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

[Peter_Spaeth]

Originally Posted by G1911

I am accusing people who run auction houses of, generally, figuring out the obvious. That a lightly hidden fee tends to produce more money from people who are lazy or dumb or forget they have to tack on an extra 15, 17.5, 20% or whatever. It is a psychological tactic to make it look like less, and if someone forgets about the fee, I doubt there’s a single auctioneer who will turn down the profit. It clearly produces more revenue that telling bidders their bid is their bid, and they can raise their bids 15-20% because there is no buyers fee. If this offends people, they may be offended.

So it doesn't fool you, but you're sure it fools others?

[G1911]

Originally Posted by Peter_Spaeth

So it doesn't fool you, but you're sure it fools others?

Does it seem likely to you that nobody ever forgets about it? Does it seem rational to you that this complication would be added (a system is easier when there are fewer variables) if it did not produce a better result for the house?

Would you be happier if I posited instead that auctioneers are too stupid to figure out why their business model is what it is?

This isn't much to get offended over in the idea that people running businesses tend to structure them to their benefit when possible. A Buyers Premium structure, with a separate fee to tack onto the bid, is not designed to the benefit of the buyer. This seems like common sense. If you would like to take this as a personal slight on your aforementioned list for some reason, go ahead.

[Peter_Spaeth]

Originally Posted by G1911

Does it seem likely to you that nobody ever forgets about it? Does it seem rational to you that this complication would be added (a system is easier when there are fewer variables) if it did not produce a better result for the house?

Would you be happier if I posited instead that auctioneers are too stupid to figure out why their business model is what it is?

This isn't much to get offended over in the idea that people running businesses tend to structure them to their benefit when possible. A Buyers Premium structure, with a separate fee to tack onto the bid, is not designed to the benefit of the buyer. This seems like common sense. If you would like to take this as a personal slight on your aforementioned list for some reason, go ahead.

I'm not presuming I'm smarter or more careful than other people. My guess is if it happens it's very very infrequent after 20 years of this model.

[G1911]

Originally Posted by Peter_Spaeth

I'm not presuming I'm smarter or more careful than other people. My guess is if it happens it's very very infrequent after 20 years of this model.

I never said anything about myself; that was a line you went down and I ignored. I rarely participate in auction house bidding for reasons other than the BP structure.

[Peter_Spaeth]

Originally Posted by G1911

I never said anything about myself; that was a line you went down and I ignored. I rarely participate in auction house bidding for reasons other than the BP structure.

I am certain you would not be fooled.

[Snowman]

Originally Posted by Peter_Spaeth

So it doesn't fool you, but you're sure it fools others?

1 in 6 people have an IQ below 85. That is a significant handicap when it comes to processing even simple information such as this. I don't think the AH's are intentionally on a mission to "target" those less capable, but they are certainly targeting those less capable. It is a deceptive tactic that results in hidden fees and hammer prices that were higher than expected for some, whether intentional or not. However, it allows them to operate above board (and to justify it to themselves) because they can just point to their fee structure as it is plainly spelled out for everyone to see. For most buyers, it's not much of an issue.

I think one could make an argument that it's not actually a deceptive tactic if they indeed charged 20% of the hammer price for sold items. But that's not actually the case. Nobody charges 20%. It's usually between 10 to 15% and the consignor gets some portion of the BP back. It's pretty difficult to argue that it is not intended to deceive with that being the case.

[Exhibitman]

Peter, I have little doubt that a small but significant minority of bidders forget about the BP, taxes, and gouge-level shipping (excepting from the latter the AHS who have adopted flat-rate shipping), especially when making that last bid in the dead of night. I made a late bid in REA the other night and won the card, and I knew but did not really appreciate that my $160 bid became a $202 bill. Had the bid shown as $192 instead of $160 it might have given me pause.

