What is an Auction Agent and Why do I Need One?
by Jeff Purser
This is an imaginary, totally biased conversation designed to convince you
that bidding through an agent is the best way to bid in Philatelic Auctions.
Public auctions are "where the action is" for serious collectors, investors
and dealers to buy and sell philatelic material. Whether you are looking
for quality single items or quantity in wholesale lots, you'll find them
offered at auction. The range of material that goes on the block every
year reflects the diversity that is philately. And, best of all, you don't even
have to leave home to participate.
From the smaller, regional auction houses and the larger "name" firms,
come illustrated catalogs filled with glowing, creative descriptions of all the
goodies. The auctioneers know that, like most customers, you will not be
able to attend in person. No problem! For your convenience, they not
only enclose a "bid sheet" so you can "bid by mail," they offer to execute
your bids without charge! (Is this a great country, or what?)
Accurate figures are hard to come by, but a major New York auction
house will get from 400-1000 bid sheets by mail, phone or fax, depending
on the size of the sale. If you should happen to go to the sale in person,
you might be surprised to see there are only 20-30 people actually there.
You register to bid and are given a bidder number.
As the sale progresses you notice that a few people are using multiple
bidder numbers when they buy lots. They announce things like "P-20",
"CH-4" or "M-30". During a break, you ask the auctioneer about this.
You learn that there are 5-10 bidders acting as agents for others. In
addition to the "real" auction agents, there are collectors and dealers
handling bids for themselves and one or more friends, customers or other
dealers. At a major sale, the agents will be representing from 25-150
bidders.
Anyway you look at it, if you bid "on the book" by mail, phone or fax, you
are in the majority. Only a small minority of bidders use an agent. If the
sale is typical, you can't help but notice that in terms of dollar volume,
the floor bidders and agents are buying more than the book bidders.
Maybe something's going on here that you should know more about.
When the sale ends, you approach me and begin ask me questions.
Q: Excuse me. I've never used an agent to bid for me, and I'm curious
why anyone would use one. Would you explain it to me?
A: Sure, I'd be happy to. Why don't you look this over while I pack up,
and then we'll talk. (I reach into my briefcase and hand you a card on
which is printed the following:)
If you...
Purchase philatelic items in public auctions,
Want to increase your chances of getting the lots you bid on,
Do most of your bidding by mail (phone, or fax),
Bid to 'buy' rather than sending in very low bids,
Usually buy from 20% to 50% of the lots you bid on,
Wish you had someone you could trust to view lots,
Wonder why most lots you buy take your full bid,
Don't like paying more than you must for lots,
Want to be a more informed consumer and bidder,
Have lost out on lots you really wanted to buy,
Have thought, "There's gotta be a better way!"
If four or more statements apply, you should be using an agent.
Q: OK, almost all of them apply, but why should I pay an agent to bid
when auctioneers do it for free?
A: Remember the phrase "There's no such thing as a 'free lunch'?" Most
auction firms either own or have a financial interest in 40% to 100% of
the material they sell. There's no way to tell which lots are consigned,
which are owned and which are part of a consignment the auctioneer paid
a cash advance to get. Common sense should tell you that turning your
bids over to the owner and letting them know your maximum limits at the
very least has the potential of costing you more than if your bids were
executed by someone without the same degree of conflict of interest.
Q: But I'm protected by the Terms of Sale. They say "all mail bids are
reduced to one advance over the second highest bid." Are you saying that's
not true?
A: Do you believe everything you read? Don't take anything at face
value, including this dialogue. Use common sense. Go with your basic
instincts about how things work in this world. The only person who really
knows if mail bids are reduced is the auctioneer. Maybe they are. Since
you can't examine or "audit" the bid book, look at the evidence which is
available - your own experiences. When you attend a sale in person, how
many times do you have to pay your full bid? When you bid by mail how
many lots do you buy at your full bid and how often are your bids reduced
by large amounts?
Q: I never really compared the two, but when I bid by mail I'm usually
more conservative with my bids.
A: Why are you more conservative? At some level, whether you realize
it or not, you're protecting yourself. By lowering your bids, you're
reducing your "exposure to risk". We've surveyed our customers about why
they use an agent. Among the reasons they gave were (1) they buy more
of the lots they really want, (2) they don't have to return as many lots as
when they bid by mail, (3) they don't have to worry about how their bids
will be handled, and (4) they often save money. One client told us, "I
know you won't "nail" me if I give you an insane bid."
