Rules of Consignment Auction Items – For Auctions and Auctioneers Dealing With Consignment Auction Items
Rules of Consignment Auction Items – For Auctions and Auctioneers Dealing With Consignment Auction Items
Are you thinking about holding an auction charity event but just can’t seem to get someone to donate an impressive high-ticket item that would impress your supporters and get them excited for your event? This is a common challenge, especially for smaller or less well known charities looking to capitalize on charitable auction events. This is where the ingenious concept of consignment auction items becomes a game-changer for any nonprofit willing to use them.
Consignment means the charity doesn’t actually own the items being auctioned off, they are not donations. Rather, these items are loaned to the charity on the recognition that they must be paid for and anything the charity can get above the agreed price of the item goes to the charity as a donation.
So for example, if there’s a large music shop in your area and they have a beautiful Stratocaster guitar once played by a famous musician, at auction it may go for a very large sum of money indeed. But rather than the music shop donating the guitar, they allow it to be auctioned off with a minimum bid of say $20,000. If the guitar reaches $30,000, the charity gets to keep the $10,000 above their base price. If bidding doesn't reach the minimum threshold, the guitar is returned to the music shop and the charity gets nothing.
And while this may seem like a waste of time or not the best way to hold an auction, the truth is some of these items can bring a lot more people to your auctions in the first place, allowing the chance for more and higher bidding on all of your items. So even if you don’t get to sell that week getaway in Paris, having these types of offerings can still be very profitable and can benefit all parties involved.
Since a consignment auction item is not technically a donations and are not owned by the charity, there are several general rules, guidelines, and legal and ethical considerations to be aware of. These can include everything from the terms of the deal to displaying your items correctly.
General Rules and Guidelines for Consignments
One of the most important considerations when working with consignment are the actual terms you work out between your nonprofit and the owner of the item. Sale rules to consider are the percentage of the sale price that will go to the charity versus what goes back to the consignor, how long the charity can market, display and use the item to promote its fundraising event, and who will be responsible for delivering the consigned item to the event and how the item will be given over to the winning bidder if the agreed upon amount is reached.
You should also include other things like who is responsible for any damage or even theft of the items and whether or not insurance for any of them will be a necessity and who is responsible for obtaining the insurance for the item consigned. If your event is fortunate enough to have multiple rare memorabilia on hand, it may be wise to hire additional security to make sure all of the items are safely guarded.
Since these items must be paid for after the bidding process is completed, you’re going to need to figure out a minimum bid amount that is realistic, yet can afford your charity an opportunity to raise funds for your mission. This often includes a reserve price to ensure the item is not sold for less than it's worth at the final bid which would result in your nonprofit taking a loss.
Whether you’re holding an online, in-person gala event, or a hybrid event, you must provide accurate and thorough descriptions of the items, including their condition, provenance, and any other relevant details. The more details you can offer potential bidders on any of your items, the more valuable they become in the eyes of the bidders.
It’s also important to document everything and to keep thorough records of all items, including their condition upon receipt, sales records, and distribution of proceeds after the auction so everything s clear and concise and you can maintain transparency with your charity’s financial records.
Legal and Ethical Considerations
The most important legal consideration is going to be the contractual terms both parties agree upon for each item. These should detail the responsibilities, liabilities, and financial arrangements of each party involved. Your contract should be a detailed as possible so there are no gray areas that could potentially end up with a dispute and litigation problems in the future.
Taxes are also another legal concern for both your charity, the consignors and the buyers in addition to the collection of them. In many jurisdictions, only the portion of the purchase price that exceeds the value of the item can be considered a charitable donation. This should also be clear to all donors and bidders at the start of your auction.
Then there are local, state, and federal laws that govern charitable auctions, including consumer protection laws and regulations regarding charitable fundraising to be aware of. A lot of this will depend on your state law and local laws and you will need to be sure there are no conflicts with any regulations on a local level.
Avoiding conflicts of interest is another important rule or legal problem to be aware of. Be sure that there are no conflicts of interest, such as board members or employees benefiting personally from the auction. If this is the case and it is discovered, there is a good chance you can loose your 501(c) charitable organization status. So make this a priority when choosing your items.
On an ethical level, your organization should be transparent about the nature of the auction, especially regarding how much of the proceeds will go to the charity. It’s often good practice to display the owner’s name with each consigned piece thereby giving the owner some recognition and publicity, and also to be fully transparent with your donors. Or have your auctioneers mention the business name in order to give them proper recognition for their goods.
Also be fair in your pricing and avoid artificially inflating prices or misrepresenting your items. The reputation of your nonprofit is paramount, and if someone feels they’ve been misrepresented, it can damage your charity’s reputation and make it almost impossible to raise donations in the future.
Although there may seem like too many issues to deal with when using consignment items in your auctions, all of these are easily manageable and the benefits of the inclusion of consignment pieces in your auctions far outweigh the potential problems.
Our Complete Guide to Pricing Consignment Auction Items
Pricing items for a silent auction in a way that maximizes revenue for your nonprofit while also being attractive to bidders is a delicate balance and takes a little art and skill. The first step in all of this is to get a clear fair market value (FMV) of your items so your bids are in alignment with what bidders would expect to pay.
