Are buyer fees justifiable?

ram1946 · November 3, 2007 8:24AM

Why do we accept "buyers premium" add-ons at auctions? Imagine going to your favorite clothing store, picking out a nice shirt and having to pay 10-20% extra for the "privilege" of purchasing that shirt. Obviously the main reason is the auctioneer needs to be compensated for their services and expenses. But why does it have to be bourne by the buyer? I classify this as perpetuating extortion. If the seller wants to put their coin up for auction, then a larger part of the proceeds needs to be withheld. But would that stop truly rare and outstanding coins from becoming available?

Russ · November 3, 2007 8:25AM

<< But why does it have to be bourne by the buyer? >>

It isn't.

Russ, NCNE

ram1946 · November 3, 2007 8:27AM

Explain.

Russ · November 3, 2007 8:29AM

<< Explain. >>

The buyer calculates the juice in to the price and bids accordingly. If there were no juice, the coin would realize a higher price. Thus, the expense is actually born by the seller.

Russ, NCNE

BAJJERFAN · November 3, 2007 8:32AM

Typically bidders reduce their bid amounts by the amount of the buyer's fee or juice so this usually results in the cost of the buyer's premium being borne by the seller. I suppose this ends up working most of the time. I would also guess that the juice might be negotiable if you are a preferred buyer.

fc · November 3, 2007 8:35AM

i agree with russ. the juice is always part of my purchasing decision
and i bid accordingly. I simply do the math and then place my bid.

Bochiman · November 3, 2007 8:40AM

The only thing that would be different is if the bidder is new, uneducated, about the auction process and bids actual value of the coin itself, then gets the 20% hit on top of that

Cameonut · November 3, 2007 8:44AM

Russ is correct.

I always determine what my "delivered" price is - coin, plus juice, plus shipping. Then I bid accordingly.

The higher the fees, the lower the amount the seller receives - at least for the coins I buy.

AU58WALKERS · November 3, 2007 8:44AM

what is the "juice" that B&M charges on their auctions?

ram1946 · November 3, 2007 8:46AM

Really? Take a $30,000 coin with 10 points vig both ways. Buyer bids $27 knowing they're going to have to pay another 10%. Seller gets $24. The house makes $6. You're telling me that $30,000 coin can't be sold at $30,000 (quality, desireability, etc all there) with the seller contributing the full 20 points (or even something less)?

roadrunner · November 3, 2007 8:48AM

Buyer's fees are justifiable because they are part of the total commission bourne by the consignor and paid to the auction house.
And certainly the house should be paid for it's research and efforts.

The misnomer of buyer's fees came into being around 1988-1990 to give consignors the illusion of not paying all the commission. So rather than pay an 18-25% commission as was the case in the early 1980's, the auction houses decided to use some smoke and mirrors to make it all seem more palatable. So now the fee is split up 15% to "buyer" and 10% to seller. Yet the bidder backs off his bids and hands the buyer's fee right back to the consignor.

Since the OP was asking this question, it is obvious that the confusion with buyer's fee still is out there. And the same misunderstanding is brought up every few months by different members. I doubt it will ever go away. That's the way the auction houses want it.

roasdrunner

Bochiman · November 3, 2007 8:52AM

Yes, auction houses should be paid, however, imho, just like real estate agents, when the price hits up so high, I don't think they should make so much.
With some exceptions, they don't usually do a lot of additional work between a $2000 coin and a $10,000 coin. Or a $50,000 coin and a $100,000 coin. Right?
Yet they make substantially more on those spreads.

BAJJERFAN · November 3, 2007 9:00AM

<< Really? Take a $30,000 coin with 10 points vig both ways. Buyer bids $27 knowing they're going to have to pay another 10%. Seller gets $24. The house makes $6. You're telling me that $30,000 coin can't be sold at $30,000 (quality, desireability, etc all there) with the seller contributing the full 20 points (or even something less)? >>

The coin may hammer for more than $30K if its PQ or the the timing is right or there are two or more bidders who really want the coin. A $30K coin will not always sell for $30K. Sometimes it brings more, sometimes it brings less.

