So is the "buyers premium" tacked on by some auction houses just a jedi mind trick ?

WingedLiberty1957 · July 18, 2014 8:31AM

You type in a bid of $75,000 on a coin ... and you are really bidding and owe $88,000.
Does anyone ever feel like that extra $13,000 kind of sneaks up on them?

Shouldn't the bid you type in reflect what you are willing to pay?
So if you type in $75,000 ... that's is what you pay when the dust settles
($66,000 for the coin and $9,000 buyers premium).

On ebay when you type in $100, you pay $100 (plus shipping).

Maybe most people just do the math in advance and tweak their bids accordingly.
Still it seems convoluted and kind of sneaky to me.

TommyType · July 18, 2014 8:42AM

I figure it's more of a marketing ploy aimed at the consignor, (who the auction house has a more direct relationship with).

"Look...you get what the bidders are willing to bid. We get most of OUR cut from them, and not from you."

In the end, it of course doesn't matter one way or the other. But it sounds better in the sales pitch.

(Being from CA, I usually get "surprised" by the tax added on more than the BP. But there's no excuse for that, either!)

MrEureka · July 18, 2014 8:49AM

I understand the BP perfectly, and I always take it into consideration when calculating my bids. However, some buyers are not as sophisticated, and their sloppy thinking can cost me money when they underbid me.

roadrunner · July 20, 2014 6:42AM

So is the "buyers premium" tacked on by some auction houses just a jedi mind trick ?

Apparently so. It's worked so well for decades that the coin auction houses have increased it from the orig 10% to a level of 17.5%. The antique and art auction houses are now up 25%. Many estates are handled
by executors who are not well-schooled in the ways of auction houses and buyer's fees. They will be fleeced. Many will figure that a 0-5% seller's fee is a pretty good deal. They never see the 15% buyer's fee coming
once the invoices are tallied. Sizable consignments should strive to get around 90%+ of the full market price the coin sells for. That works out to be 105.75% out of 117.5%....or +5.75% above hammer.

If you polled the PCGS CU Forum base I'd suspect that you'd get a very significant % of people who think that the buyer's fee is paid for by the buyer. Since I've also been active in the classic car auction
arena I've polled those people as well. And surprisingly, I'd say 50% or more of them feel the buyer's fee is paid for by the bidder. The general public is at the >90% rate! I've also found professional auto
dealers who routinely buy at the auto auctions who feel that the buyer's fee is just an entry fee to get through the door. Some never back out their bids and just fork over the 5-8%. They figure if they want the
car bad enough 5% shouldn't make any difference. And these are professionals! Clearly, Jedi master forces are in effect as no sane person with a 5th grade math background could come to such a conclusion.
I even went so far as to google "buyer's fees" and "auction fees" on line (including numerous large auction houses) and in >90% of the cases they suggest the buyer's fee are borne by the bidders. What they never
tell you is that >90% of the bidders back their bids out by the amount of the buyer's fee. You will have to search for a long time to find any references to the truth about buyer's fees. It's more a conspiracy than Jedi-tricks.

In the heat of battle I've sometimes forgotten to back out a bid when a lot I had not previously calculated a bid on appeared to be going too cheap. Other times I did the math wrong in my head. In those cases I sometimes
paid more than I expected. But for the most part, all my bids are backed out before the auction starts.

Mission16 · July 21, 2014 12:04PM

Roadrunner-
Please clarify for me: Item sells for $27. with 10% buyers premium, I am paying $29.70 to the auction house, am I not? So I paid $29.70 for the item, correct?

magikbilly · July 21, 2014 12:13PM

<< I understand the BP perfectly, and I always take it into consideration when calculating my bids. However, some buyers are not as sophisticated, and their sloppy thinking can cost me money when they underbid me. >>

Love the way you put that Andy

I recall your (or TDN's) "add it into your bid" thread from long ago.

