Buy from auction?

[Bob56]

Has anyone had any experience buying from auction? Barrett Jackson, Mecum, RM Auction

[Trulyvintage]

The best way to buy at an auction is to go early for the pre-inspection,

see if there is anything that catches your eye, set a limit, hope there

are no other serious bidders, be prepared to drive or trailer your purchase home

No reserve auctions can be a gold mine .....

Sellers usually do not want to transport a vehicle back home if they can help it

Of course, what price point and vehicle category you are interested in

will determine what value you can find

What helps is experience - it does not hurt to attend a few before you buy

Good Luck,

Jim

[trimacar]

The best advice, as mentioned, is to set a limit to what you want to pay to get a fair deal, and stick to it. I had a friend, now gone, who built a wonderful collection of Classics using that strategy, and he was almost always "under market" on his buys.....

The other thing to remember is that at such an auction, it's perfectly legal for the auction house to bid against you, or for them to have a shill bidder in the audience, to run the price up. This is a risk at a "no reserve" auction, but there are all sorts of deals going on with auction houses. They'll sometimes sell a car under reserve, and pay the difference, just to keep an auction from stalling with no sales.

So, of course it's buyer beware, but if you set the limit at a fair price and stick to it, you'd be all right....

[JV Puleo]

I haven't been to a car auction in years but do have quite a bit of experience in other areas of antiques. Shill bidding is very much illegal almost everywhere in the US although there are loopholes - Texas, for instance, allows an auction house to bid against their customers, but this was something of a scandal when it came out that a major Antique Arms auction firm was regularly doing this. That isn't to say it doesn't happen. It clearly does and it is very difficult to police or to prosecute. Where reserves are involved, some firms start with the reserve or, more often, start lower and if the item doesn't reach reserve its a "no sale." One firm I regularly do business with makes believe everything is a sale to avoid the impression things are being passed ... then six months later the same item shows up again.

[trimacar]

There was an episode of Chasing Classic Cars, he had a car up for sale for a client at an auction, it didn't meet reserve yet they declared "sold" and the client was worried, he explained that the auction company was making up the difference.

I'd like to hear a definitive, legal, answer on shill bidding. I've read that it's legal, possibly if somewhere in the fine print of the contract it states that the auction house might do it, and then I've heard it's not legal. Or, when an auctioneer looks off in the distance to no one and raises the bid, which might not be technically a physical "shill" bidder but still is raising the price.

[trimacar]

Here's an interesting link, stating the times that "shill" bidding is legal in some instances.... Can the auctioneer bid at an auction

[alsancle]

I think if you have to ask to know what is up at an auction I would advise watching and not buying.

However the previous posts are good advice. There can certainly be fair deals if you are familiar with the car you are targeting.

[JV Puleo]

Thats a good article. Its basically how I understand the situation... that it is generally illegal but that there are possible exceptions, the fundamental one being that the seller and everyone participating in the auction knows up front that the house can bid. I wouldn't call that shill bidding... which I take to mean someone placing a spurious bid to raise the price, unknown to the other buyers and with no intention of actually buying the item. As far as I know, this is always illegal. The scandal in Texas revolved around the auction firm setting up a separate company to bid in their own sales to avoid having to tell the sellers or the customers they were bidding. It was strictly legal but very unethical, so much so that it even merited an article in the Wall Street Journal. Where reserves are concerned, my own experience is that the auctioneer does not have to announce the reserve in advance and if the item doesn't meet the reserve he can say something like "sold to buyer xxx" which simply means it didn't sell at all. I find it very hard to believe that an auction company would "make up the difference" for something that didn't reach reserve unless the difference was extremely small and their commission was extremely high.

About 90% of the auctions I attend have no reserves and the auctioneer's discourage them (with most items being in the 1,000 to 15,000 price range). Almost invariably sellers set reserves too high. The catalogs contain estimates and these tend to be just slightly on the low side - not much, but just enough to convince potential sellers that the auctioneer is able to get "above average prices" and the average bidder that the auctioneer knows his subject. Needless to say, there are always surprises but none of these sales are the stuff of idiotic "un-reality television " or media hype of any kind. Virtually all the customers are dealers or serious collectors... there is almost no "walk in" traffic and thus very few uninformed bidders.

I like auctions. I do nearly all my buying through them but first and foremost, you have to make your own decisions. Nothing the auctioneer says or that is printed in the catalog means anything (and there are always small print disclaimers to protect them when a description is found wanting). There is always some risk involved and never the option of returning something you don't like or that you paid too much for... but if you know your subject throughly you can make some very good deals.

Edited July 1, 2012 by JV Puleo (see edit history)

[trimacar]

The car discussed that "sold" under reserve was a high dollar car. So, let's look at an example of when an auction company might sell under reserve, and make up the difference.