SeaEagleCoins · November 3, 2007 9:12AM

<< 

<< Explain. >>

The buyer calculates the juice in to the price and bids accordingly. If there were no juice, the coin would realize a higher price. Thus, the expense is actually born by the seller.

Russ, NCNE >>

...precise and to the point...as would be expected from any experienced Ferengi...

MrEureka · November 3, 2007 9:37AM

The buyer calculates the juice in to the price and bids accordingly. If there were no juice, the coin would realize a higher price. Thus, the expense is actually born by the seller.

This is a fallacy. Yes, it's sometimes true. Other times, it's not. It depends on the amount of the reserve and the value to the second highest bidder. For example, let's assume that the buyer's premium is 15% and the seller is paying a 0% seller's commission. Consider a coin where the reserve is $1000, the second highest bidder values the coin at $500, and the highest bidder values the coin at $2000. In this case, the coin hammers at $1000 and the buyer has borne the $150 cost of the BP.

On the other hand, if the second highest bidder valued the coin at $1500, he would have bid $1300 hammer, and the coin would have sold for $1350 hammer. In this case, I'd agree that the consignor would bear the economic cost of the BP.

But to answer the OP's question, of course the fees are "justifiable". If they weren't, nobody would pay them.

garsmith · November 3, 2007 9:48AM

<<The buyer calculates the juice in to the price and bids accordingly. If there were no juice, the coin would realize a higher price. Thus, the expense is actually born by the seller.

Russ, NCNE>>

That's what I do!

Coxe · November 3, 2007 9:56AM

It doesn't matter if it is there or not to the bidder, in theory. If I want to max bid a lot at $25K and the buyer's fee is 15%, I just compute $25K/1.5 and figure I won't bid higher than $22K. But theory differs from practice a lot fo the time. Not all bidders practice consistent self-discipline when bidding on a lot they truly want. They continue to ratchet their bids up and lose track of the juice. Auction companies know this and sure aren't going to discourage it.

IMO, The hammer should be the buying price. Then the seller is responsible for the fees on the lots as prenegotiated. If the company wants the lots as a sale anchor, they might waive all fees, drastically reduce them, or allow a reasonable reserve without penalty of a fee. But the rule sof the game are what they are....for now. I bet when the market cools and consignments dry up, we have a chance to regress to the nominal 10% fee. I honestly don't see how the internet sales' fee of 15% can be justified, in particular.

Among everything, a buyer who resells at public auction is facing a nearly 20% penalty to overcome. Just imagine the regulatory crackdown if the securities industry threw a buy/sell spread obstacle like that at investors. But they aren't really that comparable. Still, if people think this is an easy place to do anything close to guerilla day trading, they are sorely mistaken. You have to buy smartly, hold patiently, and perform significant due dilligence to identify the appropriate venue for later disposition. Heirs will send love letter after love letter to Heritage and friends when they get that boatload of money 6 to 9 months after they hand over the coins they figured for an odd accumulation of questionable liquidity. Collectors and dealers know better. Sure, win some big now and then, but overcoming that 18% or so barrier is nuts usually.

Coxe · November 3, 2007 10:04AM

<< Buyer's fees are justifiable because they are part of the total commission bourne by the consignor and paid to the auction house.
And certainly the house should be paid for it's research and efforts. >>

rr, justify 15% buyer's fee and 5% sellers fee for a run-of-the-mill weekly internet sale. Where is the research on that no lot description lot? How much is spent in marketing the sale? I agree that the house should be compensated for their effort and expenses. Notice, though, that fees went up as coin values went up over the past several years. They were already poised to make more $$$ from the valuation increases, but decided to hike the rates as well. TT held out at 10% for a while. That hike to 12% is a 20% pay raise in effect from that side of the trade. We can argue inflation all day long, but I didn't see that much inflation. Heritage I think went from 12% to 15%, a 25% raise. Along the way, auctions became far more efficient thanks to the Internet. There was certainly some cost in making it all work. TT was the pioneer in all of that. Heritage did and continues to do a remarkable job at running their sales in an increasingly robust and usually trouble-free manner. Not everything is negative. The other houses did similar stuff, but two examples suffice to generalize much of the industry.