[Snapolit1]

Originally Posted by Exhibitman

Peter, I have little doubt that a small but significant minority of bidders forget about the BP, taxes, and gouge-level shipping (excepting from the latter the AHS who have adopted flat-rate shipping), especially when making that last bid in the dead of night. I made a late bid in REA the other night and won the card, and I knew but did not really appreciate that my $160 bid became a $202 bill. Had the bid shown as $192 instead of $160 it might have given me pause.

If we were all perfect decision makers the world would look a lot different. No car accidents . . . no malpractice claims. . . . nobody would spend more money that they have . . . . nobody would marry a creepy loser . . . . the federal reserve wouldn't need to raise by another .75 basis points . . .

[Exhibitman]

Originally Posted by Snapolit1

If we were all perfect decision makers the world would look a lot different. ...nobody would marry a creepy loser

But, then how are card collectors supposed to have families?

[ullmandds]

Originally Posted by exhibitman

peter, i have little doubt that a small but significant minority of bidders forget about the bp, taxes, and gouge-level shipping (excepting from the latter the ahs who have adopted flat-rate shipping), especially when making that last bid in the dead of night. I made a late bid in rea the other night and won the card, and i knew but did not really appreciate that my $160 bid became a $202 bill. Had the bid shown as $192 instead of $160 it might have given me pause.

guilty!

[hcv123]

Originally Posted by Snowman

1 in 6 people have an IQ below 85. That is a significant handicap when it comes to processing even simple information such as this. I don't think the AH's are intentionally on a mission to "target" those less capable, but they are certainly targeting those less capable. It is a deceptive tactic that results in hidden fees and hammer prices that were higher than expected for some, whether intentional or not. However, it allows them to operate above board (and to justify it to themselves) because they can just point to their fee structure as it is plainly spelled out for everyone to see. For most buyers, it's not much of an issue.

I think one could make an argument that it's not actually a deceptive tactic if they indeed charged 20% of the hammer price for sold items. But that's not actually the case. Nobody charges 20%. It's usually between 10 to 15% and the consignor gets some portion of the BP back. It's pretty difficult to argue that it is not intended to deceive with that being the case.

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.

[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.

[raulus]

Originally Posted by hcv123

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

Anyone else want to see this included as a testimonial for an auction house!!??

[nolemmings]

Originally Posted by Snowman

I think one could make an argument that it's not actually a deceptive tactic if they indeed charged 20% of the hammer price for sold items. But that's not actually the case. Nobody charges 20%. It's usually between 10 to 15% and the consignor gets some portion of the BP back. It's pretty difficult to argue that it is not intended to deceive with that being the case.

Not true. I have never received any BP kickback when I consigned and I believe many here could say the same. Unless your total consignment is for very large $$ or you have headliner material that will make the AH's front page you are not getting any of the 20% tossed back, much less up to half.

Again, I remain puzzled by any grousing over the BP as being deceptive. It's there in the rules for all to see, and if you get fooled once, don't go back. In fact, since so many here are intent on calling out what they see as shady or deceptive practices and avow they will not participate with such sellers, do so now. I would love nothing more than to see dozens or more competitors drop off the bidding list in nearly all major and minor auctions in solidarity against these "scammers".

[Fballguy]

Originally Posted by nolemmings

Not true. I have never received any BP kickback when I consigned and I believe many here could say the same. Unless your total consignment is for very large $$ or you have headliner material that will make the AH's front page you are not getting any of the 20% tossed back.

Again, I remain puzzled by any grousing over the BP as being deceptive. It's there in the rules for all to see, and if you get fooled once, don't go back. In fact, since so many here are intent on calling out what they see as shady or deceptive practices and avow they will not participate with such sellers, do so now. I would love nothing more than to see dozens or more competitors drop off the bidding list in nearly all major and minor auctions in solidarity against these "scammers".

For some reason this conversation always goes down an unintended rabbit hole. The OP never mentioned it being deceptive.

I'd love to see the conversation stay on point for once and explain why Hunt can survive on 17.5,% while Heritage needs 20% (I guess they haven't figured out how to capitalize on economies of scale?) and Huggins 23%? Maybe if it didn't feel so arbitrary, people wouldn't bring this up so much.

