Auction prices versus private sales

[1935Packard]

In the July issue of Keith Martin's Sports Car Market, Martin explains differences between his price guide and recent auction prices by saying that prices for "hot" cars at auctions right now are much higher than prices that the same cars go for in private sales. As best I understand his argument, there are a lot of rich people at car auctions who don't mind overpaying; the same people won't go hunting for a car through private sales. So auction prices are a lot higher, at least for certain "hot" cars.

I'm curious if others think this argument is persuasive. In my experience, most private sellers are sophisticated enough to look up auction prices and adjust their asking prices accordingly. Or have others found the same trend that Martin identifies?

[trimacar]

My belief is that certain liquid refreshments, fleeting on-camera fame, and the momentary "my bank account is bigger than yours" feeling accounts for higher prices than a calm, face to face, negotiation on price......

[alsancle]

I agree with Martin. Adjusting your prices doesn't mean you get to sell your car. I would argue there is an across the board premium paid on all cars at an auction venue. The convenience of having them all in one spot is part of it. The competitive nature of people is another. The booze might also be a reason.

[alsancle]

I also want to add that my experience has been that many people "selling" their cars don't understand it is work. "Serious Inquires Only" are code words for "I'm a lazy seller".

[Steve_Mack_CT]

Not to take this off track but as a follow up to A.J.'s comment, I would postulate that the average price paid through a dealer such as Tom L or Guy is slightly higher than a comparable private sale - perhaps in between the private sale and the auction sale. This due to the seller's desire for someone else to deal with that work coupled with the seller's equal desire not to take a market hit for that service - human nature. I know Tom will tell you all day long he cannot get more than a private seller and you are paying for his access to potential buyers, but I think the reality is there is a difference there for that reason. Similarly, buyers get some convenience - value add - in some cases are choices in one location (even if it is virtual) to shop and compare, etc.

Both alternative methods to selling involve value adds which of course means someone pays for it.

I do not disagree with any of the above reasons, but also would point out everyone's situation is different. Some people really are too busy to see 8 or 10 cars across the country, and for them the auction is carved out time, which they combine with a vacation - not that different from those who buy a car at Hershey, known to be a place where you may pay a bit too much, but have the convenience of looking at thousands of collector cars in one place, at one time.

What's interesting to me is how, just like real estate, the predictions of the Internet putting all of these entities out of business had not come to pass, fundamentally changing things, sure but not replacing auction houses or dealers.

[Steve_Mack_CT]

1935, are you looking at 356s? I thought you were at some point...

[39BuickEight]

All of the above posts are very good.

Competition occurs at auctions, but not private sales. Not the immediate, time restrained competition. The human nature that makes us want to win comes out much more at auctions.

If you have 2 people who really want a car, then the auction price will be disproportionately higher, if not, then it's lower. In both my car passion hobby and previous career where I sold cars at auction, there is no real way to make general statements regarding which way is better. As soon as you think a certain car will do well, it flops.

I don't see this as any different for "hot" cars vs. any other car.

[1935Packard]

On the question of sales from private owners versus dealers, it seems to me that dealers will usually sell at a higher price. The benefit to the buyer is that the dealer (a) has the cars ( usually puts some amount of work into them that the buyer may not be well-equipped to do and © gets some peace of mind -- at least when buying from a reputable dealer -- that the car isn't so bad that the dealer declined to buy it. Also, while the dealer price will on average be higher, the price is not likely to be off the charts. So which is better depends on your sophistication. If you're new to old cars, buying from a reputable dealer makes a lot of sense. If you're a sophisticated buyer, buying from a dealer just means buying at a premium over what the dealer paid.

One thing that I find really puzzling is that some models of cars seem to be sold mostly through dealers while other models of cars are sold mostly from private parties (or auctions). I don't quite understand why that is. Perhaps it just shows that a lot of cars sell by word of mouth among collectors, and if you're not tapped into the collecting world for that particular kind of car, you never hear about those transactions.

1935, are you looking at 356s? I thought you were at some point...

I am, although prices have been going up-up-up for the last three years. I love the cars -- and the wife likes them, too -- but it seems like a bad time to buy. I'm still looking, though.

Edited June 15, 2013 by 1935Packard (see edit history)

[motoringicons]

I always feel that an auction is a "day at the races". By this, I mean some cars do great, some cars do not and you never know how a car will do until it passes over the block.We all hear highly publicized values when a car sells for a lot of money, but we don't hear a lot about the car that crosses the block and no one bids on at all, or the auction company shills the bid in hopes that a bidder will jump in near the reserve with unsuccessful results. At an auction, you never know what car is going to bring big money and what car is not going to get any bids. Someone without extensive auction experience will argue this point by saying that the fault is in the car or the seller has placed too high of a reserve. This is not necessarily true. I have seen junk hit the moon and quality never get off the ground and vice versa. The other important factor to keep in mind is that if a seller has a significant, possibly unique or at least rare, or very important car, and, for what ever reason, is unsuccessful selling at auction, he or she will have a very difficult time trying to sell it again-especially in today's world of instant and prolific internet information. When a car does not sell at an auction, it puts a nasty mark on the car and everyone out there will start to think something was wrong with the car, when, in many cases, it was just a bad day at the races for this car and there is nothing wrong with the car or the price the seller is hoping for. In many cases like this, the seller just had a bad day at the races.