Q: What did he mean by an "insane" bid?
A: "Insane" is a relative term. It's related to the question, "What's it
worth?" Sometimes the answer is simple. Other times, complicated.
There's an infinite number of cancellations, rate markings and rare
varieties in philately. Lot describers make mistakes. An item that appears
common may, in fact, be extremely valuable. When that happens the
catalog value or auction estimate is meaningless to knowledgeable people
who want it. They bid what it's worth to them. One client bid an
"insane" $1,500 on a lot estimated at $150-$200. We bought it for $95.
Another time we had an "insane" bid of $3,500 on a lot estimated at
$50-$75. It opened at only $25 and we had to go all the way to $325.
Q: Wow! May I expect savings like that?
A: That's up to you. In most cases, the stronger you bid, the better your
agent looks. In the examples I gave, the bidders were ready to pay their
full bids if necessary. Their primary goal was to buy the lots. In another
sale a client mailed us a $900 bid against an estimate of $75-$100.
Concerned it might be an error, I called to confirm the bid. The client
explained the lot contained an item he'd missed in an auction 20 years
ago. He raised his bid to $1,200. By sale day he'd increased his bid to
$2,500 with "tie-breakers" and "discretion". When the hammer fell, our
client was the new owner. It cost him $3,750 plus 10%. We didn't "save"
him anything, but he was very happy.
In all three examples, the bidders knew there was a risk if they gave their
bids to the auctioneers. Such high bids from knowledgeable specialists
could alert them the lots were more valuable than originally estimated.
The lots might be withdrawn and offered in a future sale with new
descriptions and higher estimates. Auctioneers may inform others who
collect similar items, solicit their bids and make an announcement during
the sale of the "corrected" estimate.
Q: This is taking the fun out of my hobby. Aren't there any auction
houses I can trust?
A: Let's get something straight. I'm not talking about your "hobby", I'm
talking about your money. If you're spending hundreds or thousands of
dollars a year, doesn't it make sense to protect yourself?
Can you trust a cat to keep a barn free of mice? Probably. They're very
good at that - it's in their genes. Would you trust that proven hunter to
also guard your canaries?
Yes, you can trust auctioneers. Trust them to do what they do best. They
bring together as many buyers as they can attract to compete with each
other for the seller's material. Object? Good prices! They act as agent for
the owner and, in that role, are obligated to get the best possible prices.
It's in their genes. It's also a fiduciary responsibility.
Q: So, an auctioneer is an "agent?"
A: Sure. An agent is one person acting on behalf of another. Terms of
Sale printed in most auction catalogs make reference to the auctioneers
role as "agent on behalf of the seller or consignor." Maybe the "labels" are
a problem. For a moment we'll refer to the "Consignor" as the "owner",
"Auction" as "negotiation," "Auctioneer" as "owner's agent" and "Bids" as
"offers."
The "owner's agent" (auctioneer) invites you to a "negotiation" (auction) so
you can make offers (bids) on the material up for sale. Even if you have
unlimited resources, it's not in your best interest to pay more for each
item than absolutely necessary. Your goal is simple. The less you must
pay for each, the more items you'll be able to buy.
An owner has opposite goals. The more you pay for each item, the more
money the owner receives. To that end, the owner picked an agent
(auctioneer) because of the high prices the owner's agent (auctioneer)
claimed he/she could get for the owner in the "negotiation" (auction). The
owner's agent (auctioneer) will be rewarded in a simple way - the more
paid for each lot, the more commission the owner's agent (auctioneer)
receives. (Don't forget auctioneers either own or have given advances or
loans on 40%-100% of the material they sell.)
Q: Ouch! To tell the owner or owner's agent my top "offer" isn't a very
smart way to "negotiate".
A: Especially if you consider all the factors involved. Stop looking at
things from the bidders point of view. Imagine you are the auctioneer.
