Shrinking Buyers Premium ?

[parkplace33]

With the way business has been booming for AHs over last 10 years, I am actually surprised BP hasn't gone up more.

[rjackson44]

my mom buys art at christies and mayor houses people that are buying that art dont give a shit ,,shes has money i dont ,, lol

[Lorewalker]

If the rules apply to everyone bidding and those rules are clear, then that person who is willing to spend the most money will win regardless of the buyer's premium and regardless if the bp declines as the bid price goes up. Not sure why separating the bp from the bid is even a thing.

[x2drich2000]

It seems most folks are forgetting auction houses care about how they can make any bidder pay more. This means getting the underbidder, not the winner, to bid as much as possible. How often are you right at your budget point? I'm sure we can all remember times where the current bid is a steal but the next bid is way over your max. Reducing the buyers premium reduces the total cost between bids. If bid + buyers premium is x and your willing to pay x + $100, and the next increment is going to be x + $200, reducing the buyers premium may get you to the point where it is within your budget to place that bid. If you win it, good for you. However, if you get outbid, the next bidder still has to top your bid and the auction house makes more money. If you can increase the number of bid spots between increments you should have more competition and reduce the number of lots that sell well below their market value.

[Orioles1954]

Originally Posted by parkplace33

With the way business has been booming for AHs over last 10 years, I am actually surprised BP hasn't gone up more.

With one of the English auction houses I deal with the BP is over 30%

[Peter_Spaeth]

Suppose the premium was 50 percent. Suppose it was 75 percent. I would love to hear a coherent explanation of why that would matter to a bidder. I get why it would matter to a consignor if they don't have a separate deal.

[raulus]

Originally Posted by Peter_Spaeth

Suppose the premium was 50 percent. Suppose it was 75 percent. I would love to hear a coherent explanation of why that would matter to a bidder. I get why it would matter to a consignor if they don't have a separate deal.

You mean aside from the fact that the bidder gets to pay it, why should they care?

But I think we can safely set that aside, since I suspect that your point is that if you're the bidder, the precise breakout between bid and premium is irrelevant.

Naturally, the presumption is that all bidders:

1) Know about the size of the premium
2) Are sufficiently mathematically sophisticated to factor it into their price, and
3) Act rationally when bidding on items, and therefore don't allow things like extra charges to cloud their vision and approach to bidding.

I'm not sold that these points are always true 100% of the time. #3 is particularly suspect in my view. But we've argued this for long enough in the past to know that we are unlikely to completely agree on these points.

So, yeah.

[Lorewalker]

Originally Posted by raulus

You mean aside from the fact that the bidder gets to pay it, why should they care?

But I think we can safely set that aside, since I suspect that your point is that if you're the bidder, the precise breakout between bid and premium is irrelevant.

Naturally, the presumption is that all bidders:

1) Know about the size of the premium
2) Are sufficiently mathematically sophisticated to factor it into their price, and
3) Act rationally when bidding on items, and therefore don't allow things like extra charges to cloud their vision and approach to bidding.

I'm not sold that these points are always true 100% of the time. #3 is particularly suspect in my view. But we've argued this for long enough in the past to know that we are unlikely to completely agree on these points.

So, yeah.

I must be giving collectors way too much credit then. I cannot see how anyone bidding forgets or disregards the BP unless it is their first time bidding. That some do not care or have so much money that they treat it as if it is a shipping charge does not change the outcome. The person willing to write the largest check is going to win...no matter what the BP is.

[Snapolit1]

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

[raulus]

Originally Posted by Snapolit1

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

So why don't auction houses agree to get paid less by reducing the juice on higher-priced items?

Seems like a self-evident answer.

Obviously it will only happen if one member of the competition moves to that business model. And even then, only if the competition starts eating everyone else's lunch after moving to that business model, thereby forcing the other AHs to match that fee structure.

[GeoPoto]

Originally Posted by raulus

So why don't auction houses agree to get paid less by reducing the juice on higher-priced items?

This is exactly what AHs do, but it is not obvious to observers because it is done as a negative consignor's fee.

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[Gorditadogg]

Originally Posted by Snapolit1

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

I agree with you, and it is me as a seller the fees make a difference to, much more than me as a buyer.

I think probably many auction sites negotiate lower fees for higher priced items. I know all the ones I have worked with do.

The reduced fees are usually not passed along to the buyer though, rather they are rebated to the seller. In other words, if an AH adds 18% to the hammer, they could be sharing part of that with the seller.

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[G1911]

In a world in which all men were rational, the premiums are irrelevant.

