1/12/2015: Auctions: The Good, Bad and Ugly
Ah, January! Along with all of the resolutions to stop-smoking or stop over-eating, many car collectors (unknowingly) make the resolution to spend (or give up) MORE MONEY by going to one of the many high-profile auctions held in Arizona.
While there is no doubt that these auctions in some ways set a mental benchmark for the condition of the hobby at the start of the year, in many instances they also create an over-inflated sense of what some cars are worth. It usually ends up that buyers pay too much and sellers get too little. Why?
The auction companies play upon one thing: EGO. The ego of the sellers by convincing them their car is worth soooo much money. They also play upon the egos of the bidders, who are convinced that the auction is a “once in a lifetime chance” to get that wonder-car of their dreams; so “bid high and bid often!”
CAVAET VENDITOR (Let the Seller Beware!)
Let’s say you live in North Carolina and decide to sell your pride and joy, for this example a 1966 Mustang Convertible, at one of these auctions. After all, you’ve watched them on TV and see cars just like yours bringing $25,000 and more! And old Joe down the street had the nerve to offer you only $16,000! Doesn’t he watch TV? So you contact one of the big auction houses 3 months before their sale and they tell you that they’d LOVE to auction your car! (Ego: “Wow! They like me!”) They also tell you that to create more interest (and what they don’t tell you - to insure them a larger fee) you must list it at “No Reserve” (meaning it will sell to the highest bidder, no matter how high – or low – the bid). They cite examples of all of the million-dollar cars they’ve sold that way and tell you that “real buyers” will line-up for the chance to bid on your car. So, against your better judgment you decide to go ahead and list your car with them. You only live once, right? Who knows? This could be the big one. “Especially with a car as nice as yours!”
All of the paperwork arrives via overnight mail to make you feel special (and to help prevent “seller’s remorse” by giving you less time to change your mind.) Then the fun begins. If you can read the many pages of fine print, you will realize that like a casino, the odds at an auction are ALWAYS in the house’s favor; and that “fine print” can come back to haunt you if not read carefully.
For example: Fees. Your “Insertion Fee” to place your car in the auction could be anywhere from $100 up to $5000+ depending upon the auction house and the scheduled time you want to see your car go across the block. Obviously prime times (usually mid-afternoon to early-evening on the biggest day with TV coverage) will cost the most. Let’s say you pick a mid-range time for a $500 fee. Then, the agreement will state that 8% to 10% (depending upon what you negotiate) is going to come right off the top of the final “hammer price” of the sale. Add to that the cost of transporting the car from your garage to the auction site (as much as $3,000 in an enclosed transporter if you live across the country); then if you decide to go to the auction to babysit your pride and joy before it goes across the block, add-in your airfare (x2 if you’re bringing a friend), hotel costs, rental car or taxis, meals and incidentals (like admission tickets to the auction, unless you’ve negotiated that into your deal with the auction house) – so let’s call it conservatively $3000.00 for your trip to say “farewell” to your car.
Still want to do it?
Let’s say you do, and you send in the signed paperwork (and your signed title, so the auction house now has legal ownership of your car, by the way), and wait for the hoopla to begin. Some auction houses charge (and insist) for their photographer to come take pictures of your car for the catalog and advance advertising (for a fee, of course.) Or you can send in your own photos and hope for the best. But unless you are a pro and know how to photograph a car, you can be sure that your photos will not look as good as they should. You also send in a carefully written story of your car’s history, the painstaking restoration and a thousand details.
Eventually, the catalog comes out and you get a copy in the mail (via overnight priority, of course.) You thumb through the hundreds of pages and find your car. There it is! “1966 Mustang Convertible. 289. Full restoration of a clean original. Numbers matching. Nice example. NO RESERVE.” That’s it. From all of the information you sent, that’s all they wrote. Boy, that one photo they used is awfully small, and there is nothing about the months you spent restoring it and making sure every nut and bolt was correct. Oh well, people will see it at the auction.
Finally, the big day is here. You’ve flown out to Scottsdale with dollar signs in your eyes. You get to the auction and find your car – after you walk by the 8 other 1966 Mustang Convertibles that have also been consigned for sale. Wow, some of them look pretty good too – even better than yours that looked so good by itself in your garage at home. Your car is now sitting in a holding area with people rushing past. Some take a moment to stop, and a few even comment, “Nice Mustang,” as they hurry to look at what’s around the corner. Suddenly, your car does not seem that special anymore. You wait, and wait. The moment arrives. The spotters come tell you that it’s time to get your car in line to bring to the stage. They drive it away from the holding area and you follow alongside.
