The following article was taken from a response I wrote for a collector’s group requesting information on auctions as part of estate settlement.
I was recently asked to give some insight on auctions from the perspective of an auctioneer. By way of background, I grew up in the auction business, my parents having started the auction company when I was 6 years old. I left the US Navy, (mechanical instrument calibration and clock repair) after 9 years in order to take over the family business and have been doing this full time since 1991, specializing in estate settlement antique auctions.
Here are the original questions and my responses to them with a more thorough breakdown of things to consider if you’re contemplating an auction.
“…how about answering some questions about Auctions-Like how they work? I am getting ready to update my will. I am considering having my estate disposed of by auction.
Tell us how an Auction sets up and sells an estate? Generally speaking what fees and expenses are charged? How are values determined for bidding? What is done with unsold property?”
So you’re taking a proactive approach to getting your affairs in order by updating your will. Excellent! I can’t tell you how many estates I’ve been involved with where the deceased left no will, no trust, no anything. Just a huge amount of personal and real property for somebody else to deal with. It makes for good banter to claim that “The kids can deal with it when I’m gone” but the reality is that what you envision happening and what really happens can be two entirely different things. You know far more about your own collection than anyone else ever will. Pass that knowledge on while you can; don’t take it to the grave.
Take the time to consult with an expert, (No, not the guy two barstools down.) and get solid advice on how to have your estate handled. An attorney that specializes in estate settlement is a good place to start. For some a will is fine. For others a trust may be in order. Regardless, choose a plan that fits you, your collection and your heirs. You have one child and they’re crazy about your pile of beer signs/firearms/Cabbage Patch dolls? Good. Your situation may be relatively simple. But if you have several kids and they can’t stand to be in the same room with each other then hold on tight because life is about to get real interesting. At least one daughter in law, (or worse-prospective daughter in law) will work her way into the situation and cause major inter-family problems. And if you think I’m being unfair here, I’d be happy to share some firsthand experiences. At least one son in law will be itching to get your collection to the scrap dealer or the burn pile as soon as possible so as not to interfere with his golfing weekend. One of your children will want all of it, to the exclusion of their siblings. One of your kids will be quite certain that all of it should be held in bonded storage under armed guard until the Smithsonian can pick it up. Several of your children will just stand there with their hands out waiting for the cash distribution. Are you slowly nodding your head by now? And we haven’t even got to the auction part yet.
The executor of your will or trustee of your trust should be the person that you feel is the most qualified and best suited to handle your affairs. Resist the temptation to automatically hand it to the first born or the oldest son (this coming from a first born, oldest son) unless they are the best person for the job. Closing an estate is a major undertaking and not everybody is suited for it. I’d go so far as to say that if your situation warrants it you should seriously consider naming an institutional executor or trustee to handle your affairs but that’s a topic for another day.
On the premise that none of your heirs have any significant interest in your collection(s), then how best to liquidate it? Short answer? An absolute, unreserved, public auction. By absolute and unreserved, I specifically mean: no minimum bids, no “starting” bid, no artificial floor of any type. I can hear the collective gasp now. “But what if nobody bids? Or attends the auction? Or appreciates my superior collection? Or…?” Ain’t gonna happen. A well-publicized auction conducted by a competent firm will bring out the buyers and the prices. Are you guaranteed top dollar for everything? No, of course not and any auctioneer who tells you otherwise is lying or a fool. Or both. Yes, some of your items will bring less than what you might have expected but other pieces will bring in excess of what you thought. The bottom line will average out. What an auction will do is convert your assets into cash in one day.
Got guns? If you wake up dead, your “buddies” will be lined up three abreast to “help” your widow deal with your guns. I can hear them now, “Ya know Edith, Henry always said if anything happened to him I could have that Serial Number 1 Luger chambered in .45 ACP.” You won’t have dropped to room temperature and they’ll already be pestering her. You can trust me on this; I’ve seen it happen time and again. I know that this a gross generalization, but most widows aren’t comfortable with guns and don’t want them in the house. Inventory them. Model number, serial number, year of manufacture, caliber, (especially if it’s been rechambered) and any other pertinent information including a value range.
Consider who has successfully sold similar items to yours and who you thought was most effective. Unless you have a collection of national standing or greater, you probably don’t require the services of the most specialized of the Tier 1 auction houses.. But if you do, you probably already know it. If you’re not sure, reach out to them. A lukewarm response is a “No, thank you”. If they do want it, they’ll be crystal clear but be honest with yourself before starting the process. The key is to find the auction house and/or auctioneer that feels right to you. Do they know your area of collecting inside and out? How long have they been around? What is their reputation from both a buyer’s and seller’s perspective? Be very wary of the auctioneer that claims to “specialize” in Real Estate, Cattle, Antiques, Fresh Produce, Construction Equipment, Heavy Machinery, Jelly Bean Futures and Cannons. All of those, huh? Personally, I’ve spent the better part of my life focusing on the antiques field. I’m still learning and I’ll be the first to admit that at age 54, despite having obtained a wealth of knowledge, I’ve still got a long way to go.
OK, so you’ve settled on an auctioneer. If you’re like most folks, you haven’t had any prior experience negotiating a contract for an auction. So… Live auction? Online auction or a combination of both? What about an online only auction? Live auctions have a long and successful past and are what most of you are familiar with. Online auctions are a relatively recent phenomena but are making huge inroads in the industry. There are too many variables to consider for me to recommend one method vs the other.