However, we do not live in a world in which people behave with much semblance of rationality. Having the premium structure is more work for the auction house, not less. It requires disclosures everywhere, complicates billing, adds additional steps and line items in numerous points of interaction and in catalogs, toolkits and in almost everything else they use and produce. Yet every one of them has it. Why? Because the trick works. If it didn't work, the needless complication would be removed and the fees baked direct into the bid price. Many people clearly bid without fully calculating the premium, and even if they do it's easier to dismiss as the 'cost of doing business', just like how many people are well aware of sales tax but don't factor that into the 'is item X worth Y dollars to me?' equation when making a purchasing decision. Relying on this kind of thinking, or the sheer stupidity of users depending on perspective, works. The number of people who end up paying more in this system clearly is greater than the number of people that just don't bid because they see the trick and it bothers them.

[griffon512]

Originally Posted by Snapolit1

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

All we are talking about in a buyers premium is how, on the surface, an auction house and the seller decide to split the proceeds of a sale. Assume in almost all cases the buyer is going to pay full market price regardless of what the buyers premium is/how the auction house and the seller split the proceeds. It's also a safe assumption that most auction houses give a higher percentage of the proceeds on higher priced items -- the business models you mentioned for buyers premiums are not even close to unique. Some auction houses are explicit about giving back buyers premium percentage points to the seller and others understandably treat it on a case by case basis. That is no different than how business would be conducted in any other field. I've even heard of a case where an auction house paid out more than 100% of the proceeds on one truly iconic card. Again, it's understandable if that draws in more business.

[Peter_Spaeth]

The assumption of the initial post seems to be that an explicit lower BP is somehow going to result in a higher total price for the item (bid plus BP). That makes no sense to me. The posts explaining why BP makes no difference to bidders are quite on point because they contradict that assumption.

[jayshum]

I'm not aware of any other AHs that do what the OP found Sotherbys and Christies do, but Clean Sweep Auctions does the opposite of what the OP suggested and increases their BP as it gets later at night. I assume the goal is to get the auction to finally end since bidding later at night becomes more expensive (for everyone whether or not they are aware of it or factor it into their bidding).

15. BIDS PLACED AFTER 1:30 AM EST ARE SUBJECT TO A 5% ADDITIONAL BUYERS PREMIUM, 10% AFTER 2:30 AM EST; MAXIMUM BIDS PLACED BEFORE THIS TIME ARE EXEMPT FROM THIS.

[Rhotchkiss]

Originally Posted by griffon512

All we are talking about in a buyers premium is how, on the surface, an auction house and the seller decide to split the proceeds of a sale. Assume in almost all cases the buyer is going to pay full market price regardless of what the buyers premium is/how the auction house and the seller split the proceeds. It's also a safe assumption that most auction houses give a higher percentage of the proceeds on higher priced items -- the business models you mentioned for buyers premiums are not even close to unique. Some auction houses are explicit about giving back buyers premium percentage points to the seller and others understandably treat it on a case by case basis. That is no different than how business would be conducted in any other field. I've even heard of a case where an auction house paid out more than 100% of the proceeds on one truly iconic card. Again, it's understandable if that draws in more business.

Hi James! How you been? It’s been a while. I hope all is well and I hope to see you one day soon at Philly or chantilly. Oh, and I agree with your post 100%

[BobC]

Originally Posted by Snapolit1

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

Don't worry Steve, I get your question, and can understand where you're coming from.

To me, the idea of a fixed buyer fee/commission kind of goes along with the overcharging that TPGs do when grading cards or authenticating autographs. The TPGs charge a sort of progressive fee based on the supposed underlying value of the card/autograph, which allows them to grossly overcharge for basically putting in and doing the exact some amount of work and effort to grade a '52 Topps Mantle, or authenticate a Mantle autograph, as they do for grading an '88 Topps common card or an autograph from a common player in the same '88 Topps set. Yet people gladly and willingly seem to just go ahead and pay it. In the case of an auction house it is kind of the same with a fixed commission/fee. Technically and theoretically, the auction house puts in pretty much the exact same amount of work and effort to sell a '52 Topps Mantle card as they would for selling an '88 Topps common card. But because the '52 Mantle card is intrinsically more valuable and ends up selling for more money, the auction house makes more money for basically doing the same amount of work they did to sell a much lesser valued card. I'm certainly not against a legitimate business making a profit, but the fixed commission/fee auction house model definitely pushes AHs to go after the higher valued items, and ignore lower priced items and such that they may not make as much money on otherwise.

