Thursday, 10 July 2008

Auctions and bidding

Gordie wondered if it was quite ethical for an auctioneer to run the bidding up to the reserve, rather than let it finish at the point where there is only one bidder left.

Right - well, first of all, most items have a reserve; that is, a price below which the lot will not be sold. Put it this way - if you went to a car dealer, wanting to sell your car for £2,000 and he only offered you £500, you'd probably not sell, would you? Especially if you still owed £1,000 on it. You would have a figure in your mind for negotiation, but there would be a point at which you could not sell it unless you were completely desperate - and if you knew it was worth the money and he'd be selling it on at a profit, you'd keep bargaining for a realistic offer, or take it home again.

When you send a picture to an auction, you own it until the fall of the hammer and you are under no obligation to sell it for less than the sum that you and the auctioneer have agreed it's worth. You will also agree with the auctioneer if there's any flexibility on that. For example, let's say there's £100 reserve, but someone bids £95. If the auctioneer takes it to £100, another bid actually pushes it past the reserve, so he probably would let it go at £95.

For an auction to work, there needs to be at least two people bidding. But let's say you are willing to pay £100, but no one else is bidding. It is acceptable for the auctioneer to point down and take bids 'off the book' until the reserve is reached - but not after. This is up to the ethics of the auctioneer - if he knows that there is someone in the room who might pay more than the reserve, he must not take advantage of that, but let the piece find its own level in the bidding. Nor may he use a commission bid (that is, someone who has left a maximum bid with him) to bump up the bidding past the reserve. The Sage is always cautious about leaving bids unless he trusts the auctioneer because not all of them are completely scrupulous about not using commission bids.

So far, you think that as a buyer you are being manipulated. But look at it from the other side.

Gordie and Z are friends with an interest in pictures in common and they go to an auction together. Gordie really likes the Seago and says so. Z likes it too, but she wouldn't dream of running the price up high for her friend, so she says she won't bid until he drops out. Fair enough, but it would not be fair on the owner of the picture that the price is artificially low because two friends have done some private negotiation.

Between friends or colleagues this is one thing, but among dealers it's a different matter. And this is where you need a skillful auctioneer who knows what things should be worth and has valued them correctly with a realistic reserve. An auction ring is illegal, but regularly used.

A group of dealers gets together and agrees how to bid to get lots for the lowest possible price. The designated bidder buys the items and pays for them and afterwards, they all get together and have a private auction amongst themselves. The pieces are resold, the buyer is reimbursed and everyone shares the profit - except the former owner who didn't get the value of his pieces, and the auctioneer who earns a reduced commission - and, arguably, deserves to, you might say. Well yes, if he only takes live bids in the room and then lets it go, but if he's allowed to bid an item up to its sensible reserve, it won't happen; or at any rate, to a much lesser extent.

Of course, at the sort of auction we went to yesterday, this sort of thing would not happen. There was no question of any dodgy dealership at all and, although the room was full, there was also a whole tableful of people taking telephone bids. No question of collusion and quite a few private buyers, because I saw them. The sale went well because it deserved to; it was, genuinely, a private collection put together over many years, of very attractive and appealing local pictures. It was very professionally conducted in a relaxed atmosphere. I thought it was lovely that the vendors had chosen to sell in Norwich rather than send the pictures to London and I think that paid off, in that there were so many private collectors as well as dealers.

I think I may have given you the impression that there is only ever one person bidding - that's not so and it's all the more fun when there's spirited bidding in the room. Some people are willing to come in at the start and others prefer to wait and see how it's going (if the auctioneer gave up as soon as no one bid, these people would never come in, but they might bid strongly once they get going). If I want a piece I bid promptly (if I can get a bid in edgeways) and remain determined, bidding again as soon as I'm taken out. I know perfectly well that I'm not going to get it for more than a bid less than the guide price or estimate (unless I'm very lucky and the reserve is well under that; an unlikely circumstance) so I don't mind if there's not another bidder - though there may well be and it's more fun that way as there's an extra element of competition. I fix in my mind the price I want to pay and the price I will go up to if I must - though if there's really spirited bidding, I might think 'hm, maybe I've undervalued it a bit' and go a bit further if I can afford to. Always remember to add on the auctioneer's commission and VAT on the hammer price, and check if there's any extra tax on the item itself. There may be if it's being sold by a dealer, if it's been imported for sale or if the painter is still alive he's paid commission every time his piece is auctioned.

If you go to a general auction sale and there isn't a catalogue or it's just a printed sheet, there may be no reserves and everything is just sold as seen.

I've not been clear enough - let's go through it carefully.

I go to an auction and see a tea cup and saucer that is just what I want. And the estimate is only £200-£220 - what a bargain that would be! The bidding starts at £80 and goes up steadily until it reaches £160, but then the other bidder shakes his head. He doesn't appreciate fine china, it seems. The auctioneer looks around for another bidder, but he doesn't see one. There am I, all hopeful and keen and ready to continue bidding, but the reserve (the price the seller has said that the bidding must reach) is higher than £160. It is normal practice in any auction house for an auctioneer to continue as if there is another bidder (this is called 'taking bids off the wall'). So, he says "£170", I bid £180, he says "£190", I put my hand up again for £200 and then the auctioneer continues to look around - but if there is no other bidder and the reserve price has been reached (that is, he has bid up to the reserve), he will bang down his gavel, and the cup and saucer becomes mine.

Sometimes, it works the other way. No one wants to start the bidding and then the auctioneer will probably offer a lower starting price. Then, when I've put in my bid, he will point at his book to indicate that he is bidding against the reserve (that is, running up the price because my bid is still lower than the price he can sell at) until someone else is encouraged to start bidding; then he'll take my bid alternately from the other person's in the usual way. I'll probably be overcome with excitement and end up bidding more than I meant to for the cup and saucer.