First, a couple of auction terms to familiarize yourself with:
Absolute – Often used interchangeably with or in conjunction with No Minimum – No Reserve. Meaning that the item sells for what it sells for regardless of price. An auction with minimum or reserve has one or more items that are subject to a minimum set price or opening bid. All auctions are assumed to be Reserve auctions unless they are specifically represented as Absolute. There is no wiggle room here. It’s either absolute or it isn’t. Legally, “Absolute but subject to seller’s approval.” doesn’t exist. If you think that it does you’ll be on the wrong end of learning how the legal system works.
Online Auction– A product of the computerization of life. An auction can be held both live and online where an auction house employee conducts bids by acting as proxy for a real time online bidder against an in-house, live bidder or some variation thereof. To further add to the mix the auctioneer may also allow phone bidding in which a bidder may place real time bids as part of the bidding process. An online only auction is just that with no live bidding. The bidding may end as a hard close or a soft close. In a hard close the bidding stops at a set time. Think eBay. In a soft close the bidding time is extended for a set interval if a bid is received in the final minutes of the bidding. The auction may extend until there are no further bids.
Buyers Premium– A fee charged to the successful bidder above and beyond the hammer price. Usually, but not always, retained by the auctioneer. Buyer’s premiums are possibly the most incendiary topic in the auction business. Reviled by bidders and loved only by the auctioneers that charge them they continue to divide the industry. Originally brought about by the major auction houses as an added source of revenue and a way to offer a lower commission rate to the seller, buyer’s premiums are now found almost everywhere. Ranging from 3%, (usually to defray the cost of taking credit cards) up to 20% or more, the buyer’s premium has the potential to significantly affect the bottom line of the auction for both the auctioneer and the seller. Some auction houses offer a 0% commission to the seller on select items and make money only from the buyer’s premium. Nicking the buyer on the back end of the transaction will typically result in the bidder “checking” their bidding to allow for the additional expense. On a $10.00 item a 10% premium probably won’t strain your wallet but if you pay $1,000.00 for an item and are charged an additional 10% you’re looking at $1,100.00. So you rein it in at $900.00 because your final bill is going to be $990.00. If your limit is $1,000.00, you can see where this is going. The bottom line here: There is no free lunch. Suppose an auctioneer normally charges a 30% commission to the seller. But to entice the seller, he offers to conduct the sale at 20% commission with a 10% buyer’s premium. He still nets 30% but has alienated his bidders who will temper their bidding to offset the premium. The auctioneers that charge a premium will strenuously deny that this happens and will get downright apoplectic if you suggest otherwise. Don’t kid yourself. Somebody’s paying for that and it’s probably you with decreased hammer prices.
Comparing auctioneers services and fees is comparable to shopping for a mattresses. Good luck finding the same product at the same price, anywhere. It’s not because we’re all in cahoots, it’s more because we’re all convinced that the way we offer our service, our skill, our package is the superior way to conduct a business. We’re stubborn that way. Numerous variables affect the commission. Chief among them is the cost of advertising or other promotional work. If it’s included, you can expect to pay a higher commission. Other expense can range from organizing and setting up the auction, tent or facility rental, clerk and/or cashier fees, portable metros, rubbish disposal, etc. The list can go on and on depending on your particular situation. Again, there are no hard and fast rules and most auctioneers will tailor their package to what you need and what you want. This can range from the auctioneer providing a complete, turnkey operation to merely showing up and crying the auction after you’ve organized it and provided the day-of-sale labor. A low commission rate can seem attractive but if you’re being nickel and dimed on every conceivable add on it might very well come out near or above a higher, all-inclusive commission. Payout can range from immediate to up to 30 days or more, again, depending on the terms of the contract. In states that require licensing the auctioneer is usually required to maintain a trust account and is subject to the rules of that state. If you are in a state that requires licensing you can usually look up an auctioneer for any possible disciplinary actions. Obviously the more services the auctioneer provides the more you can expect to pay which is why commissions are all over the board. Haggling over commission is like any other haggling although most established, professional auctioneers won’t budge much if at all. The worst sin you can commit is asking them to undercut another auctioneer. The worst sin the auctioneer can commit is to do it.
I was also asked how values are determined for the bidding process. This ties in with the whole previous minimum/reserve discussion above. At an absolute auction the only value that matters is the hammer price. Where you start is irrelevant aside from speeding up the bidding process, (larger bid increments vs smaller bid increments) or using the opening asking bid to set a price in the bidder’s mind. I’m no fan of minimums or reserves. If you have to have a certain price out of it then stick it on the front lawn and put a sign on it. Reserve auctions aren’t unethical or illegal, in fact they’re perfectly legal if properly advertised. What they are is pointless and self-defeating. You either want to sell it or you don’t. When a potential bidder sees that the auction is with reserve or subject to confirmation by the seller, what he really hears is that the seller has unrealistic expectations or is trying to have his cake and eat it, too. If bidders see that auction lot after auction lot is failing to meet reserve, they’ll find the closest door and use it. A smart auctioneer will “qualify” you to see if you’re a good candidate for an auction. You may have excellent merchandise but if you’re living in a parallel universe where value is concerned, (or maybe you’re just a difficult person) he or she will know that you can’t be pleased. We want to see a motivated seller who is enthusiastically embracing the process. The toughest guy to sell for is the one who knows that he needs an auction, possibly due to health or financial reasons, but hasn’t come to terms with actually parting with his collection. A good auctioneer will guide him or her through the process and help smooth out a difficult situation. Certainly you should discuss item values with your auctioneer prior to the sale in order to see that you’re both on the same page but I would discourage you from setting minimums.
And lastly, the stuff that doesn’t sell. If it’s rubbish or valueless, that should have been addressed prior to the auction. I’m guessing that you mean items that don’t meet their minimum or reserve, if you’ve gone that route. These would remain the property of the seller but may be subject to a “buyback” fee charged by the auctioneer depending on the terms of your contract.