The idea you brought up in your question, and is demonstrated by what actually occurs with an auction house like Sotheby's, really makes perfect sense from a business standpoint for an AH. When Sotheby's sells an item at auction, they likely have a pretty good idea, based on the number of items in their auction, of what their fixed and variable costs are to sell each item in that auction. So if they have someone consign a very valuable item that will clearly generate commissions/fees well in excess of their fixed/variable costs, wouldn't it maybe behoove them to scale those commission/fees back a little by using a declining commission/fee charge, which they do as shown by your earlier post. That way, other potential consignors with very valuable items to sell would likely choose Sotheby's over different AHs that don't offer such a reducing commission/fee charge. Using such a declining commission/fee schedule should ultimately put more money into the consignor's pocket, and as a result, more consignors choosing to use Sotheby's for such sales. And this really isn't that different of an approach than what many AHs more focused on sports cards and memorabilia already take and use when they offer to reduce, or even eliminate, a seller's commission/fee that they would otherwise charge to consignors. Or in the case of some extremely valuable cards and items, even share a portion of the buyer's commission/fee with an item's consignor. It is an incentive or technique they offer to get consignors to consign with them, and not their competitors.

As you mentioned, the use of such a declining buyer's commission/fee technique really wouldn't/shouldn't have any effect on an auction buyer. It has been discussed before that in some cases you can have some auction bidders get caught up in the heat of an auction moment, and who then may momentarily forget about the buyer's commission/fee they end up paying. But I believe, as many others have already said, that that is likely happening only a very, very small percentage of the time, if at all. And that is especially the case when you're talking about more valuable items. A bidder is much more likely to not think about a 20% buyer's commission/fee on a $100 item, than they would on a $1M item. Wouldn't you agree?

I think your question itself just accurately highlights another way for some AHs to offer discounts/savings to consignors, to attract more of them to their AH as opposed to competitors. And the fact that big time art AHs like Christies and Sotheby's do things their way, using a declining commission/fee schedule to benefit and attract consignors, while sports card/memorabilia AHs tend to use an upfront discounted seller's commission/fee to benefit and attract their consignors, just shows how competitors in different businesses/industries tend to end up copying/sharing the same techniques and operating ways of their direct competitors. Great question IMO.

[Lorewalker]

Originally Posted by Snapolit1

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

This is not about caring about the buyer's premium. It is about being aware of it and factoring it into the cost you will pay. BP is factored into what I pay...just like sales tax is. It is a cost I have to pay if I want to win something by being willing to outbid the guy whose bid I need to top. I also do not begrudge houses who want to earn a living charging the buyer and the seller.

As for Christies and Southebys I suspect their declining rate is due to the fact that they routinely sell very expensive items. I have no bid with either but they are in collectible fields which eclipse sports cards values more regularly...not that sports cards do not reach those high 6 figure and 7 figure values.

[darwinbulldog]

Originally Posted by Snapolit1

Nothing about my original question had anything to with how this would affect or not affect my potential buying activities. I just asked why AH's don't do it to for their own economic reasons. I then got 15 responses saying who the hell cares and why would it matter to me as a buyer. And then a 5 minutes internet search reveals that Sotherbys does exactly what I suggested. And more why would I care responses.

But, hey guys, I get it. You personally don't care about the buyer's commission. We've all sort of heard that. Many times. Sort of a bit of a broken record at this point. Believe it or not, there was a different question on the table. For some reason Sotherbys believes it is in their interest to have a declining commission rate. Of course Christies does the same thing. Curious why they have a business model different than in our little world.

People on the internet collectively are worse than politicians when it comes to answering the actual question vs. the question they wanted to be asked.

[Peter_Spaeth]

Originally Posted by raulus

You mean aside from the fact that the bidder gets to pay it, why should they care?

But I think we can safely set that aside, since I suspect that your point is that if you're the bidder, the precise breakout between bid and premium is irrelevant.

Naturally, the presumption is that all bidders:

1) Know about the size of the premium
2) Are sufficiently mathematically sophisticated to factor it into their price, and
3) Act rationally when bidding on items, and therefore don't allow things like extra charges to cloud their vision and approach to bidding.

I'm not sold that these points are always true 100% of the time. #3 is particularly suspect in my view. But we've argued this for long enough in the past to know that we are unlikely to completely agree on these points.

So, yeah.

Mathematically sophisticated? Yeah multiplying a number by 1.2 takes a lot of sophistication. Come on.

[raulus]

Originally Posted by Peter_Spaeth

Mathematically sophisticated? Yeah multiplying a number by 1.2 takes a lot of sophistication. Come on.

Never underestimate the inability of Americans to do simple things, like multiplication.

[Peter_Spaeth]

Originally Posted by raulus

never underestimate the inability of americans to do simple things, like multiplication.

lol.

[Gorditadogg]

Originally Posted by raulus

Never underestimate the inability of Americans to do simple things, like multiplication.

FWIW, there have been studies showing that people are not very good at adding up fees. That's why retailers are adding fees to all sorts of transactions now. There is even a bill in Congess to curb the practice, because we are all so gullible.

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