roadrunner · November 3, 2007 10:11AM

Coxe, I can't justify those fees for less than the full monty auction at a major show venue for example. My thoughts were directed more toward a major public auction venue. I have consigned coins that way, but never via ebay, internet or some alternative method.
Major auction fees are a crap shoot. Sometimes you win and sometimes you lose. I'd say my own experiences are mixed. You'll never get a run-away price on the bourse floor, but you won't lose your a$$ either unless you choose to.

roadrunner

Coxe · November 3, 2007 10:22AM

I agree completely, rr. Learned my lesson on all levels and most venues of auctions. There are certain coins that are right for some and none for all.

I have considered this all a great deal. There will be a time soon enough when I will liquidate my Morgan set. My experiences with public auctions has been mixed and mixed enough to question if their claims of being the best place to realize the best prices is really true even for really nice collections. Selling is the most difficult thing in this hobby. The stress of letting go of a carefully assembled collection piece by piece is only part of it.

percyb · November 3, 2007 10:35AM

If the buyer isn't paying the juice, they wouldn't use the term "buyers premium." Sellers always think the buyer makes adjustments. In the end, it may be the buyer and seller split. If they tacked on a "sellers premium," the buyer would feel like he or she is paying for that as well, from a buyer's perspective...

bestday · November 3, 2007 11:37AM

<< 

<< Explain. >>

The buyer calculates the juice in to the price and bids accordingly. If there were no juice, the coin would realize a higher price. Thus, the expense is actually born by the seller.

Russ, NCNE >>

BULLSEYE......... there Russ

percyb · November 3, 2007 12:06PM

<< 

<< 

<< Explain. >>

The buyer calculates the juice in to the price and bids accordingly. If there were no juice, the coin would realize a higher price. Thus, the expense is actually born by the seller.

Russ, NCNE >>

BULLSEYE......... there Russ

>>

Spoken like a true sales person.

MrEureka · November 3, 2007 12:53PM

I'm going to take another shot at this...

Let's say I consign a coin to an auction and am not being charged a seller's fee.

Let's say I reserve it at $1000 because that's the least I would be willing to net for the coin.

Let's say there is a 15% buyer's premium.

Let's say there's only one bidder interested in the coin, and he's willing to spend a maximum of $1150.

He buys it for $1000 hammer, his limit, with a total cost of $1150.

Since the buyer was willing to pay $1150 total, did I (as the consignor) essentially pay the auction company it's $150 commission?

Or would it be more accurate to say that since I was willing to sell at $1000, the buyer really paid the $150 commission?

IMHO, there is no correct choice. The auctioneer simply collected his money according to the rules of his game.

tradedollarnut · November 3, 2007 12:55PM

Since the buyer was willing to pay $1150 total, did I (as the consignor) essentially pay the auction company it's $150 commission?

Or would it be more accurate to say that since I was willing to sell at $1000, the buyer really paid the $150 commission?

If there was no buyer's fee but simply a consignor's fee, wouldn't your sell price be $1150? Or would it be more accurate to say WHO THE HECK CARES ABOUT SEMANTICS!

MrEureka · November 3, 2007 1:02PM

If there was no buyer's fee but simply a consignor's fee, wouldn't your sell price be $1150?

I said I wanted to net a minimum of $1000 and (whatever the fee structure) I'll set my reserve accordingly. Of course, a consignor setting his reserve based on his net proceeds is no different than a buyer calculating his bid based on his total cost.

Coxe · November 3, 2007 1:06PM

Mathematically, it matters little how the fees are split. Psychologically, it does in the heat of bidding for some bidders on some lots.