[Fballguy]

And it would be refreshing for once (and a real differentiator for that AH), if an auction house made an effort to cut down on shipping costs. There's absolutely no incentive to because they just pass on 100% of the cost to the buyer so what do they care (and who knows...likely more than 100% of the cost).

I don't think I've ever won an auction that I couldn't have shipped for about 50% of what AHs charge me.

[BobbyStrawberry]

Originally Posted by Fballguy

I don't think I've ever won an auction that I couldn't have shipped for about 50% of what AHs charge me.

For sure! AHs could easily show you an estimate of your total cost at the time of placing a bid. But why do that when you can hide the BP and inflated shipping costs?

[sb1]

Originally Posted by Fballguy

And it would be refreshing for once (and a real differentiator for that AH), if an auction house made an effort to cut down on shipping costs. There's absolutely no incentive to because they just pass on 100% of the cost to the buyer so what do they care (and who knows...likely more than 100% of the cost).

I don't think I've ever won an auction that I couldn't have shipped for about 50% of what AHs charge me.

My AH charges reasonable shipping. I try to charge as close as possible to actual cost, that includes box or bubble mailer and a small percentage for private insurance. Often I figure too low for some bulkier winnings, or ones that just miss first class and have to go priority. Perhaps you are not bidding in the right auctions.

[x2drich2000]

Originally Posted by Fballguy

For some reason this conversation always goes down an unintended rabbit hole. The OP never mentioned it being deceptive.

I'd love to see the conversation stay on point for once and explain why Hunt can survive on 17.5,% while Heritage needs 20% (I guess they haven't figured out how to capitalize on economies of scale?) and Huggins 23%? Maybe if it didn't feel so arbitrary, people wouldn't bring this up so much.

Same reason Audi is a different price than Toyota or Milwaukee is a different price than Dewalt, or Hershey's is a different price than Ghirardelli. Different products, different costs, different management, different businesses. Seems quite simple to me.

[Fballguy]

Originally Posted by x2drich2000

Same reason Audi is a different price than Toyota or Milwaukee is a different price than Dewalt, or Hershey's is a different price than Ghirardelli. Different products, different costs, different management, different businesses. Seems quite simple to me.

This is not a strong argument. Auction houses produce no product. They're simply a venue.

[x2drich2000]

Originally Posted by Fballguy

This is not a strong argument. Auction houses produce no product. They're simply a venue.

Auction houses absolutely produce a product. The auction house's product is the service they provide. If the auction house is simply a venue, then you would be doing all the work. Even if they are just a venue, like ebay, than the product they provide is the place for you to sell.

[doug.goodman]

Originally Posted by Fballguy

This is not a strong argument. Auction houses produce no product. They're simply a venue.

I don't see yours as a strong argument either, since the rent for Madison Square Garden is different than the rent for the Prudential Center across the river, although they're simply venues.

Doug "I've rented each of them" Goodman

[x2drich2000]

Duplicate post

[RCMcKenzie]

Baseball cards are luxury items. After 2 people bid up a painting 10 times the high estimate, the auctioneer said, "Nice things cost money."

[Orioles1954]

Originally Posted by Fballguy

I'd love to see the conversation stay on point for once and explain why Hunt can survive on 17.5,% while Heritage needs 20% (I guess they haven't figured out how to capitalize on economies of scale?) and Huggins 23%?.

Just an FYI that for 90+% of our bidders that H&S charges a 20% BP. The extra 3% are for those very few bidders who insist on using Credit Cards.

[Pat R]

Originally Posted by luciobar1980

So I get it, you have to think about the Buyer's Premium and take it into account and bid accordingly. But what is the actual point? The only possible motive I can come up with is that's a psychological tactic by the auction house to make you feel like you're paying less than you actually are, or even worse, hoping for ignorance on the part of the buyer.

Sorry if this has been discussed.

Originally Posted by Fballguy

For some reason this conversation always goes down an unintended rabbit hole. The OP never mentioned it being deceptive.