Eric

Sonorandesertrat · July 21, 2014 12:19PM

Herb Melnick of NASCA instituted the buyer's premium. It was originally 5%, low enough that many bidders ignored it when bidding (as Melnick intended). Soon, other auction houses instituted a 10% buyers’ premium, which was too big to ignore.

WingedLiberty1957 · July 21, 2014 12:24PM

<< Please clarify for me: Item sells for $27. with 10% buyers premium, I am paying $29.70 to the auction house, am I not? So I paid $29.70 for the item, correct? >>

Here is a good example of the buyers premium ...

The bidder below bid $125,001 for the item (at least that is where his current high bid stands), So probably $125,001 is what they typed into their BID box.
With the buyers premium added in, their bid is REALLY $146,876 (almost $22,000 higher than the bid they typed in).

So if the auction ended right now ...
The buyer pays $146,876 for the item.
The auction house gets a commission of $21,875 (that's the so called "buyers premium")
The seller gets a check for $125,001 (which is what the buyer actually bid for the item).

I guess my whole point to this thread is it seems odd to me that when the buyer types in $125,001 into the BID box ... he's REALLY bidding closer to $150k.

One last thing ... it does seem to me that a commission of almost $22,000 seems excessive. (Does it seem that way to anyone else?) I think a commission of 10% would be plenty, esp on an item that sells for over $100k.

bolivarshagnasty · July 21, 2014 12:40PM

I do know that a Seller, especially with a sought after coin like the VDB Proof, can negotiate with the auction house. It's possible that this Seller may be getting 105% of hammer or higher. High volume Dealers get
these deals as well.

WingedLiberty1957 · July 21, 2014 1:02PM

good point bolivar

pennyannie · July 21, 2014 1:26PM

I am a lazy bidder but I have noticed lately as BP has crept up to 24.5 on some auctions the bid amounts are down. Heritage auctions off a little of everything but in my opinion in the Historical/Firearms the consignments are not as good as they were 18 months ago and the prices paid may cause potential consigners to look for other ways to dispose of collectibles to some degree.

I was always a little ticked off that as a Texas bidder I was getting hit with an extra 8.5 sales tax on top of the price compared to bidders in other states. They have evened that up a bit.

I look at the whole picture and factor in the BP and all but a lot of the time I do not feel others do.

Zoins · July 21, 2014 8:22PM

<< I understand the BP perfectly, and I always take it into consideration when calculating my bids. However, some buyers are not as sophisticated, and their sloppy thinking can cost me money when they underbid me. >>

How do you know when underbids are due to inaccurate calculations or intended bids?

Zoins · July 21, 2014 8:27PM

<< I guess my whole point to this thread is it seems odd to me that when the buyer types in $125,001 into the BID box ... he's REALLY bidding closer to $150k.

One last thing ... it does seem to me that a commission of almost $22,000 seems excessive. (Does it seem that way to anyone else?) I think a commission of 10% would be plenty, esp on an item that sells for over $100k. >>

The other way to pitch this would be:

- The bidder bids the real payment.
- The seller gets the real payment - commission.

BPs have been increasing over the years. They'll likely continue to go up until bidders find alternatives.

pennyannie · July 22, 2014 3:09AM

<< 

<< I guess my whole point to this thread is it seems odd to me that when the buyer types in $125,001 into the BID box ... he's REALLY bidding closer to $150k.

One last thing ... it does seem to me that a commission of almost $22,000 seems excessive. (Does it seem that way to anyone else?) I think a commission of 10% would be plenty, esp on an item that sells for over $100k. >>

The other way to pitch this would be:

- The bidder bids the real payment.
- The seller gets the real payment - commission.

BPs have been increasing over the years. They'll likely continue to go up until bidders find alternatives. >>

I agree with you, I think commissions, premiums have gotten out of whack with reality. When houses sold for 5 to 40k a 6percent commission did not seem like a big deal. I sold a house 10 years ago after being on the market for 3 days for almost 400k. First buyer that looked submitted a offer about 10k under listed price and the real estate agent was pushing to sell. I started telling the guy we were to low under the market and yda, yda, yda. He decided he could kick half of the 10k to get it sold. Probably did less than 6 hours work for that 24k (19K actual then spilt with... so he got ....)

