What is the rationale behind a buyer's premium on an auction

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Posted By: <b>warshawlaw</b><p>It seems to me that most everyone bidding isn't stupid enough to bid without considering the BP, so it doesn't increase bidding levels. It also seems to me that consignors aren't stupid enough to forget the BP. So why have a BP at all? Why not just take a straight % of the gross proceeds? <br /><br />I'd particularly like to hear from the auctioneers on this board on this question.

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Posted By: <b>barrysloate</b><p>Adam- I've thought about the same thing, and ebay proves you can do business without a premium. I guess psychologically it helps an auction house to offer a low or neglible fee to the consignor, but in the end the same means can be accomplished without it. For me, I guess it is just the pack mentality. Others do it so I just follow suit. That said, I will leave the 15% buyer's premium in place. But I agree if you think a lot is worth $1000, you should just bid in the $800-900 range and stop there, and the same final price will be realized as if there were no fee and you went to $1000.

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Posted By: <b>Josh Wulkan</b><p>Adam,<br />I'm not sure I understand your alternative. You say, "Why not just take a straight % of the gross proceeds?" Can you explain to me how this would work. Believe it or not, being an auction house is not a "cash cow" as some might think. It takes a lot of money to produce a catalog, print it, mail it, pay salaries, rent for the space you need, advertising, etc... We, at Huggins and Scott have a 15% BP and the rate on the sellers side varies between 5-15% (usually). We just completed our first $1M+ auction in gross sales, which was huge for us, but when you pay out all of the bills, consignor proceeds, etc.. the money that is left is actually pretty small, even after a $1M auction. <br />I'm curious how the straight % would work, as we're always open to figuring out new ways of doing business.<br />thanks,<br />Josh

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Posted By: <b>ramram</b><p>Not to put words in Adam's mouth but I think he is just saying why don't they just have, say, a 30% consigners fee...nothing else. Straight as an arrow, no questions, easy as pie, etc.(which is probably the problem, much like a gas station that still uses the tenths digit).<br /><br />T'would be refreshing!<br /><br />Rob M.

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Posted By: <b>peter chao</b><p>Josh,<br /><br />I know the auction houses don't like to be compared to E-bay, but E-bay takes a straight percentage of the gross and varies the percentage depending on the gross amount of the sale. The larger the gross sale, the larger the percentage. There is no buyer's premium at all.<br /><br />PETER

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Posted By: <b>Jeff Lichtman</b><p>The rationale behind the BP is to enable the auctioneers to run a first class auction. That was an easy question.

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Posted By: <b>Josh Wulkan</b><p>if we just had a straight 30% fee, as Rob suggests, how many of you consignors would give us your great items to sell if you were charged 30% on your selling item? Sure, the buyer makes out, but how about the consignor?<br /><br />As far as us trying the way eBay does it, why would we ever take anything on consignment that would only sell for a couple of hundred bucks? If an item only sold for $200 and we took a % of that number, we're talking about making "pennies" (or a few dollars) on that lot. One of the best parts of our auctions is that we will take your entire collection and break it down to maximize your money. We can't sell every card, one by one, but we can break down a large collection to get the most money out of even the smaller items, by grouping them into lots that will sell for $500-$1000. <br /><br />Also, as all of you know by reading this board, there are problems with eBay sellers - a lot of eBay sellers. You can't trust everyone on eBay and many of you have expressed your headaches from your dealings. What we (H&S, Mastro, REA, Hunt, Barry, etc...) offer to you (the buyer) is reliability. You know that when you bid on something and win it, you will receive it, in the condition described and pictured and if not, you have a human being to talk to, who will work out any problems in a professional manner, so that you stay a bidder, consignor or participant in our auctions. If we eliminated the BP or sellers fees, there would be no major auctions in the hobby and you'd have to go back to dealing with potentially "headache" sellers on eBay, exclusively. <br />I don't believe you or us want that.<br /><br />I hope this is clear and answers Adam's question, a little bit.<br /><br />thanks,<br />Josh

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Posted By: <b>ramram</b><p>???Josh, you lost me????<br /><br />What is the difference between a straight Consigner's Fee versus a Bidders Fee + a Consigner's Fee?? Six one way and a half dozen the other. The only difference is one is much more straight forward. <br /><br />Rob M.