You've been working 2-3 months getting the catalog ready; invested tons
of money in payroll, advertising, printing and postage; spent more $$
buying collections you've broken down into lots for the sale. Consigned
material cost you even more $$. Since other firms offer loans and
advances, you're forced to do the same. It gets worse. To get some
consignments, you've had to reduce your seller's commission to 5% or
even less. You need to make it up somewhere.
After you mail the catalog, the bid sheets start to come in. If the sale is
typical, most of the early bid sheets are lousy. You know your book won't
show strength until the last few days before the sale, but it still makes you
nervous. Sometimes the better the material in your sale, the weaker your
mail bids look. You know why. Your better buyers will either show up
or bid through an agent. That can be dangerous if the dealers and
specialist collectors all get together to form bidding "rings", "cross-off" and
agree not to compete. (It's not legal, but it happens.)
When the sale begins you have a pretty good idea of how things will go,
but you can't be certain until the last lot is sold, shipped and the money
collected. It does bother you that you don't reduce all your mail bids as
much as you claim in your Terms of Sale. You do sometimes, but not
very often. When you do, you can't reduce them all the way. You can't
afford to. If you did, the consignments might gross less than you've
advanced the owners.
On lots you own it costs you even more. Every $1.00 you reduce bids is
$1.10 out of your pocket. Every $10.00 in reductions costs you $11.00.
Multiply that times hundreds or thousands of lots per sale, times 5-10
sales per year and it adds up to real money. Money you need to stay in
business. Everybody does it. You have to do it to stay competitive.
After all, you have a responsibility to yourself to make a profit. No one
really gets hurt. Bidders bid what they're willing to pay. What they don't
know won't hurt them. They must be happy, they keep bidding on the
book. (Now, if you could just do something about those damn auction
agents. It drives you nuts to think about how much better it would be if
you had all their bids on your book. You can't win 'em all. You're just
thankful that most people still don't use agents. Now that would be
disaster!)
Q: Enough already! I get the picture. If I bid by mail I should expect to
pay most, if not all, of my bid. I still don't need an agent. I'll just go to
auctions close to home and do my own bidding.
A: Sure, that's one option. Of course, you'll miss out on all the good
stuff offered by other auction firms across the country. And it may
interest you to know that we have clients who ask us to handle some or
all their bids even when they attend sales in person.
Q: Why? That doesn't make any sense. I've done all my own bidding so
far. It's not so tough. I enjoy every minute of it.
A: Please don't be offended, but I'm reminded of a saying lawyers use.
"The attorney who represents himself has a fool for a client." If you enjoy
it and are satisfied with your results, that's great! All I'm trying to do is
give you a complete picture of what's involved. Attending the auction may
be fun for you, but it's serious business for most of the people in the
room. To some it's a war. In battle what you don't know will hurt you.
Q: So, how does that affect me?
A: It costs you money. If you don't know what to look for, you'll never
even see what's going on.
Q: You make it sound so sinister.
A: It's not sinister. It's more like a high stakes card game involving
strategy, skill, and luck. The regular players in the game love nothing
more than the novice who shows up with plenty of money, believing he's
got as much chance of winning as the rest of the players. (After all, it's
only a card game.) When the auction starts, the "regulars" size you up.
(Some may be consignors.) Are you bluffing? Will you keep going?
Have you "shown your hand" during viewing by expressing how much you
want a certain lot? Is there someone in the room who decides that if you
bid on a lot, he will "make you pay?" And I haven't even mentioned the
auctioneer.
Q: He's the bad guy, right?
A: No, auctioneers are the "good guys" - if you have material to sell. For
many collectors and dealers, auction is the best way to sell philatelic
material. Without the auctioneer, there'd be no auctions. (Even worse,
no one would need an auction agent!) A good auctioneer is also a
psychologist, gambler, mind reader and cheerleader. A great auctioneer
will make you pay more than you ever intended and you'll still leave the
room thinking it's a bargain. The more he/she knows about you, the more
risk they'll take in running up the price you'll pay. What do you collect?
How much money do you have? How far have they pushed you in the
past?
If they don't know you when the sale starts, they learn fast when you bid.
Are you a 'Barometer" bidder? Maybe you're an "Ostrich", "Statue of
Liberty", or "Crystal Baller". Your best defense is not caring if you buy
anything or not. The more you want the material, the more your exposure
to risk. I love to watch a gifted auctioneer "work" a room. When
auctioneers are selling material for you these are the very qualities and
talents you want them to have. You'd want them to score a "personal
best" on every one of your lots - I know I would if it was my material.
That's another reason people who attend sales have us do the bidding -
Auction Fever! They get caught up in the excitement of the sale. Instead
of sticking to the pre-sale limits they set for themselves, they get carried
away - and that can get very expensive. Especially if they don't see they're
being "run".
Q: Don't agents get "run"?
A: Sure, it happens. In fact, it happens to some degree in every sale.
Some agents get run more than others. That's where experience pays off.
Sometimes an auctioneer tries to "milk" an advance or two, or a consignor
may get a little greedy and try bidding up lots they own. Over the years
we've developed strategies for protecting our clients. Auctioneers are
many things - stupid is not one of them. They know we each have our
respective jobs to do. They also know if they push too hard or get too
greedy, we're more than prepared to deal with it. The bottom line is that
they're careful about playing too many games with agents they respect.
Q: OK, I'll bite. Why?
A: Some agents bring auction firms a lot of business. Auctioneers know
some clients won't bid in a sale if their agent doesn't cover it. Agents
may handle bids for as few as a couple of clients or as many as 75 bidders
at a sale. When an agent bids, no one knows which client the agent is
bidding for. They may think they know, but they can't be sure. Every bid
could be the last. I can't speak for other agents, but we vary our bidding
techniques. We don't play games with our clients' money. Some clients
give us total discretion to cancel their bid and stop bidding if we suspect
we're being "run". We've done it many times. We'll continue to do it
whenever necessary.
Q: Then you think everyone should use an agent?
A: NO. Some people don't bid seriously. Giving an agent a ridiculous
bid won't turn it into a realistic one. Anyone who is bidding realistically
should use an agent.
Q: Who uses an agent when they bid?
A: Collectors, dealers, investors and even auctioneers!
Q: Why do auctioneers need an agent?
A: Most auctioneers also operate retail shops or mail order businesses.
They need to buy the same as other dealers. They buy large lots and
collections in another auction, breaking them into smaller lots to run in
their own sales. Auctioneers help special clients build award winning
collections, buying material wherever it shows up, even other auctions.
Some still have their own collections. When they bid they use an agent.
Who knows more about auctions and how they work than the auctioneers
who run them?
Q: OK, I can see there are some advantages to using an agent, but I'm
concerned about one thing. I've been bidding by mail with one auctioneer
for several years, and I'm worried that if I use an agent at his sales, he'll
think I don't trust him.
A: Using an agent will show auctioneers that you're a knowledgeable,
sophisticated bidder. If you care more about what the auctioneer "thinks"
than you do about how your bids are handled or how much things cost
you, by all means don't bid through an agent.
Q: How can I be certain I can trust you or any other agent?
A: Good question! You can't be certain. Picking the wrong agent can
be worse than bidding by mail. Conflicts of interest abound. There are
virtually no regulations or governing bodies dealing with auction agents.
It's important that you check the references of anyone offering to act as
your agent at a sale. How long have they been in business? Are they
regular consignors in the auctions they cover? Ask around. Do they
conduct themselves in a professional manner? Ask auctioneers to give you
names. Then, give the agent you choose a fair chance to prove it's the
best way to bid.
Q: Are you saying I should use an agent at every public auction, even
those run by auctioneers I trust?
A: Yes. If you buy the concept, you should put it to a fair test. Many
benefits you get from using an agent have little to do with an auctioneer's
integrity (or lack of it).
Q: What benefits are you talking about?
A: When a lot is hammered down to an agent on your behalf, you own it.
(One exception is if the auctioneer has "missed" another floor bid and
re-opens the lot.) When you bid by mail and the lot is hammered down
to you on the "book" you may get the lot. You may not.
Q: You lost me there. What do you mean?
A: Auctions move quickly. It's hard to keep up. People get confused or
lose track of which lot is up for sale. They realize too late that a lot they
wanted has been sold. Or, maybe they suddenly realize a lot sold to a mail
bidder for a real bargain price and they want to buy it.
Q: Too bad. If it's "sold" there's not much they can do, is there?
A: It depends on who "bought" the lot. If it "sold" to a floor bidder, the
lot is gone. But if the lot went "back to the book" or "sold to order" most
auctioneers will re-open the bidding. It's not uncommon for lots which
sold to the "book bidder" during the sale to be sold later to someone else.
Q: That sounds very unfair.
A: Unfair to whom? Consignors who get more money for the lots think
it's very "fair." Remember, the auctioneer's job is to get the most money
for every lot. The mail bidder's "agent" is also the seller's "agent". In this
conflict, it's clear which relationship takes precedence.
Q: Speaking of conflicts, what happens when an agent gets more than one
bid on the same lot?
A: We do the same thing the auction houses say they do. Prior to the
sale we enter them in our bid book. We bid on behalf of our highest
bidder, and buy the lot for the lowest possible price, which is one advance
over our underbid. If the bids are the same, we use any 'tie-breaker'
authority given us by the bidders. If they are still equal, it goes to the
bidder who viewed the lot. If both or neither viewed, the tie goes to the
earliest bidder. If we can't tell which came first, it goes to the bidder on
whom we'll make the best fee. If that's equal, the bidder whose account
is most current gets the lot. Other agents may have their own ways of
handling multiple bids.
Q: Is that why I've seen an agent raise the price on a lot after the
bidding has stopped and the lot's been hammered down at a lower price?
It appears as if the agent is running up the price to make more money.
Doesn't it cost the buyer more?
A: It's true that when we have multiple bids on a lot, we may have to
raise a price. It's also true that raising the price costs the buyer more
money than if the underbids didn't exist - but they do exist. We can't just
cancel them. Let's say you gave us a $500 bid on an item. Another client
bids $1,000. If the floor bidding stopped at $300, we tell the auctioneer
the price has to be $525. (One advance over your bid of $500.) After
the sale you get a report indicating the lot sold for more than your bid.
End of story, better luck next time.
If we just pretended your bid did not exist, our other client could get the
lot for $300. After the sale you learn it sold for only $300, but you didn't
get it. If you had bid in person, the buyer would have had to top your
$500. If you had bid on the book or used a friend, dealer or another
agent to bid for you, the result would have been the same.
Q: Will you tell me if my bid is your top bid on a lot?
A: NO! We won't discuss it. We won't even say whether or not we have
bids on a lot. The other bids we have are none of your business, and your
bids are nobody else's! Anyone who'll reveal info to you about other
people's bids, will reveal info about your bids to other people.
Q: OK, but just between us, you must make exceptions for special clients.
What if there's a lot that's really, really important to me? You know,
like that example you gave earlier where the guy kept raising his bid? If
I want to make sure I get the lot, I have to know where I stand. If you
need more money, I'll raise my bid. Most auction houses will tell me if my
bid is "good" or not. I've even heard that some agents will tell me if my
bid is the high bid. Why won't you?
A: Go back one question. Read the answer. We make no exceptions.
None. We can't. Our answer is, "Sorry, but we can't reveal any
information about our bids." Not everyone understands. We've lost
clients who called to give us bids, but only if we didn't have other bids on
the lots. When we refused to tell them, they took their bids elsewhere.
If a lot is that important and you're concerned about the competition,
topping our high bid will guarantee nothing. Assume it's just as important
to someone else and they will be bidding against you. Prepare for the
worst. Next, after checking the exact depth of your pockets or purse,
pretend you're at the sale, being relentlessly pushed to the wall by your
competition. How high would you go? What's the absolute maximum
you're willing to pay? Add two or three advances. (We call this your
"level of pain.")
Now, with that figure in mind, think about this. You call after the sale.
Bad news. The lot sold for one or two lousy advances over your bid. If
your reaction is, "Damn! If I'd known it was going to go that high, I'd
have given you more!", then you didn't give us your maximum bid. If, on
the other hand, you say, "Damn! I really wanted it, but not at that price.
At least I made them pay." Your bid was truly the highest you were
willing to go.
You really need to do this before the sale. Once it's over, it's usually too
late to do anything about it. If you find yourself with "under-bidder's
remorse" it may be that on some level you didn't have sufficient
confidence or trust in us to give your real maximum. If that's ever a
concern for you, we urge you to either attend the sale in person or select
someone you do trust to handle your bid.
