A consignment agreement is a contract that places an item the consignor (or owner) owns with the consignee (or seller) for the consignee to sell. The consignee often takes a commission or fee and then the remainder of the sale price is paid to the consignor.
An example would be if Tyra takes a dresser to Ken's Consignment Furniture Store. Tyra owns the dresser and is placing it with Ken to sell in his store. If Ken sells the dresser, he keeps a commission or fee and Tyra receives the rest of the sale price.
A consignment agreement is a contract between the consignor and the consignee, and should include these basic provisions:
- Parties. Provide the names and addresses of the consignor and the consignee.
- Item(s) for sale. Identify or describe the item(s) for sale.
- Pricing. The contract should state the sale price of the item or say that it will be sold at a reasonable price for its age and condition. The agreement could give the consignee the right to discount the item's price with or without the consignor's approval.
- Payment. The consignee has the right to collect payment from the buyer and must pay the consignor the balance due after the consignee's fees or commission is subtracted. The contract should state how long the consignee has to make payment to the consignor.
- Expenses. The agreement should state what if any expenses the consignee is responsible for.
- Record-keeping. The consignee is responsible for keeping records relating to the consignment.
- Ownership. The contract normally states that the consignor is the actual owner of the item for sale and the consignee is responsible for its care and for any loss or damage to the item while in the consignee's possession.
- Insurance. The consignee is usually required to carry insurance that will cover the consigned item.
- Termination. The agreement discusses how the contract can be terminated, such as by a certain date if the item is unsold, or if the consignee goes bankrupt, leaves the area, dies, or if the consignor dies.
Types of Consignment Arrangements
A consignment agreement can be exclusive or nonexclusive. If it is exclusive, it means that the consignee is the only person who has the right to sell the consignor's item. If it is nonexclusive, it means other consignees may be attempting to sell the same item.
An example of a nonexclusive consignment is if Mark is trying to sell his car. He tells car dealers Andre and Cassandra that whoever can sell his car for him will get a 10% commission. Both Andre and Cassandra have the right to try to sell the car and the first one to find a buyer makes the sale.
Types of Consignment Merchandise
Clothing and household goods are commonly consigned items. Contracts for these types of consignments commonly include provisions that if the consigned item is not sold by a certain date and if the consignor does not pick the item up within a certain number of days after that, the item will be donated to charity. Note that popular used clothing stores like Plato's Closet are not consignment stores. They buy the clothing directly from you and then resell it. A true consignment store pays the consignor only once the item sells to a buyer.
Automobiles are also sometimes sold on consignment. Instead of selling your car to a dealer at a price below market value, you place your car with them to sell on consignment. In most cases, the car will sell for a price closer to the market value and you will likely make more, even after paying the consignee's fee or commission.
How to Create a Consignment Agreement
You can write your own consignment agreement by looking at samples online; however, to be certain your agreement conforms to your state law and completely protects you, it is best to work with an attorney or an online service provider who can create a consignment agreement that is professional and complete.
Using a consignment agreement can be a great way to sell something you don't want to try to sell yourself. The consignee handles the marketing and sales and takes their commission. And you receive most of the sale price without having to do a lot of work.