In the last several months, all of the high volume auction companies have had a number of auctions. Most of them have had a genuine sales rate of 60% which means that 40% of the cars did not sell. The boutique auctions, with the small volume, higher end cars have done better, but there is still a good percentage of cars which have not sold and, certainly a good percentage of cars that sold for less than they should have. Just look at the number of dealers that buy high volumes of cars at auction and how many auction cars end up in dealer inventory. While dealers can and do pay good money for cars, they rarely pay retail or above retail prices.

The other thing to keep in mind are fees and cost.

Here is something for potential auction sellers to consider. Let's say, you have a car worth 100,000.00. And there are a couple of buyers in the room that also feel the car is worth 100,000.00 and have the interest and the 100,000.00 to spend. Well, the auction company charges the buyers up to 10% buyers premium, which means the buyer can only bid up to about 90,000.00 because with the premium he is going to spend almost the 100,000.00 that the car is worth. So, let's say, the buyer is successful and get the car for 90,000.00 plus 9,000.00 for the buyers premium. It's a good day at the races for the buyer. Now let think about the seller. His car was worth 100,000.00. The car was sold at a hammer price of 90,000.00. The auction company is going to charge him at least five percent of the hammer price. So, right off the bat, the sellers net is going to be 85,500.00. The seller also likely paid the auction company a flat fee of about 500.00 just to enter the car and he had to pay whatever expenses were incurred to get the car to the auction-shipping and/or fuel cost, personal travel, possibly hotel, and had to take personal or business time away as well. So, now the seller's net has been reduced to about 85,000.00 or maybe even less. Also, the seller will likely have to wait 30 days to receive payment while the buyer is already driving and enjoying the car. Now, with any auction, there is a POSSIBILITY that the bidders could get carried away and bid this 100,000.00 car to 150,000.00 which certainly would be great for the seller. But this is a possibility, not a guarantee or even a probability. At an auction, the seller is the gambler most of the time, not the buyer. An unsuccessful buyer can walk away empty handed with no real cost incurred and still has the money in his pocket to pursue another vehicle at another time. An unsuccessful seller still has his car but is also out time and money and looses the potential of successfully privately selling the car due to its "mark of failure."

How will your car do at auction? You'll never know until the auctioneer says "And what am I bid for this car?"

Edited June 15, 2013 by motoringicons (see edit history)

[trimacar]

From a buyer's perspective, auctions can help build a nice collection, if buying is done correctly. I had a good friend, now passed, who built a beautiful collection of 50 or so full Classics, by following some simple rules.

Get to auction preview early, to give yourself chance to see cars, talk to owner if possible, and make your plan.

Identify the car or cars you're interested in purchasing.

Set a maximum price you'd pay for car, taking into account that there may be issues with car that need attention and money being spent.

Bid to your maximum. If car goes above that figure, quit bidding, period. You never owned car while bidding and no need to go down the rabbit hole.

Attend numerous auctions. Buy at some, others go home without.

Oh, it helps to have the money in the bank to do the above, if you're borrowing and scraping for cash, be vewy, vewy careful.....

[Restorer32]

Another thing to bear in mind with auctions is that in most, if not all states, it is NOT illegal for the auctioneer to take shill bids up to the reserve price. An acquaintance recently saw a car he was interested in go through one of the major auctions. The car was bid close but not to the reserve price. My acquaintance called the auction company and discovered that the car was actually owned by the auction house and was able to purchase the car at a price lower than the reserve.

[motoringicons]

Restorer32 brings up a very valid point about shill bids. While the term "shill bids" is not politically correct, many states allow the auctioneer and/or auction company to "execute bids on behalf of the house".

[Steve_Mack_CT]

Certainly each venue has it's pluses and minuses. A couple other value adds a dealer brings - to piggyback on 35's initial comments, some dealers who focus on certain marques/eras over time build up a following on both ends, and may be able to find that certain vehicle you desire. Sometimes they are in a position to take a trade, which we did once and it worked out really well. Last, While I do not disagree with A.J.'s comments on "lazy sellers" - sometimes you are just plain busy and your time is worth some of that commission. Most buyers want to see a car on the weekend, when people can be balancing their own chores, or family time. Personally, I would rather be at a sports event for my kid than watching some guy spend two hours with a pad and paper, go for a ride, plead with you not to sell until he has a chance to firm up his offer, and then hear "well, it needs a door glass replaced, I just don't know..." - now, if I was retired, I might feel differently, but the last couple times we sold, filtering those types was worth at least half the commission to me. I feel like you don't get that kind of hands off service with an auction but having never consigned a car I cannot speak to the level of involvement needed. I would imagine for a lower end car you wait for a local opportunity, but as Guy points out, sell or not, someone has to incurr the cost of preparation & transportation for a consignment to one of the big auctions.

