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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.


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