When not to use a dealer rep at auction for 5%
roadrunner
Posts: 28,371 ✭✭✭✭✭
While it is usually considered good logic to have a dealer look at auction lots and bid as your representative, it's not always the best route, regardless of reputations.
The last time I went this route was about 4 years ago. The auction consisted of fresh seated material and several of the lots appeared (i.e. they were) to be undergraded by PCGS. I worked up bids on 5 lots and had a major player "look over" those lots for me. From what I got in return, it was a complete waste of my 5%. The one lot I considered a key potential upgrade that could be very buyable as it was undergraded by nearly 2 pts imo. I was outbid on this lot by "only" 20%. The key here being that the coin was graded 66, I felt it was a 67++. The coin did in fact bring 67++ money, and then promptly upgraded at NGC by the winning bidder. I later saw the coin appear on a retailer's site for 2X what it brought at the sale. It sold immediately. Nice coin and close to flawless.
Several other of those lots upgraded as well. The one lot I did win was the most average coin of the group, and it was clearly not upgradeable. With the 5% commission, I essentially found myself into that coin at 5% over what it was worth and missed out on some exceptional upgradeable coins. 4 years later I was finally able to get that 5% back and sell the coin. For their 5%, the dealer in question offered no insights on the coins, didn't offer their opinion except to say, "gee, you have a good eye." In essence they did nothing but execute bids. Guess, they were too busy handling bids from other bidders. In an ironic twist of fate one of the 5 coins I bid on that was immediately upgraded, was bought by this same dealer following the sale. Did they even offer it to me? Of course not! That was probably the furthest thing from their mind. When I called up as soon as it was known to me that they had it, I was told it was sold.
You get what you pay for, I guess. In this case the 5% cost me a lot more than that. Be careful of those hired to bid for you and ensure they provide the service worthy of that fee. Needless to say I only needed one experience with this dealer to look elsewhere for a bidder's rep.
roadrunner
The last time I went this route was about 4 years ago. The auction consisted of fresh seated material and several of the lots appeared (i.e. they were) to be undergraded by PCGS. I worked up bids on 5 lots and had a major player "look over" those lots for me. From what I got in return, it was a complete waste of my 5%. The one lot I considered a key potential upgrade that could be very buyable as it was undergraded by nearly 2 pts imo. I was outbid on this lot by "only" 20%. The key here being that the coin was graded 66, I felt it was a 67++. The coin did in fact bring 67++ money, and then promptly upgraded at NGC by the winning bidder. I later saw the coin appear on a retailer's site for 2X what it brought at the sale. It sold immediately. Nice coin and close to flawless.
Several other of those lots upgraded as well. The one lot I did win was the most average coin of the group, and it was clearly not upgradeable. With the 5% commission, I essentially found myself into that coin at 5% over what it was worth and missed out on some exceptional upgradeable coins. 4 years later I was finally able to get that 5% back and sell the coin. For their 5%, the dealer in question offered no insights on the coins, didn't offer their opinion except to say, "gee, you have a good eye." In essence they did nothing but execute bids. Guess, they were too busy handling bids from other bidders. In an ironic twist of fate one of the 5 coins I bid on that was immediately upgraded, was bought by this same dealer following the sale. Did they even offer it to me? Of course not! That was probably the furthest thing from their mind. When I called up as soon as it was known to me that they had it, I was told it was sold.
You get what you pay for, I guess. In this case the 5% cost me a lot more than that. Be careful of those hired to bid for you and ensure they provide the service worthy of that fee. Needless to say I only needed one experience with this dealer to look elsewhere for a bidder's rep.
roadrunner
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Comments
roadrunner
<< <i>Boy I hate hearing these dirty dealer stories problem is they seem to come up all the time. I think I need to change the understanding about what a dealer actually means. For some odd reason I always thought the word dealer meant an honest expert who brokers/represents/buys/sells for a profit, maybe if I would just take out the word honest then I would have the definition right, and not be disappointed. >>
maybe take out the word "expert" too and sometimes "represents" to ensure no disappointment
In the case above I saw no malice or greed (at least I hope not) but more someone who had less than adequate knowledge to be advising me.
roadrunner
i use a dealer to help me at certain auctions, he's the only one i use and to date his feedback and assessment has been OK and i've trusted him to bid as he's seen fit. i think that's the biggest lesson to be learned here: start out slowly with a dealer you feel is knowledgeable and trustworthy, build a working relationship which proves over time to be benificial to both parties, then trust your own instincts and the dealers in-hand assessments and bidding strategy. the end result should be a fine collection and a friendship that endures.