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Posted By: <b>ramram</b><p>Josh (et al.)-<br /><br />I know you understand this but let me throw it out there for the sake of discussion with others:<br /><br />Let's say you charge a 30% consigner's fee (CF) and no bidder's fee (BF). Another auction house charges 15% CF and a 15% BF. <br /><br />The bidder in the other auction wins a lot for a bid of $1000. He pays $1150 for the item. The consigner gets $850. The auction house gets $300.<br /><br />Now, if he's bidding in your auction on a similar lot, he bids $1150 and wins it. Since there's no BP,he just pays $1150, the consigner gets $805 and you get $345. In this scenario you actually come out ahead. You could actually only take a 26% CF, and no BF, and all things would come out about equally with the other auction house, at least in this scenario. <br /><br />If the consigner and bidder both have any brains they will figure this out. But, (and that's a big "but") if they can't figure that out, then you might have a problem. I think that's where we're at....some people have more money than brains and don't fully comprehend the fee shell game...IMHO.<br /><br />Rob M.

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Posted By: <b>warshawlaw</b><p>While I appreciate your willingness to address the issue, there are aspects to your contentions that I find to be either unrealistic or disingenuous:<br /><br />"if we just had a straight 30% fee, as Rob suggests, how many of you consignors would give us your great items to sell if you were charged 30% on your selling item? Sure, the buyer makes out, but how about the consignor?" <br /><br />This analysis is partially nonsense, partially misleading. The nonsense part is your assertion that the buyer would profit. The buyer doesn't "make out" at all. No one who bids real money on an auction is stupid enough to forget the BP when bidding, especially when it approaches 20% of the sales price. Take away the BP and bidders will bid higher for the item itself because the cost to them is the same regardless of how it is split up. The misleading part of the analysis is the assertion that the consignor would be screwed; that is true only if the auctioneer charges the same commission as the commission + BP, which he need not do if he simply wants to net the same money and normalizes the commission rate to achieve the same result; as noted in the above post to get to the same net for the seller as a 15:15 commission and BP the straight commission would be 26%. There is no mathematical reason for a commission + BP structure; the net can be structured any way necessary to achieve the same mathematical results. <br /><br />"One of the best parts of our auctions is that we will take your entire collection and break it down to maximize your money. We can't sell every card, one by one, but we can break down a large collection to get the most money out of even the smaller items, by grouping them into lots that will sell for $500-$1000."<br /><br />Actually, the way auctioneers lot lower value items is one of the worst parts of auctions for consignors. First of all, the math is wrong again. If ten cards sell for $100 each, or ten cards thrown together sell for $1,000, the commission and BP earned is exactly the same. Second, you cannot tell me with a straight face that packaging lots of disparate cards benefits the consignors. There are numerous dealers who make their livings buying these auctioneer-created Frankenstein lots and breaking them down on ebay and otherwise. Hell, I've purchased and broken down lots from auctions and made money on them too. I regularly watch auctions for boxing cards leave tons of seller money on the table because the auctioneers want to have lots that hit certain results per lot and throw all kinds of stuff together to do it. Tell me the lotting is done to save catalog printing space and costs, tell me it is to save labor on data entry or packaging (of course my response will be that you auctioneers already charge an arm and a leg for shipping and "handling), but don't try to convince me that throwing disparate cards into big lots benefits the sellers; we all know better. <br /><br />"If we eliminated the BP or sellers fees, there would be no major auctions in the hobby and you'd have to go back to dealing with potentially "headache" sellers on eBay, exclusively."<br /><br />Decorum prevents me from printing my initial reaction to this statement; suffice it to say it involved a two-word expletive. Do you really expect us to believe that a straight commission structure would kill off auctions? <br /><br />Since the math is no obstacle, the reason for the BP structure must be something else. Given Mastro's recent decision to kick up the BP 2.5%, I see why an auctioneer would like a BP: it allows the auctioneer to act like they are charging a low commission but really not, and to structure their contracts and consignor statements in a way that avoids throwing the real cost of the sale in the consignor's face. I fell for the trick, I admit it. I signed a Mastro contract with a % commission (which I paid very close attention to) and the squirrelly "no less than 15%" BP language (which I paid little attention to), not thinking about how it could be used against me. I've also received a few consignor statements in my day. What they don't list is the total received by the auction house, so I never see in print that my $850 is really a $1,150 sale. Bottom line: the commission plus BP is just a psych game...<br /><br />I have to tell you, the more I see, the more attractive it is to me to sell my stuff myself when I am ready to do it.

