We mentioned in our previous blog post the five questions you should ask estate liquidators when you are researching companies to hire. We would like to dive a little deeper into the aspect of “percentages” and how much of a driving force they should be in making your final selection.
Basic math skills might tell you that a lower percentage rate means more money in your pocket. Actually, it can be the exact opposite if you don’t look at the company holistically.
Many estate liquidators want you to look at their competitors based solely on percentage. This allows them the opportunity to bottom line their percentage to “seal the deal” and get your business. Does this make financial sense for the estate? More often than not, it will not.
Averages in the industry range from 25%-35% of gross sales. The exact percentage should be determined by the estate liquidator after considering several factors:
- Prep Work Required: They need to look at the estate and “guesstimate” how much prep work will be required to organize, set-up and price the items in the estate. In large estates, set up could be a couple of weeks. There have been occasions where it could (and has) taken longer because the family has been in the same home for 50+ years.
- Value of items in estate: Some estates are filled with valuable antiques and collectibles, and others might be stuffed to the rafters with lots of “smalls” but there could also be collectibles. Then there is the estate that has no high value items at all, just volume in various household items. The estate liquidators will typically have a certified appraiser that will research and provide the values for big ticket items. From there, the total estate value is guesstimated.
- Percentage is determined based on overall value of the estate. The higher the potential value of gross sales, the lower the percentage. The lower the potential value of gross sales, the higher the percentage. Prep work coupled with the overall value of the sale is taken into consideration when setting the percentage, so it’s all balanced out.
Now that you know how percentages should be calculated, your next move is to understand more about the company itself. (Which is where our five questions you should ask come into play.) At the end of the day, your decision should be based on who you can trust, who you believe can earn you top dollar for all items in the estate, therefore obtaining the highest gross sale figure possible. This ensures a win/win scenario for both you the client (the estate) and the estate liquidator.
Let’s do a quick math example:
Suppose Estate Liquidator A charges 35% commission on total gross sales. They are a trustworthy company that is bonded & insured, and works hard to get you top dollar for every item in the sale. They have no conflict of interest and don’t have a warehouse, retail store or sell items in auction. They earn $50,000 in gross sales for your estate.
.35 x $50,000 = $17,500 for commission; with the remaining balance of $32,500 for the estate, minus costs associated with running the sale (which should be explained to you upfront!)
Estate Liquidator B charges 25%, they may not be as trustworthy as Company A since they are not insured and bonded, and they have a warehouse, retail location or sell items at auction. They’re not incented to get you top dollar since they can (and will) buy the items from your estate for 60 cents rather than $1 (so the estate still gets something), and then turn around and sell those items at a future time. Since their focus is not on earning you the absolute top dollar, they only bring in $30,000 in gross sales.
.25 x $30,000 = $7,500 for commission; with the remaining balance of $22,500 for the estate, minus costs associated with running the sale.
As you can see, even if you select the estate liquidator that has a lower percentage rate, when you look at the company holistically (reputation, conflict of interest, bonded and insured, etc.), you are actually losing money for the estate. You thought you saved, when in reality you lost $10,000! That’s a significant loss!
So next time you try to compare estate liquidators’ apples to apples – look at all the factors not just percentage rate. You could be leaving too much money on the table for your estate.