Auctions: Windfall or Wipeout?

Auctions: Windfall or Wipeout?

We’ve all seen or read the news stories about a collectible that sells at auction for a stunning, headline-grabbing sum.  It stokes a hope, a desire, in each of us to someday hit paydirt and reap the tremendous benefits as a cadre of impassioned bidders feast, like sharks around red meat, on our collectible, driving up the price to an unimaginable level.

Thud!  Not so fast.

Oh, it’s true that these hyped auction sales are real, documented sales.  They’re not fabricated.

But it’s also true that most auctioned items fall far below what the seller hopes to realize, and what the auction house estimates or promises pre-sale.  That is, most auctioned items leave the seller disappointed.  Let’s find out why.

Auction Fees – Auction houses typically charge a percentage fee for selling items, usually in the range of 15% to 30% of the winning bid amount – that’s their cut of the revenue for selling an item.  Some even offer a sliding scale, charging a higher percentage for less expensive items, and lower percentages for very expensive collectibles.  Regardless, subtract this cost from your potential gain when evaluating an item for auction.  In short, you’ll only reap about 70% of the winning bid. 

The Auctioned Item – Collectibles that generate a huge windfall for sellers tend to be high-end, unique, or rare items.  Think of a Picasso painting, the T-206 Honus Wagner baseball card, Babe Ruth’s game-worn jersey, or President John F. Kennedy’s golf clubs.  These items are the exception, rather than the rule.  They generate a huge “hammer price” (winning bid) because they attract the most upscale, avid, and exclusive collectors.  Most items simply don’t generate that much heat among bidders.

The Auction House – The auction house earns revenue based on their sales premium (the percentage they charge sellers) and buyers’ premiums, a percentage fee added on buyers’ tabs for winning items.  In theory, this should push auction houses to work like hell to generate the highest possible winning bids.  But many houses compensate for lackluster “hammer prices” by conducting very large auctions – i.e., typically, hundreds of items, maybe more.  This diminishes the interest in each auction item – bidders typically focus on a small subset of collectibles – which means that your item may get lost among the hundreds of other items featured.  That is, your collectible may get lost in the shuffle, and will attract few bidders.  That’s why many winning bids are lackluster.

The Reserve – A “reserve” is the floor, or the minimum amount that can be bid on an item.  It’s designed to provide surety to sellers that their item won’t be given away, dirt cheap.  But most auction houses pressure buyers to minimize the reserve amount, as they maintain that a lower opening bid – i.e., a smaller/lower reserve – will incent more bidders to participate, driving up the price.  But the lower the reserve, the greater the chance that you, as seller, will get burned, as the bidding process often fails to move appreciably upward from the reserve price.  If you choose to sell your collectibles at auction, hold firm on the reserve, and don’t bow to pressure from the auction house.

Track Record – In real estate, it’s called the “comps,” or prices realized from homes comparable to yours that have already sold.  This gives you an idea of what you should ask, and the track record of the real estate agent you are considering.  The same holds true for auctions.  Many sellers blindly commit collectibles to an auction house without finding out if that auction house has a history of selling items for top dollar.  In other words, look before you leap!

The Presentation – A mea culpa.  I was forced to auction hundreds of items early this century after getting ill.  To be blunt, I needed the money.  I would estimate that roughly 10% of all the items that I sold via auction had solid presentations – i.e., pictures and descriptions – online or in catalogs.  The rest, in my judgment, were very poorly promoted and presented to bidders.  That was true even for my most expensive, valuable, and prized items.  Since the auction house had editorial control over sales material, I felt victimized (and angry).

The Bottom-Line

Auctions may generate cash faster (for you) than a consignment to a dealer.  But that’s not always the case.  Auctions are usually conducted periodically, say, quarterly.  You may have to wait months before the auction house settles your account and sends payment.  That’s happened to me many times. 

My forty years of collecting have shown that auctioning collectibles is bad for many sellers, but good for buyers and the auction house.  Does that mean that you should never sell collectibles at auction?  Not at all.  Given the right item, an experienced auction house with a proven track record, and an auctioneer that will work with you on establishing a reserve price and the marketing of your item, auctioning collectibles can pay off handsomely from time to time.

Oh, and as for those hundreds of items (500+) that I sold at auction?  I was bowled over and elated by the price realized at auction about 5% of the time.  About 20% of the auctions were so-so, in terms of the price realized.  The rest?  Very disappointing.  I was desperate for money, given that I was disabled for an extended period.  So, I had no choice but to send items to auction, because I was too ill informed to sell them myself and needed cash (relatively) fast.  But most items were sold so cheap that, to this day, I regret the auctions and feel haunted by the past.  Sometimes, when I saw the winning bid, I cried a bit.  Occasionally, I see an item that I sold at auction online – and it’s disappointing.  Sad, very sad.  Kind of like when you think about a lost love.

Do your homework and evaluate the item, the auction house, and the marketplace before you commit to an auction.  As the old saying goes, an ounce of prevention is worth a pound of cure.  Or, to put it another way, be careful!

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