An auction primer

Greetings,

Auctions are peculiar institutions that have played several roles in our hobby. Many years ago, dealers relied on auctions to acquire stock at well below retail prices. They spent long hours studying auction sales literature, selecting the most promising to attend (sometimes driving many hours), and then spending hours waiting for lots to come across the block. The most dedicated dealers or collectors found the best treasures that they could turn around and sell for a decent profit.

“Buyer’s premium” was an unheard of term in those days. The auction company put all the burden of cost on the seller through the form of a commission on the sale. So, if a bidder won a box lot with an M35 helmet in it for $65, he paid exactly $65. But those days are fast disappearing—but then, so is the idea that only dealers attend auctions.

Everyone Bids
As a result of the internet, the days of dealers relying on auctions for their primary source of inventory are passing. Online bidding is now available for most auctions whether a farm auction in Iowa or a gallery setting in New York City. One can sit at home and bid via their computer rather than drive to an auction site. Collectors who are not concerned about potential mark-up, bid items past the normal wholesale prices into the realm of retail or even more. In addition, a number of specialty auctions have emerged that focus just on militaria. Dealers are left scratching their heads, realizing that they have to find a different stream of product. How can they compete when their own customers are bidding against them?

Add to this, somewhere along the line, auctioneers decided they could spread the cost of auction to the buyers as well as the seller. This resulted from trying to appease sellers who complained about high commissions. In an effort to make it appear to consignors that they had low commissions, auction houses began to charge a “buyer’s fee.” At first, these fees were low (2-5%), but you know how business goes…these fees continued to grow. At the same time, seller fees remained about the same. Today, it is not surprising that the seller is charged about 15-20% of the final sale price and the buyer is charged about the same, meaning the auction company makes about 30%-40% of the sale price.

This is not to imply that auction houses are overtly greedy, however. The cost of describing, photographing, printing catalogs, advertising, and maintaining web sites is staggering. Most full-time dealers, if you can get them to divulge, will tell you they need to make about 40-50% on their sales just to cover their costs. Imagine what the cost of operation is for an auction business that employs an array of experts and staff to make an auction come off without a hitch.

KNOW YOUR AUCTION
Before you bid, be sure you read the terms and you know all the costs associated with listing, bidding, paying and shipping. Auction houses are operating on thin margins and “extras” are a way to help cover the costs. Know what you are getting into before you click “place bid”.

And the same goes for selling. If you are considering listing a portion or all of your collection in the hands of an auction house, know the terms. I am always surprised when I listen to complaints about various auction consignments that most sellers don’t have a copy of the terms or any contract that specifies payment details. Auctions can be a decent way to liquidate a collection but it is a business deal—get the terms in writing (preferably, a contract) and read them before you consign or bid.

The role of the auction may have changed, but they are still an integral part of the hobby. Unlike auctions of the past though, buyers hold modern companies to very high standards. With the speed of communication available to collectors via the internet, customers can make or break an auction by holding it to high standards. Like it or not, collector forums have become the courts of approval.

The days of sliding crap that couldn’t sell anywhere else may be coming to an end. Serious bidders will abandon any auction house that allows itself to be used as a “fence” for dubious items or outright fakes. Most auction houses are smarter than going for the “quick kill” by pushing crap through their sales and ignoring the long-term ramifications. Face it; they are in business for the long haul. It only makes sense that they stand behind the items they sell (that is, after all why we are paying both a seller’s and buyer’s premium!). If an auction house doesn’t realize that, there are eager start-ups waiting in the wings for their turn.

Keep finding the good stuff,

John A-G
Editor, Military Trader and Military Vehicles