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Posted By: <b>Trevor Hocking</b><p>Well I would first like to say that the timing of the Mastro 2.5% BP hike was out of line and I would have been a little frustrated myself if I had consigned before this auction and was not notified about it. But to get back on topic here. I think that auction companies like Mastro and Huggins and Scott are a needed entity is this hobby and have always been one. If it wasn't for these companies we would never have the opportunity to bid on items that we have been trying to find or never knew existed. I also have an idea what it takes to run a auction company and I think that is taken for granted A LOT. I have spoke with many auction companies in the past regarding there fees. When I was given the tour and the needed day to day expenses it all made seance to me. I know 20%-30% sounds like a lot but most of the time a good auction company will get you that back and more for using their services. Granted some items are better sold in other venues like Ebay or retail but frankly most of use do not have the time or want to put fourth the effort to sell items that way. I think that if an auction company would put out a quarterly report to show it's cost vs profit most people would be surprised at how much of that % the auction companies are left with for salaries and profit in the end. I would guess a lot lower than perceived. I for one like the idea of a variety of auction companies to choose from and the slight difference in BP's and SP's. I think that we can see from the responses given by the leaders of these companies on this board, how much they do think about this hobby and how interested they are in making it far for everyone. Remember most of these people are hobbiest just like you and are usually accessible via a phone call. I would try to talk with them over the phone about your issues before you start to speculate and make gossip here.<br /><br />Just my 2¢<br /><br />Trevor Hocking

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Posted By: <b>warshawlaw</b><p>I am merely frustrated at the complicated way that auction fees are charged. It would be so much simpler to charge a flat commission and let the items sell for what they fetch. As I noted, the money could be the same if the % is jiggered. Since the simple approach is not the one chosen by the auctioneers, there has to be a non-mathematical reason for their choice and, as I noted, I think I know what it is.

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Posted By: <b>Judge Dred (Fred)</b><p>I kinda liked Rob's idea. For a 15% SP + 15% BP, just make it a 26% SP. It makes it easier on the bidding. There's no need to figure out percentages. The auction house and seller get the same amounts.

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Posted By: <b>Brian H (misunderestimated)</b><p>I would have virtually no seller's premium and try to make all of my profits on the other (buyer's) end in order to attract quality consignments. If you can get the items the bidders will come and you can build market share and compete for the best consignments. I doubt a slightly higher buyer's premium is likely to deter anyone from bidding on something that they really want that's not easy to come by. Personally, I just build it into my bidding calculatons -- its not integral calculus, just multiplication and addition.<br /><br />This seems eminently sensible, am I missing something?

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Posted By: <b>Jeff Lichtman</b><p>I think the reason there is not a flat fee is due to the fact that the auction houses don't want to scare its clients off with a huge number. Instead, they can nickel and dime everyone to death and make it appear as if they are spreading around the pain instead of doing all that they can to take more money out of your pocket and more into theirs. 15% here, 20% there, $75 for a catalogue, blah, blah, blah.

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Posted By: <b>Jeff Drum</b><p>....and they will continue to do it until someone builds a better mousetrap!

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Posted By: <b>John_B_California</b><p> anonymous post ....

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Posted By: <b>ramram</b><p>I just wanted to thank Barry and Josh for chiming in. It's been nice that several of the auction houses have taken the time to give some input to the many questions from this forum of late. I, for one, don't like the sucker punches that some people have been throwing at the houses but, in general, I think it's a good exchange of philosophy between auction houses and some of their clients. I think a lot of what goes on is "smoke and mirrors" but, hey, you go with what works. So far it's obviously been working.<br /><br />Rob M.

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Posted By: <b>Jeff Lichtman</b><p>By "sucker punches" do you mean such classics as "Do you alter the cards that you sell in your auctions?" Damn, what an unfair question!

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Posted By: <b>Billy Stair</b><p>What I just can't get is why the buyer pays a premium??? Now I understand a seller should be charged a commission to sell an item, but a buyer paying a fee to spend their money????? This is why I refuse to bid on these auction house items and I usually find the cards I need privately or in other venues and I would participate in auction house items IF the buyer did not have to pay to spend money!!! I wonder how many more have this feeling?<br /><br />Bill

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Posted By: <b>Jeff Drum</b><p>The real reason they do and will continue to do it is that "we" have not demonstrated the restraint to refuse to pay up by not bidding. We can rationalize that we "build it" into our bid and maybe we do to some extent. It's like American Express charging you to "use" their product when you can get the same for free elsewhere. It's like the automakers continuing to churn out gas guzzling vehicles when gas is $3-4 a gallon. We have little to no restraint. It's a seller's market until there are no buyers.