Analysis of current AH's rules regarding shill/internal/sketchy bidding practices

[benjulmag]

This topic has come up before in other threads, but I have never been comfortable with an AH competing against its own customers by buying on the house account lots the AH feels are undervalued. A consignor can protect him/herself via a reserve price, and it seems to me that if the consignor is okay with letting the item go at a "wholesale" price, then the party that should reap the benefits is the AH customer, not the AH. The primary business of an AH is auctioning items, not buying undervalued items in its own auctions. And the profitability of the AH is directly tied to the business its bidding customers give them. So would it be so bad once in a while if a customer walked away believing he/she got a bargain?

I remember recently when I bought an item from a major AH. The item went for significantly less than both I and the AH thought the item was worth. But it met the reserve and I got it. The owner of the AH told me after the auction that while he felt bad his consignor did not get a stronger price, on the other hand he felt happy for me that I was able to get it at that price. That auction house does not buy on its account, and at least it could say its consignor's loss was its bidding customer's gain.

[pokerplyr80]

As others have mentioned I agree it seems inherently unfair to have the auction house competing against bidders that have to pay a 20% premium. I'm sure there are many lots on Heritage I could win and flip for a profit if they'd waive that premium for me.

But I do respect the fact that they disclose and defend the practice. At least it is well known, and does help to protect consignors against the risk of having a lot sell well below market value.

[Leon]

From my understanding each HA person bidding, and winning, has to pay all BP.
They have profit centers, ya' know. And yes, I guess it does help consignors. Bummer....
I have won plenty of items from HA since selling my collection. I am at a loss in thinking why anyone would expect a bargain at an auction. But it seems as though some feel they are entitled to them. Hey, I like a great bargain too, I just don't feel entitled to them.

Originally Posted by pokerplyr80

As others have mentioned I agree it seems inherently unfair to have the auction house competing against bidders that have to pay a 20% premium. I'm sure there are many lots on Heritage I could win and flip for a profit if they'd waive that premium for me.

But I do respect the fact that they disclose and defend the practice. At least it is well known, and does help to protect consignors against the risk of having a lot sell well below market value.

[Peter_Spaeth]

Originally Posted by Leon

From my understanding each HA person bidding, and winning, has to pay all BP.
They have profit centers, ya' know. And yes, I guess it does help consignors. Bummer....
I have won plenty of items from HA since selling my collection. I am at a loss in thinking why anyone would expect a bargain at an auction. But it seems as though some feel they are entitled to them. Hey, I like a great bargain too, I just don't feel entitled to them.

The HOUSE does not pay BP, or if it does, it pays it to itself.

[robertsmithnocure]

Originally Posted by Peter_Spaeth

The HOUSE does not pay BP, or if it does, it pays it to itself.

Yes they do. They forego the BP that the underbidder would have paid.

Not saying the practice is right, but they do indirectly pay the BP.

[Peter_Spaeth]

Originally Posted by robertsmithnocure

Yes they do. They forego the BP that the underbidder would have paid.

Not saying the practice or right, but they do indirectly pay the BP.

I see the point you and Corey are making about the economics. But I continue to think the concern about the house competing with its customers is a valid one from an optics viewpoint.

[Stampsfan]

It's more than just optics. Too much bad can go wrong. Some random thoughts that come to mind:

• Joe average bidder has to add a 20% premium
• HA employees have to add a 20% premium if they are bidding for their own collection
• The AH can bid on the same item at a 20% discount, which reduces the corporations profit for shareholders
• 20% profit for many business is a reasonably good markup on a wholesale price
• There is no wholesale price, as there is no "cost of goods" to the AH
• Using these rules, too many nefarious opportunities can exist for the auction house, such as:
  • Descriptions can be written to limit maximum bids, if the AH really wants to up the item
  • Descriptions can be written to limit maximum bids, if an employee collector really wants to up the item
  • Scans can be tweaked, the scanner glass not cleaned and leave a spot, or other games can be played with the item
  • No "purple sticker" (or type of equivalent) would be given to an item that may deserve one
  • Once the AH owns the item, improved descriptions can be written, or the item can be saved for, say, a "Platinum" type of auction.