Reserve is $220,000. Car bids to $200,000. Auctin house sells. Auction house takes 10% from seller, and adds 10% to buyer. They sell it for the $200,000, give seller $220k minus $22K ($198K), and get $200K plus $20K ($220K) from buyer. Auction house has sold a car, and has made $22,000 on the car, if not sold they make nothing.

There are "bargains" at auctions, you just have to be patient, and attend a lot of auctions, and know what you're looking at when you inspect a car.....and have self control not to get auction fever...

[JV Puleo]

Thats about what I assumed may have happened. It would really only work where large sums of money are concerned and the difference is relatively small. I don't know about car auctions but in the Antiques world right now there is stiff competition for important collections, so much so that in some cases auction houses are waiving the sellers fee and making guarantees as to what will be taken in. To compensate, they've raised the buyers fees to between 15 and 20% which, I would think, has the effect of putting a damper on the selling price. I know when I bid I take all the total cost as my limit and calculate the bid from that. I expect all the pros do that too and its mostly the amateurs who get caught out... but I completely agree that there are bargains out there if you have the patience and expertise to find them.

[Matt Harwood]

It's called "chandalier bidding" and it's legal on cars with reserves. The auctioneer can accept bids up to the reserve to push it towards that number, but once it hits reserve, he has to stop. The gist is that the car won't sell anyway, and if there are no bidders, you can bet that the auction house is pressuring the seller to drop his reserve to get things going again. I always find it instructive to stand at the back of an auction for the first hour or two and watch how they work it. At many auctions, the auctioneer will open the bidding at the minimum reserve, then, when there are [obviously] no bids at that price, he will drop it down to a more realistic starting point and then people start to bid (for example, he'll open at $40K, then when there are no takers, will drop to $10K to get people to jump in--$40K is the reserve). This is to alert the bidders' assistants (spotters) of the reserve figure. As long as the car is under that number, they can keep pretending they see a bidder waaaaayy in the back of the room and run the price up. You'll note it's easy to see when they're doing it--they'll call out that they have a bid, but will stay up front and continue scanning the crowd. The minute a real bidder jumps in, there's an assistant standing next to him cajoling him to drive up the price. It's kind of sad, really.

Shill bidding, however, is illegal, but it does happen. I know at least two fellows who have purchased their own cars back at auction because they were afraid they would not sell for enough money. They used a buddy or a wink and a nod to the auction house, but yeah, it cost them 5-7% to continue owing the same car.

Buying at an auction is like gambling. The liquor is often free and flows like water, they'll treat you like a rock star while you're bidding, there's definitely excitement in the air, and you WILL get sweaty palms and butterflies in your stomach moments before you put your hand in the air. And also like gambling and as several others have pointed out, it's wise to set a limit and stick to it. Do your homework ahead of time so you know how much you're willing to spend if the car is what you expect when you finally see it in person. Auction fever is a real phenomenon, and maybe you're not immune. I have one client with a great collection of high-end Classics, all bought at auction for top dollar (and then some). He sees a car he likes and just keeps his hand up until bidding stops. Of course, he can afford it and genuinely loves the cars, but when I asked him why, he replied, "Well, I don't want that other guy thinking I can't afford it." So yeah, there's A TON of ego at an auction--be careful it's not yours! I've seriously considered going to auctions not to advise people which cars to buy, but to act as the brakes when they start to get nuts and spend too much.

Oh, one other thing--don't forget the [absolutely insane and insulting] "buyer's premium." Any car you buy is automatically 10% more expensive than your final bid, so don't forget about it. I don't know why buyers put up with that nonsense, but all the houses have it now and it's pure profit. Imagine if I had a car advertised for sale at $50,000. A guy comes to buy it, hands me $50,000 like it says on the sticker, and I tell him, "Well, the car costs $50,000, but it'll cost you $55,000 to own it." I'd be out of business in a week! It's totally nuts.

Anyway, do you homework, and stick to your price and you'll be fine. Don't fall in love and always be prepared to walk away. There are other cars out there.

[Earl B.]

You are all forgetting one thing about auctions. They are under state laws. So, each state would be different concerning shill bidding or any other auction law. Some states require the auctioneer have a license, and other states require no license. You would need to check the laws of each state to see what is legal or not in each state. Trust me on this one, I'm a licensed auctioneer...B

[Dave Mellor NJ]

Be very careful participating in any auction whether buying or selling in a state that allows unlicensed auctions. You have no recourse if you feel cheated. I learned the hard way in my state, NJ. I can't even complain to anybody under threat of being sued. Also "reserve" can mean other things beside price, like the seller can pull back things that were advertised.

[Marty Roth]

Matt,

That was some great advice, and very well-stated.

I've observed quite a few auctions by some of the best known auction houses over the past 50 or so years. I've worked with some for the benefit of my clubs, and have observed a fair amount of behind-the-scenes activity. Much of it is to,protect their own interests, and of course to protect their "Big Spender - Long-time Clients". You are right about the free-flowing alcohol, as well, to loosten-up some of the major clients.

