Get It in Writing

Create a consignment contract with confidence.

by staff writer
- Oct 17, 2008

Feeling a bit squeamish about selling other peoples' possessions on eBay? Protect yourself—and put your clients at ease—with a consignment contract.

You should have a contract whether you sell on consignment only occasionally or as a full-time business. But don't worry that you need a law degree to create a legally sound agreement. All that's necessary is a basic template that you can use and fill in the blanks for each transaction.

Examples of good consignment contracts can be found online, and some can be downloaded for a small price. A free sample contract can be found here.

As easy as it is to create a consignment contract, it can't hurt to ask a contract lawyer look it over, just to make sure you've got all the bases covered. It might cost a few hundred bucks, but if you're going to be a serious secondhand seller, why not go the extra mile? If it can save you money and headaches down the road, it's a worthwhile investment.

To get you started, here's a rundown of the most critical elements of a consignment contract:

Contact information

A contract should always have the name, address and phone number of both parties—that's you, the consignee; and the seller, or consignor. You should also include the name of your business and your business license number. It's also a good idea to record the number of the seller's government issued ID (e.g., driver's license) to discourage crooks from making you an unwitting fence for stolen merchandise.

In some states, consignment merchants—online or otherwise—are considered pawnbrokers, and are required by law to fingerprint and ID anyone who drops off items for sale. Make sure you understand your local business laws and how they apply to your consignment business.

It can't hurt to attach one or more photos or even a video of the item to the contract—particularly for big-ticket items

Description of the item

When it comes to legally binding agreements, there's no such thing as too much information. Describe everything you can about the item, including the name or title, brand or manufacturer, model number and serial number. Document any defects or unique markings, as well as the item's condition. Take inventory of any parts or accessories and whether they are to be included in the sale. Test and make note of whether everything is in working order.

You should also include the item's original price, if known, or its replacement value. You will need this for insurance purposes, should the item be damaged or lost while it's in your possession, or during shipping.

It can't hurt to attach one or more photos or even a video of the item to the contract—particularly for big-ticket items. You'll need to upload images for your online listing anyway, so why not print out copies of the photos and staple them to the contract?

Listing terms

Your contract should answer the following questions: What online venue will you use? eBay is the largest—but certainly not the only—game in town. Will the item be listed in an auction, fixed-price or store format? What will you set as the listing price? If using an auction format, will you set a reserve or a Buy It Now price. If so, what price will you set? How long will the item remain listed? What happens if the item doesn't sell? Will you relist, change venues or return the item?

Promotional devices

There are a lot of ways to make your listing stand out online. What visual enticements will you use to draw more viewers to the item? What are the fees associated with those? Spell out any other methods you will use to promote the item, and what additional cost, if any, there will be to the seller.

Make sure the contract explains your payment terms and when the seller can expect their cash

Consignment terms

Make sure your pricing terms are clear. Most consignment merchants take a commission on each sale—that is, a percentage of the final sale price. Some also charge an additional consignment or stocking fee in advance to cover any upfront costs, and also to send a message that they want to deal with serious sellers only. Even charging just a couple of bucks will help keep out the riff raff. If you wish, you can make the fee "refundable" if and when the item does sell.

State which party will be responsible for covering charges for shipping, handling and shipping insurance. Often these costs can be passed on to the buyer, but put it in the contract either way, just so it's clear.

Also make clear when the seller will get paid for their item. Will you pay immediately upon receipt of payment from the buyer or wait until the item has been received and the buyer is satisfied? Do you pay out only at certain intervals, like at the end of the month or on the 15th and 30th? Make sure the contract explains your payment terms and when the seller can expect their cash.

Sign it

Finally, no written contract is legit until it is signed by both parties. Be sure to provide the seller with a signed copy of the contract.

There now, don't you feel better?

This article does not constitute legal advice. Though every effort was made to ensure its accuracy at time of publishing, you should seek the aid of a qualified, licensed legal professional in your area.

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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