My problem isn't where the fees are assessed but the level they are currently at. A 15% buyer's fee means about an 87% market price hammer. A 5% seller's fee on the hammer, means the seller gets 86.2% of the market value, assuming the hammer plus juice is market. This is the customary model used by the big houses. Does it really cost a good fraction of $175 to research, photograph and market a $1,000 lot? How much of that is pure profit? Is it acceptable? Yes, it is their rules and take them or leave them. I know.

BAJJERFAN · November 3, 2007 1:19PM

Gee, every invoice I have ever gotten from Heritage, or B&M or TeleTrade clearly specifies a buyer's premium which I am expected to pay.

Not sure in what context the OP means by justifiable. Why would an auction house need to justify their policies to me as a bidder. I wouldn't ask a dealer on the bourse to justify his asking price to me. When I bid at auction I know the score and what I will be obligated for if I win. The hard part is bidding intelligently on a coin if it is a sight unseen situation and I have to rely on a house's pics or description.

percyb · November 3, 2007 1:54PM

<< Gee, every invoice I have ever gotten from Heritage, or B&M or TeleTrade clearly specifies a buyer's premium which I am expected to pay.

Not sure in what context the OP means by justifiable. Why would an auction house need to justify their policies to me as a bidder. I wouldn't ask a dealer on the bourse to justify his asking price to me. When I bid at auction I know the score and what I will be obligated for if I win. The hard part is bidding intelligently on a coin if it is a sight unseen situation and I have to rely on a house's pics or description. >>

The thing that bothers me about the buyers fee is that it's not like I called these places up and told them to go look for a particular coin for me--call everyone you know, go run down to so and so's place and check out the quality and then call me back and when you do, help me negotiate a price on it. You know, haggle with the seller for me and get me my price. They do nothing except list the coin.

BAJJERFAN · November 3, 2007 2:13PM

So what is a seller to do? I guess if you have nice or great coins that you bought years ago when the market was down then you can probably do pretty well even through Heritage. If you have average stuff that you paid good money for then yer probly gonna loose money.HIt would be intereting to know how many of the coins sold on heritage have actually broke even or made money for the consignor. If a coin hammers for $1,000 on Heritage [$1150 to the buyer] then where else could the seller actually realize the entire $1150 for himself?

Coxe · November 3, 2007 3:31PM

Where can he realize more than $950 is the perspective of the seller. Also bear in mind the time part of the equation when the time from consignment to payment is 6 months or more.

BlindedByEgo · November 3, 2007 4:37PM

<< Really? Take a $30,000 coin with 10 points vig both ways. Buyer bids $27 knowing they're going to have to pay another 10%. Seller gets $24. The house makes $6. You're telling me that $30,000 coin can't be sold at $30,000 (quality, desireability, etc all there) with the seller contributing the full 20 points (or even something less)? >>

A "30K" coin is a 30K coin when it sells for 30K. Entirely determined by the market AT THAT MOMENT. Prices are neither static nor 100% duplicatable.

Commissions are much like corporate taxes - they are always eventually passed along to the end consumer.

Justifiable? An individual choice; one votes with ones' checkbook.

roadrunner · November 3, 2007 9:40PM

If a coin hammers for $1,000 on Heritage [$1150 to the buyer] then where else could the seller actually realize the entire $1150 for himself?

Retail dealers and wholesalers shop at auctions. They effectively buy at the house price with commissions and sell for a profit. They do it day in and day out. A significant number of auction lots therefore really sell at wholesale. The rest of the lots sell for something above wholesale and above retail in some cases.

roadrunner

BAJJERFAN · November 3, 2007 10:57PM

<< Where can he realize more than $950 is the perspective of the seller. Also bear in mind the time part of the equation when the time from consignment to payment is 6 months or more. >>

I'm not sure its quite that long; maybe more like 4 months. That can go both ways too. The market could tank after its sold; or jump up after its sold. Ya pays yer money and ya takes yer chances.

BAJJERFAN · November 3, 2007 11:01PM

<< If a coin hammers for $1,000 on Heritage [$1150 to the buyer] then where else could the seller actually realize the entire $1150 for himself?