Will’sProoflikes
RR - Perhaps therein lies the problem? If I am asking to pursue an important coin for a collector and the coin is "all there", I generally have permission to bid well over the collector's "worked up bid" and some of the very best buys have been those coins that I stretched on (some buys upwards of tens of thousands of dollars on).
So, good to warn folks as you have, but, it is equally good to "warn" collectors that if they want that super important coin to their collection they had better tell their dealer of choice to STRETCH as far as the dealer feels comfortable. I still remember the time I chased an R-8 pattern for a customer a couple years ago and bid nearly 2x the "worked up bid" only to lose at auction. While the customer was comfortable that I stopped bidding where I did, he was also equally genuinely saddened that I had stopped at all. Of course, today, the coin is worth more than where I had stopped bidding.
Wondercoin
True, it was a first time shot with this major dealer and the last.
They are still at every major sale offering this service.
WC, these were not "have to have" coins for a set or anything, just great looking seated type coins. The dealer could not or would not offer me an expert opinion or advice to stretch, etc. I presume they didn't really have one. Yes, I did give them a top price to work with, but I can think of a lot of other reps who would have given some feedback or advice to stretch on lots. To give cart blanche to raise bids by 30% or some other number is just folly, and you'll see that box available to you on mail bid sheets of major auction houses.
Heck, if you're willing to pay 30% more, then raise your bid by 30%.
A great rep with 20-30 yrs experience should be able to tell you when that 30% is worth paying and when it isn't. That's what the bidder rep should be able to do for you...and accurately...not just willy nilly. If they cannot tell a solid MS 66+ or MS67 coin from a shot MS68 coin, they should be giving the 5% fee back. And in this instance that might have acutually been good business considering the dealer in question lost the first attempt at one of the lots and then didn't even think to give me a shot at it when they bought it after the sale. It shows where the priorities are. Rather than cultivate a relationship they effectively worked to end it.
Any fool can bid 30% higher and win many lots, witness the recent FUN sales. If someone just wants to execute bids, then take 1% for that honor, not 5%. And if I'm paying someone 5% to keep their hand raised until they win a lot for me, that's suicide in the end.
I'd sum it by saying the 5% fee is really worth it, but only some of the so-called "top" dealers have the expertise to earn it. I had one such dealer work for me in the 1980's and get some great coins at good prices. Don't assume that just because your local B&M shop or national retailer sells you coins from time to time, that they are up to the task of being your auction rep.
roadrunner
Wondercoin
roadrunner - it seems to me that you're not the typical collector. You mostly buy coins in order to play the upgrade and resell for profit game. Not many dealers are gonna stick their neck out and tell you that ANY coin is going to upgrade - where's the percentage in that? If it doesn't, you're buried and they've got one pissed off customer for just 5%. All at the whim of the grading service.
So, yes - if upgrades are your game then you're probably better off not using a dealer to represent you.
Wondercoin
<< <i>I'll go a step further - if upgrades are the "game" of the collector desiring to be represented, the dealer should generally run like the wind or he deserves everything he gets!!
Wondercoin >>
I'd have to agree. Those that are adept at the upgrade game are doing it for themselves and making wayyyyy more than 5%. You simply can't hire them. I think this instance is nothing more than unrealistic expectations.
TDN, you've missed my point...or what Maurice Rosen calls MPF...market premium factor. If several bidders are vying for something glorious as a shot coin that sells for a 30% premium, then that's the coin to go after in most cases, even at supposedly 30% more money. We used to do that on raw coins in the 1980's all the time. With slabs that art is even less risky imo.
By me giving them the range to start in, all I'm asking for is an opinion. But an accurate one. I've bid on many higher end coins as you no doubt have. I have never had to criticize a dealer rep (or a fixed price seller) for getting me into a nice coin that was too steep. In fact we both know that typically those kinds of coins end up being the better values over time because of said MPF. If someone is going to auction to win average coins that aren't strong or high end for grade, they are probably in a losing position from the start.
