Leonard Joel

Selling at Auction

Leonard Joel Auctions 6 Jun 2012

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If memory serves me correctly (to borrow my favourite phrase from the introduction of Iron Chef ) auction charges were a simple affair until the late 1980s. In the good old days clients were charged one simple commission rate that covered everything. At this time commission rates hovered between 12 and 16% and when GST was not even a twinkle in John Howard’s eye. Then the big international houses, probably genuinely, realised that the vendor commission as the only margin an auction house could “make” would not be enough to sustain the ever-growing complexity and sophistication demanded by clients for more beautiful displays, more dramatic auction rooms, better administration of their collections and slicker marketing and communications.

 

The Buyer’s Premium
Enter the buyer’s premium! I vividly remember a Leonard Joel auction in the late 1980s when we declared on the rostrum that we “had not and would not” introduce a buyer’s premium. The dramatic, hasty and rather naive declaration was met with roars of support from the antique dealers in the room.

23We felt terrific but we had no idea what we were saying! What had been recognised internationally; that a simple sub-20 commission rate was an unsustainable margin for an auction house that “did everything” in a vastly more complex consumer environment, would soon be recognised by Leonard Joel and its peers in Australia too. The buyer’s premium now is a well established charge to the buyer at auction and is not greeted with the howls of protest and outrage that it generated some twenty years ago and is now a rather simple affair that 99% of the audience understand and accept as part and parcel of the purchase price.

So while buyers have a fairly straight forward experience vendors now are, in my opinion, spoilt for choice or perhaps bombarded (depending on how they feel) with alternatives – let me briefly explain.

The Modern Day Vendor Commission
The simplest method for a seller at auction these days involves negotiating a commission rate, accepting an indemnity fee (previously known as an insurance charge) and usually a nominal set fee for handling and storage. But beyond these arrangements vendors have other levers at their disposal- namely, the guarantee and the advance.

The Guarantee
The guarantee is available at Leonard Joel for more valuable single items and my simple explanation of a guarantee is the following.

A guarantee is in effect getting the auction house to commit to an absentee bid at a set price before the auction. If there is no third party bid at the guarantee price or no further bidding beyond the guarantee price or “house bid”, the item is sold to the house and the seller receives those funds less any negotiated charges. But if the item sells for more than the guarantee price, the difference (or the “upside” as it is known) is typically split between auction house and seller. The guarantee therefore offers a client a guaranteed result with the opportunity for some upside. The price for the guarantee I hear you ask?

Sharing the upside with the auction house. The guarantee is a useful tool for those wanting to “lock in” a minimum sale price but still share in any upside that may be achieved come auction day.

The Advance
Finally there is the far simpler to explain advance. With sometimes long lead times between auctions and extended settlement periods after an auction, some sellers find the delay between “agree to go to auction” and “funds in the bank” just too long to wait.

For these clients and if the value of the item/s justifies it, a cash advance can be sought for a fee that can be secured against items before they go to auction. This advance is then either deducted from the proceeds of sale or settled against items held by the auction house in the event of items going unsold; however generally speaking advances are structured to ensure that the items value comfortably covers the amount advanced.

More Complexity But More Choices
There is no doubt that we live in a more complex auction world and there are those that find “alternative” selling arrangements just too complex to bother with but for those that are looking for a more flexible approach to selling or one that simply provides them with more certainty, then the advance, the guarantee or a bespoke solution that is a blend of the two represents a welcome expansion of the options that the auctioneer can provide the seller who may need something more than just the “good old fashioned vendor commission”.

John Albrecht