Retail dealers and wholesalers shop at auctions. They effectively buy at the house price with commissions and sell for a profit. They do it day in and day out. A significant number of auction lots therefore really sell at wholesale. The rest of the lots sell for something above wholesale and above retail in some cases.

roadrunner >>

Then again dealers have more outlets for their stuff than the average collector does. They have the advantage of customer want lists and being in the market full time.

Silverstate · November 3, 2007 11:06PM

We do the same on eBay. Add up the shipping and all.
If it works, bid only to what you are willing to pay.

So, I agree the seller ends up getting the short end of the stick.

BAJJERFAN · November 3, 2007 11:15PM

Then again, the seller/consignor like the buyer knows the score going in and its up to him to believe whether or not the auction house will give its best effort [pix and descriptions] in selling his coins.

ColonialCoinUnion · November 3, 2007 11:46PM

<< Are buyer fees justifiable? >>

It doesn't matter.

If I figure out how much I am willing to pay for a coin, and then pay that much, I couldn't care less what percentage of it is considered 'buyer's fee', or 'seller's fee', or sales tax, or shipping and insurance, or handling, etc.

walkerman · November 4, 2007 6:10PM

With the exception of real collections being consigned to auction for liquidation, most of the coins consigned are from dealers inventories that for one reason or other did not sell.
When a consignment is large enough, the knowledgable consignor has no trouble negotiating for 105% of hammer or more.
Since the dealers motivation is to break even on these consignments and thereby have more capital to refresh his inventory he usually sets the reserve at 95% of his cost.
On coins he is really buried in(yes it happens all the time) and if he really wants to make them go away, he sets the reserve at closer to 5% less than market.
If the auction consignment director considers the reserve too high thus reducing the chances of the coins selling, they will not offer anything more than hammer, will charge a sellers fee and assess a 4% buyback fee on all unsold items.
In some cases, if they think the coins have no realistic chance to sell, they will refuse to accept the consignment

Many registry set collectors are not aware that they shouldn't be paying sellers fees when they consign their sets to auction.
When they are pressed into consigning their $100,000+ collection with no reserve, they should be able to receive as much as 107% of hammer.
The auction house is not going to reveal these terms if possible but the reality is they would rather make 8% on a 100% sold consignment than 15% of a consignment that is only 30-40% sold.
Any responsible dealer who is a regular consignor can and will negotiate a much better deal for a fee of a few percentage points. Dave W

David J Weygant Rare Coins website: www.djwcoin.com

Coxe · November 5, 2007 3:55AM

<< 

<< Where can he realize more than $950 is the perspective of the seller. Also bear in mind the time part of the equation when the time from consignment to payment is 6 months or more. >>

I'm not sure its quite that long; maybe more like 4 months. That can go both ways too. The market could tank after its sold; or jump up after its sold. Ya pays yer money and ya takes yer chances. >>

It isn't a matter of timing the coin market but of lost time value access to the money. And yes, the time varies. Depends on when and to whom you consign. If you can locate a buyer on your own within a couple months, you have the money in the bank.

BTW, I am not arguing the rules. They are set and you can play or not. I am saying they are unhealthy as they stand today for the market. They introduce (1) a significant delay in resales of coins (good or bad) and (2) sour the hobby for those who consistently finding themselves losing 15% to 40%, depending on the level of collusion and the retail buy vs wholesale rebuy issues. Again, the the rules are what they are but I feel they are destructively (to the hobby) rish and unjustifiable considering the level and nature of the services afforded most lots and buyers in most sales.

BAJJERFAN · November 5, 2007 10:22AM

Well I was looking at for Heritage from say the time you ship your coins until auction as about 2 months and another 2 months to get your $ after that. My understanding is that once you commit to consign and put them in the mail, that you have pretty much given up any control over them. BTW how much time to you have to change your mind and unconsign them or are you pretty much SOL.

Coxe · November 5, 2007 10:45AM

You have a contract with them in the consignment. I suppose you could buy them back.

Are buyer fees justifiable?

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