Do I have high standards? Sure? Anything else will get you buried. Someone is making 5% for offering an opinion, not keeping a hand raised. So offer a valued opinion. In this case they lost a customer for that very reason, not because they stretched to say something was worth 30% more and made a mistake. In fact when I bought some coins from said dealer's inventory that's exactly what I was doing...paying 20-30% premiums for theirs and mine expertise (mostly mine though as you wouldn't expect them to turn me away from something).
And for someone doing the "upgrade" game as you suggest, I am doing very poorly at it over the past 5 years. I figure I've given away 3X the upgrades (for premium prices at least) than I've made.
In fact my core collection has been intact since around 2000 with none of it sent back for upgrading. Now that's a poor track record for an upgrader!
The best coins tend to be borderline the next grade imo. If that's a crime to seek those out and pay more for them...mea culpa. Seems to me that a certain company you have an interest in professes the same business model....as do many other dealers (CRO, Aspen Coins, and many many others). Yeah, out of a several hundred Platinum night coins at FUN I wrote down bids for 3 coins that I loved for the grade and had but 1 of those actually executed. Guilty as charged! I like great coins for the grade.
roadrunner
Which then brings up the question of what the fair fee should be for chasing upgrade coins? In my experience it is upwards of a 50% cut for the dealer of the upgrade value - plain and simple. If a collector chases an upgrade coin out of the auction due to the expertise of the dealer and wins it for $5,000 and it upgrades to a $25,000 coin - the dealer might expect a $5,000 - $10,000 check from the collector. No $5,000 - $10,000 check, no 2nd deal - that is the reality (but also no fee at all if the coin fails to "work"). With one exception -if you are a prized customer of the dealer with these skills, the dealer will often times enjoy giving you upgrade coins "on the house". Just like a full service broker giving a customer the hot IPO stock he makes a ton of easy money on - same principle. The collector has earned those upgrade coins through his continued loyalty and business.
Wondercoin
Most auction reps are keyed to keep you away from bad coins, not give you an opinion that a coin is one or two points undergraded. If they know it's for your collection, then they are going to be more inclined to tell you that you may have to stretch and pay the next grade up to acquire it [Laura has many times said to me "you're gonna go up against the crackout guys on that one"] but they will not tell you it's going to upgrade.
There's just no profit in being a rep for a shot upgrade.
This is definitely not true any more...but it was in 1989. I know many players from the 1989 market that have the skills to get upgrades if the services were consistent enough to grade them dead on in the first place. What might "appear" to be a great upgrade coin might take 5 or 10 or 20 tries to get it. In that time said dealer is going broke tying up his money. And believe me, several of those types have essentially gone broke doing just that. Some of them would be more than happy advising collectors and investors for a sure 5% fee (or slightly more should a coin upgrade). Hey, 5% at each auction for $100,000 is not chicken feed. That pays the show fees several times over and feeds the family to boot, leaving time to play with other coins at little risk.
WC, you lend too much creedence to the ease in scoring upgrades. For every 10 worthy coins that are tried, maybe a couple score. The rest are big losers as a rule unless you bought it right (not likely at a big auction). To thing these guys can pick several 19th century classic coins out of each auctions and score $10,000 a pop is whimsy. If that were the case don't you think they'd be doing it?
It's more the case that these guys are doctoring coins to get the upgrade rather than working at mere odds on submitting a great coin over and over. It's far easier to putty up a solid MS64 coin to get a 65 than try to upgrade a 64++ coin on its own merits.
For every winning coin, the upgrader has several losers. If not done right, they go out of business fairly quickly or head to a dealership or TPG to heal their wounds. It's easy to identify coins with upgrade "potential" in any auction. It's 10X tougher to stay the course and bring them in regardless of capitalization.
