Who Are Private Auctioneers?
Private auctioneers refer to persons authorized or licensed by law to sell goods or properties at public auctions. Private auctioneers differ from brokers, in that the latter can both buy and sell goods, whereas private auctioneers can only sell. They sell goods brought by sellers to the market and offer them to the highest bidders who compete in an open auction.
The most common form of auction is the open ascending price auction, where bidders compete openly against each other, with each subsequent bid being higher than the previous bid. Some of the goods sold by private auctioneers include paintings, antiques, expensive wines, rare collectibles, livestock, and used cars.
How Do Auctions Work?
In an open auction, interested buyers congregate at a central venue to compete for the ownership of one or more assets. Usually, the auctioneer announces the seller’s reserve price, which serves as the starting basis for the bidding process. The interested parties bid for the asset, with each subsequent bid being higher than the previous one. The bidding continues until the auctioneer declares the winner of the auction, who, in most cases, is the last highest bidder within the time allowed. Also, a participant is deemed to have stopped competing in the bidding process when they drop out of the auction before it has been closed.
The other form of auction is the online auction, which takes place without the interested parties meeting in a physical location. An example of an online auction is the eBay website, where sellers list their products for sale and allow interested buyers to compete for ownership of the product. Usually, the bidding is done in a closed format where interested buyers submit sealed bids for consideration by the seller. The interested parties do not get access to the price offered by the competitors, and only the specific sellers know the bid amounts. The seller chooses the highest bidder from the list of sealed bids. Sometimes, the seller may choose the bidder with the most favorable terms even if they may not be the highest bidder.
How Are Private Auctioneers Paid?
There are questions as to who, between the buyer and seller, should compensate the auctioneer for overseeing the auction process. However, over the years, auctioneers have mostly charged their fees to sellers. Here are some of the ways in which an auctioneer gets paid:
The most common method that auctioneers use to earn their money is through commissions. The auctioneer typically charges a percentage of the gross sale amount as commission. For example, if the auctioneer charges a 10% commission on the gross sale of $100,000 for a rare portrait, it means that the auctioneer will earn $10,000 in commission.
An auctioneer may also enter into an agreement with a client for an hourly pay structure. This means that the auctioneer will be paid according to the number of hours they spent auctioning a client’s asset or assets. For example, if the two parties agree on a $200 per hour rate, that means that if the auctioneer works for four hours, then the client will pay them $800 for the hours spent auctioneering.
The auctioneer may also charge their client a fixed fee for their auctioneering service. The fee remains fixed regardless of the sales proceeds and the duration of time taken to auction the asset(s). For example, an auctioneer may agree with a seller on a $1,000 fixed charge regardless of whether the seller earns $10,000 or even $100,000 from the auction.
An auctioneer may also earn a salary if they are employed to offer auctioneering services on a full-time basis. This may occur when an organization or government department organizes auctions on a regular basis. For example, the tax authority and police department may have confiscated items that require being sold at periodic auctions. They may hire a fulltime auctioneer to hold the auctions, rather than hire a different auctioneer every time they need to conduct an auction.
Fee plus expenses
The other option is to charge a fee, either using the commission, flat rate, or salary, plus all the expenses incurred by the auctioneer in the process of selling the asset. Some of these expenses may include meals, hotel charges, travel, cost of hiring staff, and marketing costs. These costs are incurred to support the sale of the asset, usually an expensive asset such as rare collectibles, paintings, and artworks.
Types of Auctions
There two main types of auctions that are commonly used by auctioneers. They include:
The English auction, also known as the open ascending price auction, is the most popular type of auction. The bidders bid openly against each other, with each subsequent bid being higher than the previous bid. The auctioneer calls out prices, and the bidders raise their hands to acknowledge their acceptance of the price, until a point when there are no longer any interested parties willing to offer a higher price.
Alternatively, the bidders (or proxies representing bidders) may call out their bid amounts publicly, with each amount being higher than the previous bid amount. When there are no more bidders willing to bid further, the highest bidder is then required to pay the price before taking ownership of the asset. Sometimes, the seller may set a reserve price that the interested parties must meet to take ownership of the asset. If no bidder is willing to pay the reserve price, the item will remain unsold.
The auctioneer starts a Dutch auction with a very high asking price for a number of identical items and lowers it until some interested parties accept the asking price, or when the reserve price is met. If the first bidder does not buy all the items on sale, then the auctioneer lowers the price until all the items have been purchased or the reserve price has been met.
The items are allocated in bid order, such that the highest bidder takes their items first, followed by the second-highest bidder, and so forth until all the items are completed. This method is popular in the Netherlands, during the sale of perishables such as fish, tobacco, and tulips. It is also employed in financial markets during currency exchanges and in handling market orders for stock.
Thank you for reading CFI’s guide to private auctioneers. To keep learning and advancing your career, the following CFI resources will be helpful: