You might have antique furniture, old silverware, or a prom or bridesmaid dress that hasn't been touched in years, and you're tired of looking at them. Or, tough economic times have you looking for some extra cash, or you're trying to save a few dollars here and there.
People buy and sell through consignment shops for any number of reasons. Buying and selling unwanted items through consignment shops can be profitable—if you're careful.
What Is a Consignment Store?
Don't confuse a "consignment shop" with what people commonly call a "thrift shop." With a thrift store, you give away or donate your goods to the store. You might get a tax deduction, but that's it. The thrift shop sells your items and keeps the money for its charitable projects. With a consignment shop, you still own the property. The shop tries to sell it. If it does, it takes a portion of the money as a commission. You get the rest. If the item doesn't sell, you get it back.
Consignment stores are usually brick-and-mortar consignment shops, and you might have one in your neighborhood. You can also find online shops. Auction sites like eBay are similar to consignment shops—they give you a place to sell and take a cut or commission. But they usually don't take possession of the property and require more work from you.
Simple, Right?
It sounds easy, and usually, things go smoothly and everyone's happy. However, it's really not all so simple, and sometimes things go wrong.
Take John Kiskaddon, for example. His vintage piano sold for $30,000 at a consignment store. Unfortunately, the shop owner stole $25,000 of it. Over a five-year period, she stole about $140,000 from people selling pianos through her shop. She's spending two years in jail for it, too.
Know Some Rules
It's a good idea for buyers and sellers to know some of the nuts and bolts of the consignment business and how to protect themselves.
Sellers
For sellers, also known as "consignors":
- Get your consignment agreement in writing. It should specify how much your property will sell for, how long the shop, called the "consignee," has to sell it, how much you and the shop get out of the sale, and how long the shop has to pay you after the sale.
- Remember, the shop is normally responsible for keeping your property safe. Your consignment agreement should specify who's responsible for insuring your property.
- As a general rule, you don't have to pay taxes on items you sell. The IRS assumes you're selling things you bought for personal use and for less than what you paid for them. But, you might have tax issues if sell something at a profit or if you make a living from frequent sales.
Buyers
For buyers, the tried-and-true adage applies: Buyer beware. Yes, you can find bargains at consignment shops. But if it looks too good to be true, it just might be. As a general rule, just like any other store or business, it's illegal for consignment shops to sell anything it knows, or should know, is stolen or counterfeit.
Also, remember the consignment shop is working for you. If the shop hands over your property but a buyer doesn't pay or the shop doesn't pay you, like the California case, it's the shop who's responsible for your money.