There's just no profit in being a rep for a shot upgrade
Seems to me that the rep still gets 5% for bidding on a shot coin or a regular coin...and that's profit in either case. When you pay a dealer a 30% premium for a high end coin, you just paid them a future "shot" commission. Same game...different name. Again, the times that I used a bidder-rep over several years, they bid on the lots I singled out whether shot or not. The commission was paid whether they were ++ or not. They never told me that they couldn't bid on a lot because they were going to take a shot with it.
roadrunner
In summary, the rep should be able to tell you when it's ok to pay the 30-50% and not get hurt (ie the coin is far above average for grade). The rep is not gonna take that chance very often because they aren't gonna sit on it for 3-5 years or more as the collector is.
And there is no guarantee of an upgrade shot. Hence there is no real easy money except the sure-fire 5%. Example: a gem 65+ bust half ---all there coin. A regular one may bring $7500 (what I sold a colorful PCGS 65 for at FUN). A PQ no rub coin with shot to upgrade could be $10K-15K and be a bargain with 66 money at $20K. In fact I'd call the latter a coin to hold longer term and the former something to get rid of. Ironically that PCGS 65 came out of Queller in 2002 where I orig graded it 63++...it sold for solid 64 money and was upgraded later...possibly years later.
roadrunner
I agree with you that if you aren't a long term client then hiring a rep to look at upgrade candidates is a waste of time. Auction reps are focused on keeping you away from bad coins or paying realistic value for properly graded ones and mostly only tell you to stretch when you just have to have a coin in your collection. Hiring them to play the mid term upgrade game just isn't what they are good at.
I must be foolish to expect that kind of service today.
In a nut shell: I want my rep to whisper in my ear to buy a great coin and pay the price. I've had that happen a few times, and the guy passing the suggestion wasn't even my rep.
roadrunner
I would only ask someone to rep me if we had an established relationship, the dealer knew my taste, and I was comfortable with his or her expertise in the area.
Perhaps I misunderstood your point after all.
What sense does it make for your rep to pass on a great PQ+ coin in a 65 holder for a 50% premium to "bid" only to pay 50% more a month later for it in a 66 holder?
Because most crackout guys see the coin already in the next holder and you're not going to be able to buy it unless you outbid them. Just because the coin sold for what it did WITHOUT you chasing it doesn't mean it's gonna sell at that amount WITH you as a bidder. You're gonna have to add on 3-5 increments before it's yours. So you're paying lock upgrade money - which means your rep has to think the coin is a lock upgrade in order to advise you to purchase it. And they don't do that except for long term customers building sets.
The only way to get this is to build a relationship with one dealer. They have to be comfortable enough to do this.
My orig post lamented on choosing the wrong dealer, regardless of reputation for the job of advising me...rather than just raising their paddle. And my 2nd lament was paying the dealer 5% for a run of the mill coin by not offering any worthwhile opinion on the other 4 better coins. In fact I paid 5% for a paddle to be raised in my name...that should not offer any confusion. The goal was to win several good coins and pay fairly for them...whatever that was. That's part of the rep's job to help you dial that in.
Your rep should steer you to the great coins, not shy away from them because they appear to be too much money. RYK has just said the same thing in similar words. Lots of bids, essentially no great coins. Your rep has to have the skill of the crack artist and the knowledge of market pricing for that lot. And the crack artists are not necessarily going to the next grade price on every instance, far from it. They're not going to consistently pay 80% over holdered money to make 20% or lose 30-50%, I don't think so.
I mentioned a great bust half in NGC66 that Joe O'Connor bought for inbetween NGC66 and PCGS66 money at FUN. While it appeared he may have spent $3-5K above going levels, to me he underpaid PCGS levels by $5-10K for a great coin. I doubt he was willing to pay another $5K for that coin and risk losing money. But he can chime in on what he was willing to pay if he likes. To me there was value here bidding 30% over regular rates. Do you think Joe would have taken a sure 5% or even 10% upfront ($800+) to sponser that coin for me? Can't be sure but I'd bet he toss away the possible "cross" for sure money in the pocket. I think way too much credit is given to how easy it is to cross/upgrade high-powered coins...esp in today's environment. Many are called, few are chosen. If it were that easy, everyone would be doing it....including me (and you!).