One of the easiest ways to do this is to research your items for similar items that have already been sold at auction on websites such as Ebay or Sotheby’s auction house depending on the items. There are also websites that list estimates for items that are used or antique like Kovel’s and the Kelly Blue Book for automobiles. Just be aware these are guidelines and should be used to establish a range that is realistic, not a definite price.
If you have something that you feel is truly unique and need a solid estimate of its value, the best resource is a professional appraiser. These individuals follow all sorts of auctions and private seller data and can give you very accurate FMVs for practically any consignment item and often freelance for auction houses. The downside is they do charge a fee for their services, so you’ll need to take this into consideration as this will be an additional cost which equates to lower profitability for your auction.
There are a few more factors you’ll need to be aware of and we’ll go into more detail on each of them below. Just remember, many items can be priced realistically with a little research and time, you’ll need to get a feel of what has enough value to spend more time or money on as far as an appraiser. I may also be helpful to ask your board or supporters if they have any experience and can help you with your pricing just to get a second opinion.
Setting the Right Starting Bid
Getting your starting pricing right is actually more important than people think. Start too high and many people will feel left out right from the start. Start too low and others may feel the item isn’t worthy enough to bid on. So again, there is a bit of art or intuition when it comes to finding the right opening amount.
One solid way to go about this is to start the bid at 30-50% of the FMV. This can create initial interest and encourage bidding. The more attention your items get, the more people will become interested and want to be involved. One thing to note is if your audience has a higher average income or is deeply committed to the cause, you might start at a higher percentage of the FMV.
Choosing Bidding Increments
Although not always a necessity, setting increments can have a positive effect on the overall winning bid and the amount of money you raise for your charity consignment auctions. If you decide to go with them, set your increments (the amount by which each subsequent offer must exceed the previous one) that are reasonable based on the value of the item. Typically, 10-15% of the starting value is a good guideline. Or use a rounded number like $5 or $10.
Implementing a 'Buy-It-Now' Option for Each Consignment Item
Consider setting a 'Buy Now' price at around 150-200% of FMV for items that you think may do well but won’t get a ton of bidders. This allows eager guests to bypass the auction process and instantly secure the item, usually at a premium price to the hammer price. Remember, your items are consignments, so using this strategy can guarantee your charity a return on the item.
Highlight Unique Value of Your Consignment Auction Item
If you’re lucky enough to secure some truly unique pieces such as signed sports memorabilia like a baseball signed by Bae Ruth after the Yankee’s won the pennant, or a Sunburst Stratocaster played by Jimmie Hendrix during Woodstock, you want to highlight the stories of the pieces as much as possible. People will always place greater value on things that are unique and they can posses.
Rarity is another reason to demand higher starting bids. Think of the highest quality jewels, or artwork by famous painters. Often times uniqueness and rarity go together, and the more you can point out both to potential bidders, the better your charitable auction will do overall.
If your items aren’t all that unique or valuable, you can try to combine them in order to create more perceived value and attract higher bids than selling them separately. For example, if you have 20 board games, rather than selling them one by one, you may just make it a lot sale, so the winner is able to collect and play a variety of games with just one bid. They may also bid because they feel they are getting a great deal. Either way, it could potentially be more profitable to group certain items together rather than holding unsuccessful bids one at a time.
Offer a Variety of Items for Sale
Speaking of a variety of games, variety in essence is a good thing at most types of charitable fundraising events. Unlike a Sotheby’s house or estate auction where collectors gather around specific topics or collections, your donors will be varied and therefore have varied interests. They may not be an antique collector, but if you’re also auctioning off a trip to Hawaii at the same event, that variety just may spark enough interest to place a bid.
Know Your Audience
Of course this brings us to one of the most important topics of creating successful auction bids, knowing your audience. It’s not helpful if you’re hosting a charity event full of items worth tens of thousands of dollars if most of your supporters are blue collar workers working forty hour weeks. The same is true if you’re trying to get a group of millionaires to bid on items like sports equipment that has been donated by the local sports shop. Knowing your audience and their interests and financial status is one of the most important factors to take into account if you want to run a successful fundraising auction event.
Technology for Successful Fundraising Auctions
Regardless of what type of auctions you're planning on holding, the right auction software can make it more profitable and a lot less stressful for both your staff and your donors. And more profitable, that’s a fact. Our platform is not only the best auction software available today, it was specifically created for nonprofit use which makes Paybee the number one platform for charities and foundations.
We offer all types of auctions, from silent auctions to live in-person gala event options that can be hosted live and online at the same time, opening your auctions to the world. Just imagine the possibilities of hosting a real live auction and streaming it to all sorts of social media networks like Facebook and YouTube. It has the ability to reach millions of potential supporters and make your events extremely profitable. Perfect for those supporters who can't travel to your live event fro one reason or another.
Rather than going into out plethora of specialized suite of tools here, we’d like to invite you to test drive our platform using our free demo here. Once you’ve signed up you’ll be able to experience the ease and power we can bring to any nonprofit auction event for yourself, and see how our software can transform a usually high stress event into something that can be be run with just a few clicks. We know you won’t be disappointed!