirability of the property, and many others. The seller conveniently overlooks all of this and concentrates exclusively on his own wants and needs. If you think this attitude makes a seller a greedy bully, you’re right. It does.
Most auctioneers understand the importance of reducing an agreement to take a seller’s property to auction to a written contract to memorialize the deal. A good auction contract is a comprehensive and detailed instrument that sets out all of the terms of the parties’ agreement and defines their respective rights and duties with one another.
So how can a seller just ignore the binding and enforceable terms of a written contract with an auctioneer to claim a heavier than agreed share of the auction proceeds? Easy. He just does it—and then hopes there’s no adverse consequence, such as the auctioneer filing a lawsuit for breach of contract. The fact that a pre-agreed, written auction contract made by and between the parties exists and includes a specific provision stating the terms for the auctioneer’s selling commission is no impediment for the seller who practices the “commissionectomy.” Greedy sellers dismiss such terms with an offhanded attitude of “So what?” So what’s a compensation agreement mean between parties? These sellers answer that question, “Nothing at all.”
Since most auctioneers are litigation averse, they seldom resort to legal action to enforce the terms for their commissions due under the contracts they have with sellers. Instead, they just suffer the loss inflicted by a “commissionectomy” without challenge. This leaves the seller, who openly breached the auction contract, in possession of a greater-than-bargained-for and unfair share of the sales revenue generated by the auction. Meanwhile, the auctioneer, who did all the work and created the value realized, is left with an empty or only partially filled pocket for his efforts. Bottom line—seller wins and auctioneer loses.
Some sellers have legitimate complaints with auctioneers about the quality of their services and performance of the terms of their auction contracts. In such a case, the diminution of a selling commission might be reasonable and justified to offset damage or loss caused by fault of an auctioneer and suffered by a seller. The term “commissionectomy” is not applicable to these sellers. That term is focused on selfish, greedy sellers who overreach and grab money that is not theirs from hard-working auctioneers, simply because they frequently can do it and get away with it. The damage and loss caused to auctioneers by a “commission- ectomy” is real and wrongful and should not go unredressed.
Next month we’ll take a look at what auctioneers can do to protect themselves from a “commissionectomy” and the sellers who would practice it on them.
That’s it until December issue of M.A.D. Until then, good bidding.
Steve Proffitt is general counsel of J.P. King Auction Company, Inc., Gadsden, Alabama. He is an auctioneer and instructor at the Reppert School of Auctioneering in Auburn, Indiana, and at the Mendenhall School of Auctioneering in High Point, North Carolina. The information in this column does not represent legal advice or the formation of an attorney/client relationship. Readers should seek the advice of their own attorneys on all legal issues. Proffitt may be contacted by email at <firstname.lastname@example.org>.
Originally published in the November 2013 issue of Maine Antique Digest. © 2013 Maine Antique Digest