Same thing at resturants, some meals are 10 bucks others are 500 and the service is about the same.

Nothing is fair and never will be nor should it probably be. If everything was fair we would not have any forums to complain to.

Back to the coin referenced you got to thing some potential bidders get a little miffed when the see that 22k bp by the submit button.

BillJones · July 22, 2014 3:47AM

The bottom line in all of this is the higher the buyers' fees get, the worse it is for the consigner, UNLESS he or she can negotiate to receive more than the hammer price. The vast majority of savvy bidders do what I do. You figure out what you are willing to pay for the item and then you divide by 1.175. There might be a few people who treat a 17.5% increase in the hammer price as a throw away, but there can't be many.

I don't how Heritage gets any consignments for political buttons. Their buyers' fee is 25%. The leading auction firm in the political button collector's industry charges a 12% buyers' fee if you pay cash and 15% if you pay by credit card. I am frankly inhibited by the Heritage 25% fee. I have bought a couple of items from them, but those pieces were very special and unusual.

As to why one would bid $125,001 instead of $125,000, here is the scoop. If you are placing that bid at a time that it is NOT the next bidding increment, it will be taken into the system. When the bidding reaches 125,000, that 125,001 bid will kick in. The only way that you can out bid that 1 dollar over bid would be execute a cut bid of 125,000 or the full bidding increment of $130,000. This is "creative bidding," but it does work more times than you might think.

DennisH · July 22, 2014 3:58AM

Bill is so right; "creative bids" (those just a couple of dollars above a standard bidding increment) works quite often.

Sunnywood · July 22, 2014 4:14AM

I am rather annoyed at the increase in buyer's fees from 15% to 17.5% during the five+ years that I have been away from the hobby. I was a math major at a top university, and believe me, when I'm bidding on the fly, in the heat of the moment, I cannot multiply and divide by 1.175 very easily. It was much easier in the days of 10% buyer's fees. 15% was mathematically more workable. I suppose someone will take this as an argument that we should see 20% instead of 17.5% for ease of calculation, but I don't mean to imply that either.

Bidding "$10000" on an item that will really cost you $11750 is a form of deception in my opinion, and I've always been surprised that it is permitted to run auctions this way (but it has been thus forever). I would rather see bidding done in gross amounts including buyers' fees, which should then be netted out to the auction house afterwards. Auction houses don't do this because they want the consignors to feel that they are getting the full price, as though the hammer price were the full price and the buyer's fee were "extra."

Understand that auction houses' primary concern is getting the consignment in the first place. The compete for good consignments. In order to attract good consignments, they have been driven to offer the consignors a higher percentage of hammer, such as 105% of hammer. Obviously, in order to do that and still make a profit, they push up the total buyer's fee. And that's how we got to 17.5%. It does seem oddly collusive to see multiple auction houses at 17.5%. But it has more to do with how much they are all offering the top consignors.

Make no mistake though, the higher buyer's fee DOES make bidders end up paying more. In the long run, I feel this is a corrosive practice that makes the auction venue ever more expensive for buyers. I do not agree that >90% of people can deftly do the math and compensate on the fly.

I love participating in auctions as a buyer, as there are often great opportunities to buy numbers of quality coins in one event. I enjoy the auction process, and am supportive of the auction houses. But I don't care for the 17.5% fee at all.

Best,
Sunnywood

BAJJERFAN · July 22, 2014 4:17AM

<< Roadrunner-
Please clarify for me: Item sells for $27. with 10% buyers premium, I am paying $29.70 to the auction house, am I not? So I paid $29.70 for the item, correct? >>

Exactly. Last time I looked, I was invoiced for and paid a 17.5% buyer's fee. First off, decide what the coin is worth to you [that is how much you are willing to pay for it]. Divide that amount by 1.175. So for a $30,000 coin; 30,000 divided by 1.175 is 25,532 so your bid would be somewhere around $25,530 or so. You may also want to factor shipping/delivery into your bid. The 17.5% ultimately reduces the seller's net from the sale. Also there is commission to be considered. If that isn't negotiated down, IIRC it's around 20%.

