A Simple Auction Primer

SOLD … And … SOLD!! The common set of game marbles goes to the enthusiastic bidder in the second row for $50, and the rare Peltier Blue Galaxy NLR marble to the quiet nondescript bidder in the back for $5. Wait … WHAT??? OK, that example may be a bit embellished for effect, but it’s not actually that far off from some craziness I have personally witnessed at auction.

A Little Background

I have been interested in auctions as a method of pricing and a type of marketplace for most of my adult life. I have a master’s degree in economics from the University of Virginia and a special fondness for game theory, and have participated in countless on-site and online auctions over the years to procure items for my personal collections and inventory for resale.

I leverage my knowledge and experience to maximize both my own enjoyment and the likelihood of positive outcomes and to minimize risk and costs in time-effort and financial outlays. I am sharing my experiences through these posts in the hope that others may find the information helpful in achieving their own personal collecting goals.

Auction Caution

To one who is knowledgeable and prepared, auctions are one of the very best avenues for obtaining elusive top quality collectibles at bargain prices. However, to the novice they can often be traps that quickly deplete one’s budget and in some unfortunate extremes even test one’s faith in humanity. I will be posting many in-depth articles on this subject, but today I want to touch on a few of the basics that can help auction newcomers avoid common pitfalls and also serve as reminders to seasoned bidders.

Buy What You Know

The best way to maximize the likelihood of a positive outcome at auction is to have a very high confidence about the item(s) on which you are bidding. This high confidence can come from personal experience and expertise, doing extensive and exhaustive homework, a trusted provenance from the previous owner or even a well-known auctioneer that specializes in the particular types of collectible. The key word here is “trusted”. Consigners and auctioneers may present information that sounds certain within a description, but often is nothing more than heresay. If the seller does not guarantee the validity of the information then beware relying on it as a source of decision-making. Be sure to read the terms and conditions of each auction – most auction lots are sold as-is with no guarantees.

I have had many experiences where I stepped slightly outside of my area of knowledge and paid the price by paying a premium price for a near-worthless item which seemed like a slam dunk steal at the time.

True expertise can take years of personal experience to develop, so if you are just starting out stay away from items that have known look-alikes or modern reproductions. Having the informational advantage will result in more and higher-quality wins with less chance of overpaying.

Organize and Prioritize

Finding auctions in which you will participate requires an up-front commitment of time and energy even before you start considering what bids you intend to place. This is partly because auctions can operate on wildly varying schedules and locations that results in an opportunity cost which is real and substantial. Without coordinated help, one cannot effectively attend multiple auctions at the same time (I have tried), nor determine in advance which auctions may result in the best return on your time and bids.

If possible, study the amount, type and determination of the competition prior to committing your participation. I have certain favorite auctions that routinely have low competition, and others that I skip in all but the most enticing circumstances because I know that there will be very little buyer’s utility left once the gavel has dropped.

Don’t Put It Off

In my experience, often when I passively bookmark an online auction with the intent to return for a closer look – I DO return … about a week after the auction has closed and I see with great regret (or relief) the history of winning bids. Setting calendar alerts and reminders can help.

Set a Budget

Bidding in an auction can be an intoxicating and thrilling experience – one in which clear, calm, and rational thinking is replaced by heart-pounding excitement and snap decisions that can take a bidder well beyond the intended purchase price. Be OK walking away once you realize that bidding is overheated or has gone beyond your pre-determined maximum price. Part of this requires preparation. I create spreadsheets of auction lots with notes and the maximum bid I plan to make prior to the auction start. When this is not possible – such as when stumbling into an auction already in progress – there is a very real risk of throwing out bids that seem like good ideas but add up to costly mistakes.

Be sure to factor in the extra fees and costs into your maximum bid figure. Most auctions will add a buyer’s premium to the winning bid price that can be as much as 20-30% of the bid. On top of that, per-lot fees and shipping services for packing as well as postage can turn a great-deal bid price into an inefficient purchase. If you purchase with intent to resell, you will also need to factor in the costs involved in selling (inventory storage, seller’s premium and other fees, shipping costs not passed along, etc).

Be Prepared to Let It Go!

Despite all the time and effort you may have invested, consider those as sunk costs – ones that have already been spent and that you cannot recover no matter the outcome of the auction. It may feel as though winning an auction is the only way to validate and justify those costs, but that kind of thinking can lead to unwise decisions and result in an even deeper hole that precludes future opportunities. Unless you deal in true rarities, there will be another similar (and possibly better) opportunity not far down the road.

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