Q: Under normal circumstances that process makes sense, but I don't
always have the time. Since you folks have such a good reputation, I
figured I'd just give you lot numbers and tell you to buy them for me?
Do you accept "BUY" bids?
A: We used to, but not anymore. Now we accept what we call "Modified
BUY" bids. We won't accept unlimited, unconditional "BUY" bids.
Q: Why not?
A: When we had the policy of accepting unlimited, unconditional "BUY"
bids we found it wasn't only dangerous, it put us in the position of
violating our pledge not to reveal any information on other bids we may
or may not have. If we accepted a "BUY" bid, we were agreeing that no
matter how high the floor bidding might go, we would continue bidding
until you owned the lot. So far, so good. If you were our only client and
had the money, it would be simple. The problem is you're not our only
client. By taking your "BUY" bid we're not just saying we'll top any other
bids we get from our other clients - we're also revealing that we don't
already have another "BUY" bid on the lot. Paranoia? Read on.
What if another client calls and tries to give us a "BUY" bid on the same
lot? It not only can happen, it has - more than once. We couldn't take
two! We had to refuse. In the process we never said we already had a
"BUY" bid. In one case the second "BUY" bidder, a dealer from whom
we'd taken "BUY" bids in the past, became very curious about why we'd
refused to take his bid. We refused to discuss it. To satisfy his curiosity
he called several people he figured were most likely to have given us the
bid to let them know that he knew Pursers had a "BUY" bid. It all
worked out, but now we'll only accept "Modified BUY" bids.
A "Modified BUY" bid is a bit more complicated. It must be in writing.
We ask you to give us some idea of what you think the lot should sell for.
We then require you give us a dollar amount to bid plus any discretion
you authorize. (50%-100%- 500%- etc.) Finally we ask you to "rate" your
desire to have the lot on a scale of 1 to 5.
1 = You want it, but don't have to have it. (Stay within reason)
2 = You have to have it. (Go for it, but don't go crazy.)
3 = You want it. You need it. If you could only buy ONE lot this
YEAR, this is IT. (If I don't get it, the buyer will PAY!)
4 = This is the lot of the DECADE! (I won't die if I lose the lot, but it
will make me sick.)
5 = This is the lot of a LIFETIME. Price is no object. You'll curl up in
a ball and DIE if you lose it! (Read my lips! DON'T come home
without it!)
Q: I usually call the auction to get opening bids before I give them my
bids. Should I still do that if I'm using an agent?
A: You may if you want to. We think it's of limited value. On some
lots, it's a bad idea.
Q: Why is it a bad idea?
A: First, it's lousy strategy to call the house and give a list of the lots
you're most interested in. Second, openings are of little value except to
eliminate lots which are already higher than you're willing to pay. Third,
some auction firms may give you phony numbers when you call. Finally,
unless you call 5 minutes before the sale, openings will change many
times. If you want to eliminate lots, call and get the openings, but add a
few extra lots just to keep them guessing.
Q: What about viewing? Will an agent examine lots for me?
A: Services vary from agent to agent. We can usually look at a few
individual lots for you, but viewing is not automatic - it must be requested.
You should also know that it's not always possible to view lots at every
sale. We'll look at the lots from a buyers' point of view and if, in our
opinion, an item is "Not As Described" or doesn't meet your standards,
we'll cancel your bid.
It's important that you discuss your needs and expectations with your
agent.
Q: That sounds great. If an agent will view lots for me I can save even
more money by not having to get lots expertized.
A: Wrong! That would be a mistake. We're good, but we're not that
good. Even if we were, our verbal opinions would be worthless to you
when you sell your material. If you're concerned about any item we urge
you to get it expertized. Ours is primarily a bid execution service. We do
not issue certificates, nor do we render expert opinions.
There is an honest difference of opinion between agents on this issue. We
believe there are serious ethical questions involved in acting as an agent
in the purchase of items on which one might later be rendering expert
opinions at the Philatelic Foundation, APS or PSE. Some of our
competitors have no qualms about it. Hopefully the issue will be resolved
in some official manner by the ASDA or the respective expert committees
at some point in the future. For now, there are no rules dealing with this
potential conflict of interest.
Jeff Purser is President of Purser Associates one of the industry's most
reputable philatelic auction agents.