I am in no way saying this happens at HA, but it certainly opens up too many possibilities for profiting at the consignor's expense at any AH.

Bottom line, if you are an AH, take the consignment, promote the sh*t out of it, and sell it to the highest bidder on the open market. That is your job. It is not to undermine a lot to resell it or undersell it when you don't own it.

This is my last comment on this issue, and I will not be taking any more questions.

[sports-rings]

Originally Posted by Peter_Spaeth

The HOUSE does not pay BP, or if it does, it pays it to itself.

Chris did say he and the employees do pay the bp and sales tax.

I would imagine if employees are in the business of buying and selling, they could easily incorporate, fill out resale certificates and not have to pay sales tax.

The small costs of incorporating and maintaining a business could be far smaller than the sales tax Chris mentioned that he and the Heritage employees pay.

But when Heritage the company, buys an item, I would imagine they are not paying sales tax (because the item would be for resale), and if they are writing a check to Heritage or a BP, then the BP fee is a wash since they are writing the check to themselves.

[steve B]

Originally Posted by sports-rings

Chris did say he and the employees do pay the bp and sales tax.

I would imagine if employees are in the business of buying and selling, they could easily incorporate, fill out resale certificates and not have to pay sales tax.

The small costs of incorporating and maintaining a business could be far smaller than the sales tax Chris mentioned that he and the Heritage employees pay.

But when Heritage the company, buys an item, I would imagine they are not paying sales tax (because the item would be for resale), and if they are writing a check to Heritage or a BP, then the BP fee is a wash since they are writing the check to themselves.

Why would they have to incorporate?
I had a tax number for a while, no incorporation, and all I had to do was fill out a form online. Totally free except for the effort to track that I had exactly 0 in-state sales over 2-3 years.

[pokerplyr80]

Originally Posted by Leon

From my understanding each HA person bidding, and winning, has to pay all BP.
They have profit centers, ya' know. And yes, I guess it does help consignors. Bummer....
I have won plenty of items from HA since selling my collection. I am at a loss in thinking why anyone would expect a bargain at an auction. But it seems as though some feel they are entitled to them. Hey, I like a great bargain too, I just don't feel entitled to them.

I never said they're not entitled to make a profit, or that I expect a bargain from an AH. I still bid with Heritage despite this policy, as it sounds like many others around here do.

It actually makes sense to me, as the buyers in this hobby, and probably any hobby for that matter, tend to follow the auctions with the best stuff. When deciding where to consign, a policy that offers a bit of insurance against an item falling through the cracks and closing well below market value might be the deciding factor in where to send it.

[benjulmag]

Originally Posted by pokerplyr80

As others have mentioned I agree it seems inherently unfair to have the auction house competing against bidders that have to pay a 20% premium. I'm sure there are many lots on Heritage I could win and flip for a profit if they'd waive that premium for me.

But I do respect the fact that they disclose and defend the practice. At least it is well known, and does help to protect consignors against the risk of having a lot sell well below market value.

Certainly disclosure goes a long way toward addressing notions of unfairness. I do not believe disclosure, though, to be an end in and of itself, as in the real world many bidders do not read auctions rules. So in those instances when the rule varies significantly from industry norm, I question whether an AH should not do more than bury the disclosure in the fine print.

In the case we are discussing with Heritage, almost certainly they do factor in the forgone BP when deciding how high to bid. If they win the item, at say $1,000 where the underbid is $950 and the BP 20%, the price they "paid" was $1,190.00, where $190 of that is the BP on the underbid which they chose to forgo. The price to you at the $1,000 hammer would have been $1,200, so in this example you would have been at a $10 disadvantage (less than 1%).