Again, the easy part to me is identifying the coins that can upgrade. The very hardest part is to figure out how to bring them in. That's where I fall short and ultimately give far more away than keep. If a dealer ever writes the book on how to get the upgrades through the TPG's, I'll be the first to buy one. It's far more than selecting liner coins. Maybe an ANA advance submission course is in order?
roadrunner
Wondercoin
by both collectors and dealers. I have bookmarked
this thread. It is certainly a keeper for any serious
collector.
Camelot
Why were you bidding on a run of the mill coin? By run of the mill do you mean PQ for the grade but not a shot upgrade as you previously described? And you didn't just pay for a paddle to be raised - the dealer looked at the coins and screened them for problems. He stated you 'have a good eye' which means there weren't any problems that you missed. That is what auction reps are geared to do!
In short, I agree with you that you hired the wrong representative. I think you need to more clearly communicate to your rep exactly what it is that you are looking for. It appears that you want to pay a 30-50% premium for a coin that will eventually upgrade - but not to pay a 5% premium for a coin that's solid or PQ for the grade but won't upgrade. Nor to pay the next grade up for a coin that is certain to upgrade. In short - a bargain. At auction. In this market.
Perhaps there is indeed a rep out there that will be a match for what you are looking for - but I still say that no rep is going to put you onto coins against the crackout guys unless they are for your core collection and you don't care if they eventually upgrade.
Actually it does since the same concepts apply when buying coins from a B&M or retailer's inventory. Ideally you'd want a mentor B&M or retailer to guide you to the better coins. That guy is worth his weight in silver to you over the course of your collecting career.
I didn't have such a guide in my first 10 years and realize what a handicap that was.
roadrunner
5% should be a 3 item deal....
#1 the dealer actually looks at the coin(s) during viewing, making specifics notes for you
#2 the dealer has a conversation with you describing the + and - of the coin, and advises you
#3 the dealer attends the auction and makes the best call based on the earlier advice
if the dealer does there 3 things then the 5% is a small price to pay..... the issue may not be paying the 5% to the dealer but rather which dealer you have picked to do this for you?
my suggestion is to look around, pick another dealer who will work with you and produces results!
<< <i>Well, to get back to your original post:
I agree with you that if you aren't a long term client then hiring a rep to look at upgrade candidates is a waste of time. Auction reps are focused on keeping you away from bad coins or paying realistic value for properly graded ones and mostly only tell you to stretch when you just have to have a coin in your collection. Hiring them to play the mid term upgrade game just isn't what they are good at. >>
I totally agree with this comment.....I use a dealer with an unbelievable eye for coins and consider his services a bargain, especially when I cannot be present. Now the price I pay is another matter.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
In the recent sale of Parke Kallenberg's Half Dollar collection, he mentioned on the Registry forum that one of his favorite coins was his 1969-S Kennedy in PCGS-PR69DCAM - a spectacular specimen according to Parke. And, indeed, the coin must have been a beauty as it sold for close to $700 when similar coins sell for a couple hundred (Russ posted a thread on this coin after the auction about his getting blown out of the water on his $300 or so bid for the coin).
Now, I did not attend Parke's half dollar sale so my next comments are theoretic in nature only, not the facts - again just theory.
Let's assume I lot viewed Parke's Kennedy half dollars and I saw that this 1969-S Kennedy was a decent shot 70 coin, which if it achieved PR70DC would be about a $20,000+ upgrade I believe. Now, this coin is normally worth a few hundred but, this nice at least $400 any day of the week (e.g.- Russ' losing bid). The coin cost less than $700 at auction including the juice . So, for less than $300 I get a chance to make $20,000.
Now, enter a collector into the mix who asks me to represent them in buying this coin at auction for a 10% commission. So, my choice is to earn a sure $70 or risk $300 of my money to potentially make $20,000. This isn't 1989, but, obviously my choice is clear even in 2007. However, if this customer happened to be a great customer of mine, I might gladly suggest me buying the coin for their personal collection and, if and when, the coin upgrades to PR70DC receiving say a $5,000 or $7,500 bonus (with no fee up front for buying the coin and bonus subject to reduction if value of 70 coin drops due to pop rising in meantime). No brainer for the collector to accept this deal - right? And, I can earn a fair paycheck for my skill in identifying this coin for upgrade. But, no where in the equation is a $70 commission ever possible. I either do it the way I just mentioned or give a nice "gift" coin to a great customer of mine without asking for anything for the upgrade because they "earned it" through their continued business. As for the "new possible customer" interested in paying me a straight $70 for my labour - not for upgrade coins - it would make no sense to give up the chance for a $20,000 upgrade to earn $70. RR- thoughts?
