What is the point of the "Buyer's Premium"?

[Aquarian Sports Cards]

Originally Posted by hcv123

I can't recount for you how many people I have spoken to at shows who were considering selling their cards and ended up consigning them because the auction house employee(s) explained that "the seller isn't paying anything" to have the auction house sell their card - "all the fees are paid by the bidders - they (the seller) will receive 100% of the hammer price". What isn't said is that Hammer price DOES NOT equal fair market value (most of the time - see many comments above about bidders backing out the BP in their bidding calculations and the bidders who are "fooled" by the BP). The irony and frustration for me is for the right higher-end cards, I will pay 80% of fair market value on the spot!
I have said it many times before, it makes no sense to me why so many cards with easily and readily established market values are given to auction houses. The cards that make the most sense to me for auction are cards where demand is super strong and supply is not (think super high end (or low pop) cards of guys like Ruth, Cobb, Mantle, Mays, Robinson, Gehrig, Wagner, etc.)

In fact there is a very real risk involved in selling cards with easily established market values. A recent case in point - I was communicating with a guy looking to sell a 1952 Topps PSA 3.5 Mantle. I offered to take it on private consignment, estimating a selling price of $110K and asking for a 7.5% commission upon the sale of the card. He explained he had that much into it, thought it was worth a lot more and touted what he believed was a certainty that he would at least recoup his investment going to a very well respected, well known auction house. The card happened to sell at auction for $87K less than 3 weeks after we spoke. He negotiated a piece of the BP back, but will still see less than $80K from the sale. I believe his card sold under market. Why? There happened to be another Mantle a grade apart in the same auction? Maybe a few guys missed the auction who would have been potential buyers? Maybe the market is softening just a bit? A bunch of other maybe's? What isn't advertised alongside the all too familiar "get record prices auction ads" is that MOST cards that are auctioned do not sell for record prices!

I have said it ad nauseum - An auction house is more times than not - NOT the best place to sell a card.

Would seem to beg the question why didn't you pick said Mantle up at auction? If we're giving away cards at rates you can profit on, take advantage of us!

[hcv123]

Originally Posted by Aquarian Sports Cards

Would seem to beg the question why didn't you pick said Mantle up at auction? If we're giving away cards at rates you can profit on, take advantage of us!

1) I did not see the card in hand and was sent some less appealing angles by the owner. In this case I would have wanted to see the card in hand prior to purchase (another advantage to hand to hand transactions) - good quality auction scans notwithstanding.

2) There is a negative psychology in play as well which didn't occur to me till giving thought to your question - why ISN'T the card being bid higher!? Did I miss something that others have seen? This would be a mute point if I had the card in hand.

3) As mentioned I will buy "the right" cards at 80% of FMV. Had the guy offered me the Mantle at 87,500 in a private transaction there is a good chance I would have pulled the trigger. The next bid would have put me over 80%. I need a margin to earn a living as well.

4) That all said, as you well know, as your auction is one of them - I place hundreds of bids in a year in various auctions and have done quite well with the things I have purchased. Once things get past my 80% threshold (INCLUDING buyers premium) I have no further incentive to bid.

I want to be clear in case it came off otherwise - I believe auctions are a valuable part of the hobby and there are some guys (yourself included) that run above board top notch houses. I simply don't believe an auction format is the best place for interested sellers to sell most cards. I also understand perfectly an auctions need to "get paid" and earn a living somewhere (buyers or sellers side). It does feel a bit deceptive to me (and as mentioned I have heard it too many times directly from the sellers) when a house tells an "unsuspecting" seller that it "doesn't cost them anything because that is simply not true - the fact that they don't charge them anything doesn't equate to zero cost!

Thanks for the question.

[raulus]

Originally Posted by Aquarian Sports Cards

Would seem to beg the question why didn't you pick said Mantle up at auction? If we're giving away cards at rates you can profit on, take advantage of us!

Howard provided some very thoughtful answers for his thinking here. I'll maybe add a few more.

Maybe as a quick preamble, I think we can all acknowledge that there's a difference between buying an item for our own collection and buying it to make a profit. When we're buying for our own collection, we're typically planning to keep it for a long time, possibly decades, or even until the end, and so our willingness to pay outlandish sums is often very strong for something that we plan to treasure so greatly. On the other hand, when we're specifically buying to make a profit, there's a whole different psychology and analysis around when it makes sense mathematically. And Howard identified in pretty solid detail for him how he analyzes that case.

I think I would posit a couple of other elements that come into play with this specific situation, to wit:

1) $90k is a lot to have tied up in a single item. At least for us mere mortals it is. While you're working to re-sell it, having this much tied up means that you have to pass on other opportunities, including opportunities to add to your personal collection. And this might represent a significant percentage of your liquid working capital, so having it tied up in a single item means that this could be your only play for a while until you can get it re-sold. And we haven't even gotten into factoring in the time value of money and the possibility of investing your cash in a productive asset that gives you a return while you're waiting.

2) Add to that the fact that you're risking so much on a single item. While 311 Mantles are arguably unique in that they only seem to go up, those are history's famous last words. If for some reason the demand for this specific piece drops, then you've risked an awful lot on just one bet. I would more specifically posit that in this case, the bottom of the market has been bid up a lot recently for low to mid grade items, such that there is added risk at this grade for this item that this price level might not be sustainable.

3) More generally, at this juncture in history, buying an item in the six figure range represents particular risks. We've seen prices in our little slice of the world over the last ~2 years rise, in many cases by 500% or more. While there has been a modest pullback from those highs recently for postwar items, it's anyone's guess how long the current elevated prices will last. They could last for another week, they could last for another decade. But if you invest this much into this one item with a plan to resell it, and the market drops off a cliff tomorrow, then your plan to make a profit has just evaporated, and you've probably lost a lot more than you ever really stood to gain. While this risk always exists to some extent, to my mind, it's heightened during periods where we've experienced such a dramatic, even breathtaking acceleration in prices.

4) There are very real and nonzero costs to sell. There are only so many people in this world who have $100k to spend on a single baseball card. While at times they seem like they're everywhere these days, competing against me to buy everything that I desperately need, quite honestly, I don't have that many of them on speed dial. I could certainly post it in Net54 free of charge, and maybe get some interest. Maybe! At the same time, most of the ballers on this board will take 10 seconds to identify my cost, and then not be real willing to go a lot higher. But if I have to turn around and take it to auction myself, then that means that I'll need someone who is willing to pay significantly more than I paid so as to cover my auction costs (whether it's 5%, 10%, 20%, or more, once we factor in everything). And if I want to not just break even, but actually make some money, then I'll need someone to pay a whole lot more to cover my original cost plus my selling costs plus a respectable profit. (Not to mention my taxes on my gain, which is probably taxable at ordinary rates if I haven't held for a full year.) (!!!) Maybe I'm just a nervous nellie, but that seems like a big risk to be taking.

Anyway, your question got me to thinking, which led me here. It was a good question to ask, because I think to some extent, there's a little bit of vulture in all of us, such that we're all always on the lookout for good bargains and opportunities to take advantage of market anomalies, particularly if it means that we can plow those profits back into buying for our own collection.