Any experienced auctioneer will tell you that the best way to make a seller happy is to solve their problem. No one likes to be concerned. This is especially true when it comes to the money question, and that tension that can happen when you and your seller start talking potential revenue – and we all know that sometimes a straight commission auction can’t solve this tension. So, in this article, we’re going to discuss how three commission types can help you not only navigate risk vs reward scenarios, but also become an invaluable asset to your seller. And, if you’re an asset to your seller, that’s a win, because that can mean future business relationships.
So, how is this possible? Well, it’s possible by solving their concerns through using the right option for you and your seller. In this article, we are going to discuss commission, guaranteed, and split guarantee deals. Each of these options involves a different level of risk and reward. Each has its strength and weaknesses. In the end, it’s ultimately up to your personal expertise to pick the type that is best for you and your seller.
Most auctioneers are intimately familiar with a straight commission auction. This type charges a commission that is based on the selling price. This format allows the seller to take all of the risk but also to potentially make the most money from the sale of their items. This is a good option when the seller wants to maximize their return and is comfortable with taking risks in order to achieve this.
Split Guarantee Auction:
Split guarantee transactions involve a higher level of risk for the auctioneer. Split guarantee transactions are a shared risk format wherein the auctioneer guarantees that the seller will receive a set amount of revenue. This is in exchange for a higher commission on the remaining balance. This method can be used when the seller needs a fixed amount of revenue, or is simply more comfortable knowing that regardless of the outcome of the auction, they will still receive a fixed amount.
Since the auctioneer is guaranteeing a return to the seller and thus taking more of the risk, there generally is a higher commission or offset that will go directly to the auctioneer. Of course, the seller can still participate in any upside if prices exceed projections. However, they are shielded from exposure if the auction flops. It is important to be aware that a split guarantee should only be used when there is a high degree of certainty about the assets’ value, or at an amount where there will not be exposure if assets sell below the expectation.
In this method, the auctioneer takes all the risk. In this option, the auctioneer guarantees the auction by purchasing the assets at an agreed-upon price. This is generally paid before the auction. Then, they take take ownership of what is being sold. The auction conducted is the same as the other formats but in this scenario, the owner is the auctioneer. Although this is a high-risk scenario, the auctioneer is then able to keep all the rewards if the sale exceeds expectations. At the same time, the seller is guaranteed a payment independent of auction results. Since this is a relatively high-risk scenario, it is imperative that when an auctioneer purchases assets, the auctioneer has knowledge of both the market conditions and items being sold.
The ability to understand and use different methods helps auctioneers do what they do best: solve concerns. In addition, each of these methods shifts risk from the seller to the auctioneer. In doing so, it should also reflect a higher profit margin, since risk equals reward. Being able to effectively use different methods of auctions can also positively benefit your relationship with your seller. For example, when you are building your proposal it is possible to offer all three options to a seller. Let them decide which method is best for them.