REA consignments

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Posted By: Corey R. Shanus

Jay's second point is well-taken (though it does refute his first point about it being a shell game, which it is not).

Suppose the total gross of an auction house is $5 million. That means that for the totality of its catalog offerings, its buyers as a group have spent $5 million. If the SP and BP are each 10%, then the collective hammer prices would total $4,545,455 and the take of the auction house would be $909,090, half coming from the sellers and half from the buyers. If instead the BP is 20% and the SP 0%, then the collective hammer prices total $4,166,667 and the auction house's take is $833,333. This is a reduction of 8.3%, which flows directly into the pockets of the consignors.

So clearly the consignor benefits as the trend goes from equal SPs and BPs to zero (or even negative) SPs. Auction houses no doubt felt the need to drastically cut or even eliminate the SP due to the intense competition to get quality consignments. However, I wouldn't shed too many tears for the auction houses. Whatever they've lost they have much more than made up by the explosive increase in the price of collectibles over the years.

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Posted By: Bruce Babcock

Mandatory post-hammer testing of buyer, consigner and auctioneer may be around the corner . . .

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Posted By: JK

Corey,

Can you lay out the math for me - Im not following how you derived your figures.

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Posted By: Jay

Corey--Good point. I was using "shell game" loosely, not to say that the flows were exactly the same. It will be interesting to see what happens if the card market weakens with the economy. Then some auction houses, especially those with a lot of overhead, may really start feeling the pinch. Although obviously not purely a sports company, Sothebys stock price has really taken a beating in recent weeks. Could this be a reflection of what is ahead for collectable prices?

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Posted By: Matt

Corey - good post. My question is more simple - why are there two separate types of fees in the first place? Why not just have 1 percentage that the auctino house takes - whatever it may be. Is there something besides marketing behind it?

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Posted By: Corey R. Shanus

The $5 million in my example represents what the auction house grossed from the entire auction. If the BP is 20% (and the SP 0%), then the hammer prices totaled $5,000,000/1.2, which equals $4,166,667. Or, to put it another way, if the total hammer is $4,166,667, then adding the 20% BP ($833,333) results in the total gross of $5 million. The auction house would keep the entire BP, so its take from the sale would $833,333.

If the SP and BP are each 10%, then the total hammer is now $5,000,000/1.1, which equals $4,545,455. However, now the auction house's take comes from both the buyer and seller. Each contributes 10% of this $4,545,455, or $454,545 each. The total to the auction house is therefore $454,545 x 2, or $909,090. This is $75,758 more than in the case where the BP was 20% and the SP 0%. Or to put it another way, by taking in $75,758 less, the auction house has "given back" to the consignor 8.3% (= $75,758/$909,090) of what it took in when the BP and SP were each 10%.

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Posted By: JimCrandell

First, I am all for disclosing fees and think its great when people come on and talk to deals they are getting from auction houses

Second, while I have no doubt that Rob is telling the truth about his 0 to 10% commission range it is not at all uncommon to hear of givebacks of 5% and I have heard one deal of a 10% rebate on the total sale price.

I don't think there is a big difference in price for an item auctioned by different auction houses. Thus, the difference in economics to the seller is likely to be whether he is paying 10% to an auction house, 0% or receiving 10% for the privlege of selling it.

Jim

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Posted By: Corey R. Shanus

Good question. If I had to venture a guess I would say that when the system started the philosphy was -- "if they're willing to pay it, we're willing to take it." There were undoubtedly a lot fewer auction houses than there are today and therefore much fewer competitive pressures. They probably made a persuasive pitch to both buyer and seller how they were providing services to each and therefore should receive compensation from each. Flash forward to today. While the philosphy remains the same, the problem is they (the consignors) are not willing to pay it. There are just too many auction houses now vying for their consignments. So the system has readjusted toward higher BPs and lower SPs.

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Posted By: JK

Thanks. Im with you now.

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Posted By: barrysloate

Buyer's premiums have been around a long time, even before the baseball memorabilia hobby instituted them. The way business is conducted always changes, so we very well may see a new business model sometime in the future.

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Posted By: Matt

The question is why there are separate buyers and sellers premiums instead of one percentage that the auction company takes of the top.

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Posted By: barrysloate

Our industry borrowed the concept from older auction businesses. And the psychology is a seller feels better if he thinks he is only responsible for half the commission, and the buyer for the other half (or whatever the ratio is). It may make little sense but it has evolved and has been accepted.

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Posted By: Jerry Rucker

Consignors getting a portion of the BP
Now were Talking

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Posted By: Rich Klein

And I'd love Barry to step in -- is there seems to me a chance of people getting different rates based on how much they know about the hobby; the companies; etc. If I were NOT in the hobby and I consigned an item to a company and later found out that instead of the stated rate; it was negotiable and I did not get the same lower rate; I'd be upset and let everyone know that I would not want to deal with that auction house again.
Frankly; that's one reason I love dealing with Saturn in terms of cars that everyone pays the same price -- not a sliding scale based on other factors. That's just me; everyone is different I know and may and possibly should disagree with me

Regards
Rich

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Posted By: leon

I understand your concern but it doesn't seem to be much different than anything else. If you invested thousands of hours in the hobby, and got to know the ropes, I would say that that time spent is worth something...and it could be a better negotiating postition when consigning. I would argue that the time spent might not even be made up for in the dollars saved on rates with respect to the person who has no time in the hobby getting a slightly lesser deal. Knowledge is money.....Time is money. The more time you put in the more money you should reap....and this argument is for sake of being devil's advocate....just my 1/2 cent (make that a chain cent, btw)