LindeDad · July 22, 2014 4:28AM

They can do the all the numbers they want bidders SUBTRACT the next even one. Buyers premiums just make less buyers I feel.

BAJJERFAN · July 22, 2014 6:03AM

Frankly, bid increments grind my gears more than the buyer premiums do.

tradedollarnut · July 22, 2014 6:07AM

I just calculate it in my head at 20% and pocket the difference.

roadrunner · July 22, 2014 7:06AM

<< Roadrunner-
Please clarify for me: Item sells for $27. with 10% buyers premium, I am paying $29.70 to the auction house, am I not? So I paid $29.70 for the item, correct? >>

You sure did. And your check should have been for $29.70. That's what you paid. But, what you bid was $27 (or 10% under FMV for that coin).

From the consignor's view, they get paid off of hammer. If we assume they are eating the full seller's fee of 10%, and didn't negotiate any of the buyer's fee, then they get a check for $27 less $2.70 = $24.30.

-------------------------

Consignor got $24.30 / $29.70 = 81.8%.

Considering you got the coin for FMV you paid 100% of FMV for the coin.. The consignor here in fact paid both fees.

Now if you are altruistic and feel like bidding $29.70 for the coin, the auction house is happy to receive a check from you for $32.67 (+10%) while the consignor is happy to have you pick up the buyer's fee for them.
Now they net $26.73 rather than the original $24.30.....or 90% of FMV based on your bidding mistake. Happy consignor, happy auction house....confused bidder.

roadrunner · July 22, 2014 7:17AM

One last thing ... it does seem to me that a commission of almost $22,000 seems excessive. (Does it seem that way to anyone else?) I think a commission of 10% would be plenty, esp on an item that sells for over $100k.

You're correct. Any any savvy consignor would know that it's too high. This is why most consignors negotiate the fees down to the range of a net 8-12% commission. For this $150K to $250K MPL I suspect they could
negotiate the seller's fee to 0% and buyer's fee 8-10% (vice 17.5%). So their net commission would be 108-100%/117.5% (or a 91.9% to 93.6%). Personally, I feel 90% net is way to low for a coin of that caliber. Odds are
they may have had other coins consigned that dropped the rate lower. 90% is a fair rate to generally shoot for. A huge consignments the consignor might end up with a net 94-96%. It really depends on the consignment. If
TDN decided to consign his 1794 Silver dollar I'd suspect a deal of around net 96-100% could be reached just for the exposure of having the coin in your auction (buyer's fee reduced from 17.5% to 4% or less).

Back when I consigned routinely to B&M auctions in the 1988-1989 period I routinely got a net rate of around 87% for larger consignments. And I do recall getting a rate of around 82% for smaller consignments. And that was
back in the days of 10% buyer's fees. Today, I'm in the 88-92%. So despite higher buyer's fees today, I'm netting more. Obviously, the arrangement of the fees is more smoke and mirrors than anything else. As the consignor
you need to know what's coming out of your pocket. It hasn't changed in 30 years....it's all still coming out of your pocket. Now you just have to negotiate a bit smarter to come out intact. Buyer's fees rising over the years
has actually put more money in my pocket....go figure.

Creative bidding doesn't always work. There have been numerous times I've put in "smart" bids like $1,006 or $2011 via mail bid/on line that might have been just at a key strong wholesale level. In some instances the auctioneer
on the floor gave those coins to a floor bidder at a fraction of an increment above mine (say $1015 or $1020....or $2025). They are not always obligated to go to the next full increment. Their job is to maximize dollars for the
consignor and house. And by giving those lots to the floor, they typically know the coin will be picked up right away and paid by a more dependable check. Sometimes there are problems and delays with the on-line or mail
bidders. In some cases, those guys can return the lots....not so for a floor bidder. That's not something the house would like to risk. If they can get $15 more on the floor and know that coin is gone....they'll be prone to take it.

roadrunner · July 22, 2014 7:40AM

<< I just calculate it in my head at 20% and pocket the difference.