Let the Buyer (and the Seller,too!) BE-AWARE of the need to be better-educated.

[Guest Mochet]

I met one collector who bought a car from a large auction house, and complained firmly that he had been "bid up" (ie, the auctioneer was faking bids). I was surprised that he received a partial refund on his winning bid. Another time, I was pleased to have the high bid on an item I wanted at a London auction house. No further bids were coming, but the auctioneer said "passed" and went on to the next item. I realized the item didn't meet the reserve, but this was never announced.

Phil

[Harold]

I've bought a lot of everyday cars at auctions over the years, mainly for personal use or to help a friend or relative. What was said in earlier posts is all very true. A couple of weeks ago we were at a municipal auction to buy our son a car and I experieced what I believe was a shill in action. My wife was bidding on a particular car and so was a man standing next to her. The auctioneer ignored my wife's bids but took them from the man and another bidder. There was steam coming from her ears, and rightfully so. After the price went up by $500.00 he pointed to my wife and said: 'do you want it?'. She told him no (she's been to many auctions as well and sticks to our limits), so the guy next to her supposedly got the car. Twenty minutes later, the same car was re-auctioned. It sure looked suspiscious to us.

[Earl B.]

If your state requires a license, there is a licensing board. You can make complaints to the board...B

[Larry Schramm]

I agree that the best advice is to set a limit on what you will pay for a particular vehicle and then walk when it get up to your preset amount.

[Dave Mellor NJ]

If your state requires a license, there is a licensing board. You can make complaints to the board...B

I realize that, that's my point. NJ is a state that doesn't require licensing for auctioneers. They also don't tell you. They have an association but the problem auctioneer is on that board.

[Amphicar BUYER]

I've been going to auctions since I was very young. I was always taught that it's OK to bid your own stuff up until it reaches reserve then no more. If you have no reserve, hands in your pockets.

[Steve Moskowitz]

I guess we are lumping all different kinds of auctions into this category. However, from my perspective if you are dealing with a quality auction house with a known reputation you are going to come away with fair treatment. This office had a call about a car purchased at a well known auction that turned out to have some major problems unkown to the auctioneer. A call was placed to the company and within seconds they offered to take back the car and refund the money to the buyer. They did in fact do this. This was a 6 figure car! I have seen other cases such as this. There are some guys with a lot of integrity in the auction business.

Matt, I am sure we will have to agree to disagree on the buyer's and seller's premium. I think your comments are harsh. Yes, I don't relish the fees either but I know upfront what they are and factor that in my buying or selling decisions. I also know a bit about how much it takes to put some of these auctions on! Catalogs that run $250,000 or more, staffs of 10-20 people that may spend a week or more or even months at an auction site, space rental, transportation, food, etc. What looks like profit to many of us can be eaten up by a huge overhead in a lot of cases.

[Matt Harwood]

Buyer's premiums are a relatively new invention. Auctions ran for decades without them, and most other auction venues have only recently started adding them after seeing how well they work with cars.

They are a source of pure profit, and are frequently used to sell a car at a profit even when it doesn't reach reserve. For example, one of our clients (mentioned above) has the primary auction house he buys through offering to list his cars without a commission just to get them. They aren't saying they'll forego their profit, they're saying that they'll get it from the buyer. It gives them the ability to give up one revenue stream because there's another one that's just as big.

They also use it when the cars don't meet reserve. Say the reserve is $200,000 and the car bids to $180,000. The auction house still sells the car, gets the $18,000 from the buyer (10%), gives the seller his $180,000 (which is 90% of the $200,000 reserve, as agreed) and still pockets $18,000. Without the buyer's premium, they'd make no money on the sale and/or the car wouldn't be sold at all. It nothing more than lubricant to keep the auction machine running. They lived for decades without it, now suddenly it's a requirement because of overhead? Yes, the Milhouse catalog was a work of art, and the events are expensive, but do they need to be and should the buyers (the guys providing the money) be the ones to finance it?

I do agree that the buyer knows what he's in for when he buys, it's not a surprise, and I'm not arguing that it's illegal or shady in any way. But if you raise your hand at $180,000, I sort of think that's what you should be asked to pay. Just as in my example, if I advertise a car at $50,000, you wouldn't walk in expecting to pay $55,000 for it, would you? Even if I told you about my overhead costs and how much it costs to maintain my showroom and all the advertising I do and my employees who wash and detail and repair the cars? Does that make it OK? Or would you simply say it's the cost of doing business and if I can't take the heat, I should get out of the kitchen?

Just because you can, does it mean you should? I personally find it distasteful because few other financial transactions in the world work that way, where the buyer pays extra just for the privilege of giving you money. I don't begrudge profit, but it sure seems like a blatant money grab no matter how you spin it.

Edited July 7, 2012 by Matt Harwood (see edit history)