It’s the moment of truth: Your car drives up on to the stage. “Lot number 270. A 1966 Mustang Convertible. 289. Full restoration of a clean original. Numbers matching. A nice example….” Hey, the auctioneer is reading just what was in the catalog! No mention of the hours spent and special features. Oh, well. “Who will give $7,500?...” A bid! And off it goes. Your 90 seconds in the sun. The auctioneer is good and does his job. Spotters are yelling. The crowd is pushing. You and your car are the center of attention. Isn’t life great? Two bidders go back and forth. The excitement builds. Finally, the hammer falls at $18,500. The audience applauds. The auctioneer calls, “NEXT UP FOR BID…” and your car is quickly pushed off stage and back to another holding area, now with a "SOLD” sticker on the window. Wow. It sold. $18,500! “Old Joe down the street at home only offered me $16,000 for it a few month ago! I showed him! I hope he was watching on TV….”
After the euphoria wears off (along with the alcohol from the free bar), you have a chance to go over the cold, cruel numbers:
Your 1966 Mustang Convertible sold for $18,500.00
$1,850 (10%) Final Value Sale Fee to the auction house.
$500 Insertion Fee.
$3,000 Transportation cost.
$3,000 Attendance cost for you and a friend.
Total Cost outlay: $8,350.00.
Net Amount the Seller takes home: $10,150.00
And actually, “take home” is the wrong term. Because as your contract stated, the auction house will mail you a check (NOT by overnight mail, by the way) and it may take UP TO 90 DAYS for you to receive payment, after the auction. So, around April 15th, (six months after you initially signed your contract with the auction house) your check arrives. Just in time to pay the tax man.
CAVEAT EMPTOR (Let the Buyer Beware!)
The flip side of this coin is the bidder/buyer. Let’s look at it from his side. He’s looking for a clean 1966 Mustang Convertible. Just like the one he had in high school and sold to the neighbor before heading off to college. He gets online and sees a nice one that will be at the auction. He flies out to Scottsdale and spends the same $3000 as our seller, to do so.
At the auction he enjoys the “free” (as long as you have a $500 bidder paddle), open VIP bar that gets him relaxed and ready to bid (probably more than he should.) The Mustang rolls on to the stage. He wants the car and opens the bid at $7,500. But wait, another bidder has jumped in. The bids go up. He keeps going. “No one else is going to get this one,” he says to himself (or anyone around him who will listen. Ego: “I have more money than you do!”) The bids go up, and when the hammer falls 90 seconds later, our boy is the winner. “SOLD FOR $18,500!” The auctioneer screams. The audience applauds. “NEXT…”
The next day (with a less fuzzy head), our winner goes to collect his spoils.
$18,500.00 Hammer price for the Mustang.
$1,850.00 (10%) Buyer’s Premium.
$500.00 Bidder’s paddle (with “free” hangover.)
$3,000.00 Attendance cost for buyer and friend.
$2,200.00 to ship it home to Wichita, Kansas.
Total Cost of the 1966 Mustang for the Buyer: $26,050.00
So, there you have it. Is the buyer happy? Maybe. If it’s a car he wanted and it was truly as represented (but don’t forget that the auction house is NOT liable for ANY statement made in the catalog or by the auctioneer about the condition, provenance or anything else related to the car.) Even if everything is good, the buyer will most likely be hard-pressed to recoup his investment should he decide to sell the car in a few years. Is the seller happy? Probably not. Especially when he realizes that he would have net more from “Old Joe down the street” if he had sold the car to him. Is the auction house happy? Most likely. They netted $4,700 from the sale of that one Mustang.
After reading the above, you must think I am against auctions. Absolutely not. For CERTAIN VEHICLES, it can be a good way to sell. But those vehicles are few. Most auctions are abberations. They reflect what one person is willing to pay for one car at one moment in time. As a long-time friend of mine who deals in collector cars told me years ago: "Remember that those auctions you see on TV are NOT 'reality' shows!" Very true. But auction houses DO earn their money. The preparation, costs and payroll of an auction house are huge. While the big publicity is generated by the few “big money” cars you see on TV and read about online after the sales are over, auction houses rely on the hundreds of smaller, “meat and potatoes” cars to pay the way.
But I will contend that for most cars, there ARE better ways to sell that allow the buyer to get a fairer price and the seller to realize more from the sale, and in a lot less time than six months.
Just “Ask The Man Who’s Sold Some!”™
- David Charvet