>>

That's why you make the big bucks !

We'll be at a 20% buyer's fee soon enough. So let's all get an advance start on using those 20% techniques right now. Don't even waste your time with 1.175 division. You're going to probably overpay for a lot anyways so
using 1.20 gives you a bit of a cushion.

Davideo · July 22, 2014 9:56AM

<< .... If TDN decided to consign his 1794 Silver dollar I'd suspect a deal of around net 96-100% could be reached just for the exposure of having the coin in your auction (buyer's fee reduced from 17.5% to 4% or less). .... >>

Correct me if I'm wrong, but the buyer's premium doesn't reduce based on the agreed upon the commission of a particular item.

On a different note, I do wonder if an auction house would do well with a 3% buyers premium or something small. Could get positive publicity and that is small enough that many bidders may not really factor it in. Commissions to consignors would still be set/negotiated like normal.

BillJones · July 22, 2014 9:57AM

<< 

<< I just calculate it in my head at 20% and pocket the difference.

>>

That's why you make the big bucks !

We'll be at a 20% buyer's fee soon enough. So let's all get an advance start on using those 20% techniques right now. Don't even waste your time with 1.175 division. You're going to probably overpay for a lot anyways so
using 1.20 gives you a bit of a cushion. >>

Don't give the auction houses an excuse. This will only hurt the consignors more.

crazyhounddog · July 22, 2014 10:18AM

Those fees are negotiable, right?.

BAJJERFAN · July 22, 2014 10:24AM

<< Those fees are negotiable, right?. >>

To a degree, but high rollers will generally do better than low rollers.

gypsylea · July 22, 2014 10:37AM

<< Those fees are negotiable, right?. >>

EVERYTHING is negotiable, most especially if you have an attractive consignment. A partner of mine represented an estate with a very high end art collection. Three auction companies fought to get it. Everything was on the table: fees, catalog placement, covenants to not take consignments deemed to be competing, etc.

Overdate · July 22, 2014 11:22AM

Most businesses offer discounts and rebates to attract buyers. It's beyond me why anyone would want to patronize a business that makes one pay for the "privilege" of being a buyer.

tradedollarnut · July 22, 2014 11:23AM

<< Most businesses offer discounts and rebates to attract buyers. It's beyond me why anyone would want to patronize a business that makes one pay for the "privilege" of being a buyer. >>

Usually to acquire nice coins....

BarberFanatic · July 22, 2014 11:55AM

<< You type in a bid of $75,000 on a coin ... and you are really bidding and owe $88,000.
Does anyone ever feel like that extra $13,000 kind of sneaks up on them? >>

Typically I save my bidding for coins that are more expensive than in your example, so an extra $13K doesn't mean much to me in the grand scheme of things. But that's ME. To others, though, I suppose the extra 17.5% could be a little "irritating".

MrEureka · July 22, 2014 12:21PM

Frankly, bid increments grind my gears more than the buyer premiums do.

The larger the increment, the greater the chances you will get to buy something for less than your true limit bid. (Consider a Krugerrand being sold at auction with $250 increments. Someone is going to get a bargain!)

The only time you should want smaller increments is when you know you will be the successful bidder.

LochNESS · July 22, 2014 12:30PM

I don't know about all this 20% talk. I'm looking at an auction next week which has 21% plus 3% CC processing fee. Which I don't mind actually, but it adds up. Still cheaper than flying myself to the auction and bidding in person. I don't know what the fee is if you're there in person it may be 20%.

So is the "buyers premium" tacked on by some auction houses just a jedi mind trick ?

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So is the &quot;buyers premium&quot; tacked on by some auction houses just a jedi mind trick ?

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So is the "buyers premium" tacked on by some auction houses just a jedi mind trick ?