Wondercoin
Value?....... I think so.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
Your example might be a case where a 20+% commish could be decided up front since you would be a bidder as well for the coin.
If the coin goes PF70 for $20,000 after grading, you could still get 10% as part of the deal. But in today's "TPG's make no 70's worth $20,000" world, the odds of getting that grade are probably nill.
You'd eat up $10,000 in submissions and 5 years before it might happen. But we are welcome to try. Considering the coin did bring $700 (only about 2X what Russ thought so therefore within reason imo), that certainly states the coin was considered by all to be a < $1000 coin for that auction. And getting a fixed $70-$140 commish for a few minutes work is still something. And hopefully that's not the only coin said client would have you look it. Certainly making $70 for an auction appearance is on the thin side (lol). Regardless of the commish or lack of, if the buyer hires you, he expects to get a top notch opinon on what the odds of that coin grading 70 is....and the highest possible price he might have to pay for it. Now if someone else hired you to bid on Parke's seated halves, you'd be smiling from ear to ear.
Your example is a very thought-provoking one though.
roadrunner
<< <i> Thankfully, not a whit of this high-powered stuff much affects a widget collector such as myself. >>
Why not? Even $50 to $100 items could be applicable except that it would be a dealer purchasing on behalf of you on the bourse floor for a minimum $10-15 or slightly more fee per coin (or so) for the effort when successful.
It's not so much my eye for quality I have to contend with, nowadays, as it is my "beer budget, champagne taste."
Oh, and if he were to be your competition, your 5% will also buy him off the coin, unless you set your limit too low.
All the details were not discussed ahead of time. I did falsely assume that a top national retailer of 25 years, who sells expensive and top notch coins, has a strong following representing many bidders could get the job done. I was mistaken. In fact, I recall that my 5 minute consultation ("strategy session") was done while the dealer was in their rental car in Beverly Hills traffic - or something like that. They were really too busy to do much more than to say they were nice lots and recite my bids. In essence, it was me going it alone, which is fine as I've done that most times. My mistake for not stating the expectations or discussing them well in advance. I'm not shirking that responsibility. And I did not continue with them since it was clear they could not achieve what I expected of them. No problem there either. The next time I bid was at a FUN auction, and I just left my bids with a friend who executed my bids on the floor for 0%. Frankly, I've done very little with auctions now for several years as the competition and prices are much stronger than ever. There is much less risk trying to buy things on the local level.
Eagle Eye has summed up my thoughts perfectly. If your rep is not doing this....and getting you ample coins without burying you, you need to find a new rep. It's the "burial" part that many buyers really don't find out about until the time comes to sell their collections. And that means either occasionally testing the resale market, no matter how unpleasant that is to many collectors/investors or getting out to auctions once in a while and checking your grading skills against the prices realized.
roadrunner
5% should be a 3 item deal....
#1 the dealer actually looks at the coin(s) during viewing, making specifics notes for you
#2 the dealer has a conversation with you describing the + and - of the coin, and advises you
#3 the dealer attends the auction and makes the best call based on the earlier advice
if the dealer does there 3 things then the 5% is a small price to pay..... the issue may not be paying the 5% to the dealer but rather which dealer you have picked to do this for you?
For 5% the dealer/expert should definitely provide some inputs before the bidding starts, so that the collector can set some parameters and communicate a strategy back to the dealer. I think that's basic.
But as TDN notes, it's the dealer/collector relationship that takes time to build, in order to develop an effective presence at an auction or anywhere else for that matter.
I knew it would happen.
<< <i>I did falsely assume that a top national retailer of 25 years, who sells expensive and top notch coins, has a strong following representing many bidders could get the job done. I was mistaken. >>
I made the same mistake. One time they said they would represent me, then after the auction they tell me that they didn't place my bids because "everything was selling too high and we left early". Again, a very well known name......
roadrunner