Important Disclaimer: Affiliates are strongly advised to seek legal advice when developing their consignment agreements. This article and the following sample consignment agreements were not written by, nor reviewed by, an attorney. The sole purpose of these documents is to provide ideas and suggestions an affiliate may want to consider when developing their own consignment agreements.
The primary role of the Consignment Agreement (CA) is to protect the affiliate against potential seller issues. It’s impossible to overstate the importance of a clear, comprehensive consignment agreement. Managing sellers is probably the most difficult role an affiliate plays. A well-designed CA clarifies seller/affiliate expectations and timelines – which will minimize problems, increase auction success and ensure the integrity of the affiliate/seller relationship.
First things first. It is vital that the affiliate understand the scope of a potential consignment (assets to sell and seller expectations) in order to determine IF the assets are worth the time and effort to sell and BEFORE determining the fees the seller will be charged for the affiliate’s services. Most affiliates develop one CA template, that they customize by consignor.
Time is Money. CAs are service contracts. The seller has surplus assets they want to sell for the highest amount possible. The affiliate has auction knowledge and expertise, as well as access to a highly regarded online auction venue with thousands of active, interested bidders. The seller is hiring the affiliate for his skills and his access to bidders. It’s important for affiliates to be compensated for the services provided, regardless of the sales status of the consigned assets after the auction closes.
Fee Structures. Each affiliate develops the fee structure that works best for their business model. The most commonly used fee structure is a commission equal to a percentage of the high bid for every asset sold (percentages often vary based on asset value, frequency of consignments, etc.). However, this fee structure doesn’t address affiliate compensation if the assets don’t sell.
Below are a few examples of the fees and penalties some affiliates include in their CA’s to ensure they are compensated if a consigned asset fails to sell due to seller conditions (reserves, lot composition requirements, starting bid prices, etc.), or failure to honor the consignment agreement (shill bidding, failure to disclose, etc.):
$250 (non-refundable) fee for every lot posted with a reserve. If the reserve is met and the asset sells, $250 will be deducted from the affiliate’s commission.
100% commission on lots that sell for $15 or less – if lot composition is decided by the seller.
$50 penalty fee for any lot that needs to be halted after the auction is published.
$100 penalty fee for shill bidding, in addition to the $50 penalty fee for halting the item.
It’s impossible to be too clear when it comes to Consignment Agreements. In addition to making sure their CA’s are comprehensive and written clearly, affiliates should verbally go over the most important issues in the CA with their consignors (and have the seller initial their understanding), prior to either party signing the agreement.
Attached at the bottom of this page are two documents: A sample consignment agreement which affiliates may choose to use as a model for their own CAs, and a "training version" of the same document that includes detailed explanations of the various clauses in the agreement.