Of course, the flip side is competition to buy your car, if you have a good day at the races, can lead to a pleasant surprise. Would be interesting to hear from those who have sold at auction - would you do it again??

'35Packard, keep us posted on the 356, you never know when the right car shows up...

[Matt Harwood]

I agree with almost all the comments here that auctions are the right place to sell a first-class car with a known history and an impeccable restoration. You WILL realize a market-setting price in that setting.

Your average 1972 Buick Skylark? Not so much. Auctions (and dealers) can't magically make an undesirable car desirable.

At all these auctions, we typically only see the highlights. What they don't show you on the Barrett-Jackson reality show or in the auction results sections of magazines are the turds that didn't sell or sold for ridiculously small amounts of money. I've been there to pick up crumbs once or twice and you can get really good value on a lot of cars at an auction, as long as you're not expecting a 1934 Packard 12 at 1929 Model A tudor sedan prices. And as Guy wisely points out, the seller usually only takes home 80% of that record-setting price.

I will also say that for the truly wealthy buying a $1 million car is a fraction of their net worth. Would most of you really hem and haw over an extra $15 on a new dishwasher or $50 on that new flat-screen TV you really want, or do you just go buy it? That's the same for many of these guys paying record-setting prices for cars. Now, it's always important to remember that they're buying very high-end cars that are unquestionably excellent in every way that matters. Very few of these guys are hunting for a bargain-priced 1965 Mustang--they just spend whatever it takes to get the best one. I have one client who paid $70,000 for a 1936 Ford coupe, but he got the best one in the world, bar none. Worth it or not? What if you could pull that kind of money out of your wallet the way you pull out a $10 to buy a cup of coffee?

I have another client, some of whose miraculous cars you have all seen here, all of them purchased at auction for what I would argue is 10-20% over market value. I offered to attend auctions with him, not to advise him on which cars to buy (he has impeccable taste) but rather to stop him when he's gone too far. He's a bit of a rookie and I think the auction companies take advantage of him to some extent, although he's a 70-year-old man and can take care of himself. But when I made that offer his response was, "I don't want to stop. I just want the car and I don't want that other guy thinking I can't afford it."

So there it is.

He's spending what to me might be the equivalent of a few hundred bucks on a half-million dollar V16 Cadillac just because he wants it. And since they're the best of the best, eventually the market catches up and he comes out OK in the end. As the old adage goes, you can't pay too much, you can only buy too soon. Auctions are definitely impulse buys for many of these very wealthy people, and the auction company's reputation gives them the confidence to be a little reckless.

Can I, as a dealer, get more for a car than you can? Well, sometimes. But remember, what I'm offering is peace-of-mind in exchange for that slight premium. I have a reputation to protect and a business to enhance, so obviously I want my customers happy. Have a problem? I'll work with you to solve it. Don't have a lot of cash but have something interesting to trade? I can make that work. Need it shipped to Singapore? Can do. Private sellers usually can't offer the little value-added things I do and as a result they understand that they're paying a bit more for that level of service and peace-of-mind. I can't warranty an old car, of course, but if I've overlooked something that I should have caught or if I feel a car isn't up to standard, I'll spend money to make it right. Private sellers are typically, "See you later, pal. Good luck," whereas I say, "Please call me and let me know how you're enjoying your car and if there's anything I can do for you in the future."

Take the auction results with a grain of salt and recognize that they don't all set records. Bargains are there at every auction. They may be relative bargains, but they're there. And the high-rollers will continue to buy the good stuff, cost be damned, because they like being high-rollers and the center of attention at an auction as much as they like the cars themselves. Auctions can out-perform a dealer like a dealer can out-perform an individual because they're offering something additional: excitement. (funny side note: the spell check on my computer thought I was trying to write excrement. Ha!)

PS: 1935Packard, I have access to a 356 Cabrio (maybe a Super 90?) that could be privately available. Mostly original car in excellent condition with a known history. Red with black interior and top. If there's interest I'll pursue it. In my professional opinion, the 356 market is as affordable as it will ever be. What I mean is that they're not in a bubble, values are on the march with no end in sight. If you want one, pay for a good one and ride the wave instead of watching it from the beach.

Edited June 17, 2013 by Matt Harwood
Typo (see edit history)

[West Peterson]

'35Packard, keep us posted on the 356, you never know when the right car shows up...

Since this is a Packard forum, I'm assuming we're talking about Packard's Super Eight engine from 1940-48, but I have a funny feeling that we may not be??? :confused:

[Steve_Mack_CT]

Touche West! ;)

I enjoyed reading about your other "P" car a while back, BTW...