An auction company contacted me for advice. The company was in negotiations for a large auction that represented potentially valuable business.
The would-be seller had pressed hard for financial concessions and was continuing to do so. This began during the prospect’s opening contact with the company when it immediately sought the “absolutely lowest commission” to conduct the sale.

The company responded with what it described as an “unusually generous reduction” in selling commission, but that failed to land the business. Instead, the prospect then sought substantial concessions in the costs that would be incurred for both marketing the goods and conducting the auction.
The prospect reinforced each of its demands with the caution that numerous other auction companies wanted the business, and the seller could easily opt to go elsewhere.

The company was finally able to strike a deal with the prospect and an auction contract was presented for execution. Then the telephone rang again. When the company’s representative answered, he was speaking with the prospect’s point man in the negotiations.

This fellow bluntly delivered the news that an unidentified competitor of the auction company had just sent in a “very attractive proposal” for the auction.
In view of the commission rate that the unnamed competitor had quoted, the representative said the company would have to chop its selling commission rate further, if the company expected to gain this business.
Considering all of the concessions that it had already given, the
auction company stated that this latest cut would leave it with only a razor-thin profit margin at best on this auction, or maybe tilt it into the red.

The company had invested a lot of time and effort in coming this far and it hated to lose the deal now. I was asked to give an outside opinion on the matter.

In the auction business, this scenario occurs all too frequently which explains why so many auctioneers work hard for far too little compensation. So the question is - what should an auctioneer do when confronted with an issue like this?

The best answer is:
a. Give the concession, do the business, and hope for the best;
b. Decline the business and move on;
c. Ask to restart the negotiations from the beginning;
d. None of the above.
The answer.

Fair is fair and business is business - and fair business is what smart auctioneers want to do with sellers. The old axiom that a deal has to be good for both sides to be a good deal is dead center and a one-way street will always work against the guy facing the traffic.

That’s what was going on here. The prospective seller was greedy and couldn’t seize enough value for itself, while having no compunction against leaving the auction company with next to nothing. What could have been good business had been so diluted by the prospect’s heavy-handed dealing that it had become bad business for the company.

Four errors led the auction company to this point. Let’s review them.
First, auctioneers often condition sellers to act like this and to the detriment of the auctioneers. Every time this prospect wanted to chisel another chunk of value off of the company’s incentive to do the business, the company acceded. What message did that send to the prospect other than to encourage it to ask for even more? Repeatedly giving in to the demands that the prospect made is what reduced the company to the marginalized position in which it found itself.

Second, numerous auctioneers misunderstand the concept of selling. They view giving away their selling commission and other financial points (such as marketing costs) as the way to obtain auction business from sellers.
They’re wrong and anyone can give money away. That’s even easier than gaining weight, but it is not selling and not how successful business is practiced. Auctioneers ought to “sell” the value of their service to lure prospective sellers and close auction contracts with them. Along the way, they should jealously guard their selling commissions and costs.

Giving away the money that an auctioneer hopes to earn is the antithesis of doing profitable business. While auctioneers need good sellers, the converse is also true and good sellers need auctioneers to realize the unique benefits of auction marketing.

The parties each have need for something that the other has, so any deal between them should be balanced for their mutual benefit.
Third, the company fed this prospect with more concessions each time the prospect barked - and each time the company received nothing in return. In the law, we use a Latin expression - “quid pro quo.”

The translation is “this for that” or “something for something.” That’s how a negotiation should be conducted. If an auctioneer has to give up something along the way, she ought to insist on getting something in return. That didn’t happen at any point along the line that this giveaway train ran.

Instead, all the giving was done by the company and all the receiving was done by the seller. This result comes from one side wanting to make a deal so badly that it loses sight of the ultimate goal in the negotiation - to hammer out a good deal from which good money can be made.

Fourth, a smart negotiator is not going to begin a negotiation by giving up his biggest point and primary source of strength, only to then suffer all that the other party raises afterward. That would be extremely foolish.

This is what this company did when it dealt away its selling commission at the outset and then endured a drumbeat of demands for additional concessions. It had no strength to resist when it had already given away the crown jewel.
The smart play would have been to leave the rate of the selling commission intact until all other points raised by the prospect were on the table and their respective costs to any deal were known.

Then “the big one” (i.e., rate of selling commission) could have been intelligently discussed within the overall context of the proposed deal. This would have ensured that the auction company’s profit margin could be maintained within a reasonable range. Finally, there is pride, satisfaction, and reward to be gained from a good business deal. Frustration, disgust, and loss are the fruits of a bad one. This prospective business had already created a very sour taste in the mouth of the auction company and it wasn’t coming back to good. That made declining this deal the right answer, and that’s what this company did.

Steve Proffitt is general counsel of J.P. King Auction Co. Inc. (www.jpking.com).  He is also an auctioneer and instructor at both Reppert School of Auctioneering in Auburn, Ind., and Mendenhall School of Auctioneering in High Point, N.C. He welcomes questions from readers about auctions and auctioneering.  Readers’ communications may be reprinted in whole or part.

Proffitt will answer selected questions but cannot provide personal answers.  His answers do not represent legal advice or the formation of an attorney-client relationship and readers should seek advice from their own attorneys on all matters. Readers with questions or comments for Steve Proffitt write to her in care of this publication.