I'd love to see the conversation stay on point for once and explain why Hunt can survive on 17.5,% while Heritage needs 20% (I guess they haven't figured out how to capitalize on economies of scale?) and Huggins 23%? Maybe if it didn't feel so arbitrary, people wouldn't bring this up so much.

Maybe it's just me but it seems like that's what he was insinuating in his post.

[nolemmings]

Originally Posted by Pat R

Maybe it's just me but it seems like that's what he was insinuating in his post.

It's not just you. I also didn't see the OP raise any question as to why one AH charged a higher BP than another, so it seems it is that question which strays from the original point. As for that question, I am not certain why an AH would have to explain why it charges a particular BP, and I do not see where they are limited to a % that they need to "survive".

[Fballguy]

Originally Posted by nolemmings

It's not just you. I also didn't see the OP raise any question as to why one AH charged a higher BP than another, so it seems it is that question which strays from the original point. As for that question, I am not certain why an AH would have to explain why it charges a particular BP, and I do not see where they are limited to a % that they need to "survive".

Which AH do you own? And please don't say none because that would be embarrassing.

[BRoberts]

Something I think is telling when people post about their talks with AHs regarding consignments is how they describe those consignments. Almost always on 54, that reference is in dollars.

"I had a $75,000 consignment ... "

I think intelligent consignors realize it's not just about estimated value but also the specifics of the item. A single $75K card is not that same as a 660-card partially graded set or a collection of 100 vintage photos valued at $75K.

I think many people disregard the time, money and effort that go in to selling sets and lots of memorabilia as "the cost of doing business" and that the AH should just absorb those extra costs. It's probably a reason many of those people have never successfully run a business.

Much easier and satisfying to describe the AHs as greedy pigs.

[raulus]

Originally Posted by Pat R

Maybe it's just me but it seems like that's what he was insinuating in his post.

Call me crazy, but it kind of seems like we're quibbling over semantics, and maybe intent. Not that semantics and intent aren't important!

But the bottom line is that the juice is there, it's a quirk of history and somewhat unique to the auction business, and if you want to go there, you can assert with some confidence that there's arguably some beneficial psychological and marketplace aspects to the practice that conveys a nonzero benefit to the auction house, and helps to further perpetuate the practice.

And I suppose some want to ascribe insalubrious, even malicious intent behind those assertions. But to my mind, those assertions are really not intended to be anything more than a benign recognition that the auction houses are savvy operators, who are operating within standard business practices for their industry. And bully for them!

I believe the old saying is, "If you can't beat 'em, join 'em!" I'm sure if any of us were to open our own AH to get a piece of this sweet, sweet action, we would probably choose to use the same format...

[ValKehl]

Originally Posted by Fballguy

I'd love to see the conversation stay on point for once and explain why Hunt can survive on 17.5,% while Heritage needs 20% (I guess they haven't figured out how to capitalize on economies of scale?) and Huggins 23%? Maybe if it didn't feel so arbitrary, people wouldn't bring this up so much.

I assume the reasons Hunt Auctions can survive on a 17.5% BP are (1) because Hunt hasn't invested in state-of-the-are auction software, and (2) because Hunt seldon shows sufficient pics of its auction lots, often showing only a pic of the front of a card. You couldn't pay me to consign to Hunt Auctions!

[BobC]

Originally Posted by ValKehl

I assume the reasons Hunt Auctions can survive on a 17.5% BP are (1) because Hunt hasn't invested in state-of-the-are auction software, and (2) because Hunt seldon shows sufficient pics of its auction lots, often showing only a pic of the front of a card. You couldn't pay me to consign to Hunt Auctions!

Possibly very true and more good points Val.

Also, how much do all these different AHs charge for Seller's Commissions, and how much or how often might they then cut a break to consignors on those Seller's Commissions? Hunt may be charging a bit higher Seller's Commission as well to make up for the lower BP, or could be less likely to cut the Seller's Commission and do deals with consignors, thus allowing them to possibly get by on that lower BP as well.