Of course, more often there are at least two bidders and it isn't necessary to do any of this. But if the auctioneer waits ages, anxiously, for bids, it absolutely kills the atmosphere and there's a good chance that hardly anything will sell. That's why a good auctioneer is worth his weight in teacups.

Anything more you would like to know, Gordie and Dandelion? Or TMI already? Query anything I've said, by all means.

19 comments:

Dandelion said...

Z, you've lost me. I don't understand. You are as bad as that bee blogger of yours.

It would help if I knew exactly what "take it to the reserve" actually meant. I know what a reserve is, but how does one "take it to the reserve", please? I thought that what "it" "goes to", ie the price that it reaches, is dependent on the bidder(s)?

Z said...

Another paragraph is called for, it seems.

luckyzmom said...

I didn't know about the underhandedness. Scoundrals!

Dandelion said...

Sorry to be the thickie, z, but you know what they say: there's always one...

Z said...

Logic. So many women just don't understand logic.

georgie said...

When I auctioned stuff off and some reserves weren't met the auction house took down the name and number of the last bidder then called me the next day. They asked if I'd accept the offer-which was often so low it was more of an insult. Of course not-that is why I set a reserve. I never went to the actual auctions.

Dandelion said...

Speak for yourself, z. Logic I can cope with. Auctions on the other hand...

Z said...

Hello, Georgie, thanks for calling. We'd not call anyone with a ridiculously low offer, but if it was close we might - sometimes, after a sale, someone will come along and ask if the vendor would consider a bid near the asking price. The Sage might drop his commission to help the deal along, but that's because he's absurdly tender-hearted.

Is there something you still aren't sure about, Dand? It all makes sense to me. Why don't you pop along to one of the auction houses one day, just to watch. It'll soon become clear, especially with the benefit of having read my explanation in advance. Then you can get your bidding arm ready for next time...

Bees store nectar in a different stomach from the one where they digest food, by the way. Then they do the mouth-to-mouth thing.

Dandelion said...

Ooh, I didn't see your extra explanation part! Thanks, z! Now it all makes sense (I think)

Dandelion said...

Perverts!

Dave said...

I have nothing to add.

How do we know said...

this is soo informative. I was totally clueless abt this sector. Thanks Zoe, and i can c u smiling at this comment.

Dave said...

I'm not allowed to tell jokes in a library, as people tut when I LOL (whatvere that means).

Dave said...

Useless Norwich library keboards. Keep making typos all by themselves.

Blue Witch said...

I hate the games that auctioneers play. And I'm not convinced that there are many ethical ones around these days.

If I'm bidding in an auction, I'm always very aware of who I'm bidding against. If it's Mr Nobody, I always ask, loudly, "What's the reserve?"

I really think that auctioneers should say when there is ony one person left, if the biding is below the reserve. Otherwise it's not an auction, but just buying at a pre-set price. Which is the difference between an auction and a sale. I thought...

sablonneuse said...

I've never been to an auction. I don't think I'd dare now. . . .

Z said...

Sounds quite fun to me, especially when they fan the honey to evaporate surplus liquid.

BW, usually people bid quite openly, but some are very cagey and want to arrange a code before a sale - it might be, for example, that someone bids for a particular lot until he scratches his left ear - it would be impossible for you to know if he was actually bidding against you, as he does nothing until he decides to stop. In our sales, the reserve is always within the range of the estimate and is usually the lower estimate, and we're open about that. As I said, some people won't come in near the start of the bidding - but may carry on way past the estimated price. You can't have an auction of valuable items without the safeguard of reserves, it would be absurd. There are plenty of honest auctioneers and any auctioneer would be stupid to assume that someone would carry on bidding, and try to push on once the estimate was reached, as he would be held liable by the vendor for not accepting a viable bid. I'd only be cautious about leaving a bid on the auctioneer's book unless I trust him - and plenty of people trust the Sage who is, of course, scrupulous and never runs a price up or uses the information of a bid to fix the reserve. I'd also completely trust a firm such as the one who did the sale on Wednesday - the auctioneer said when she had a commission bid and when that bid was taken out, and she nearly always said when an item wasn't sold. A couple of times, when a piece went just below its guide price, she emphasised that she was actually selling. She was completely professional and a pleasure to watch. But a bit of gamesmanship is all part and parcel of an auction and it's what people with confidence in their judgment enjoy; playing the game and winning - which may involve buying a bargain or it may be buying the piece you really want for whatever you can afford.

If I were you, I'd steer clear of auctions. I'm not, and I love 'em, as a buyer, seller and auctioneer's partner.

Sandy, don't start by bidding hundreds of euros if you don't know anything about the type of thing you want. Know how much you want to bid (write it down, the mind goes blank!), add on extra charges and have fun. If you're just buying a decorative item or something useful, the odds are that there won't even be a reserve, and the auctioneer won't be playing silly buggers and pushing the price up with every lot. It's not half as scary as I've made it sound. Anyway, there's always eBay. We buy on eBay - bought something only last week.

Dave, you can LOL in my presence and I won't tut. And I agree about the Norwich library keyboards, they make me type as if I've had at least two gins. It's all right, I'm still chuckling over your last joke. I may need a laugh by the end of the weekend, however.

HDWK, it's the sellers at Indian tourist venues that you need to teach me about! There's no salesman like an Indian salesman, and I enjoy that too, when I want to have a good bargaining session!

Blue Witch said...

OK, I guess I just go to different types of auction. Country/junk sale and farm sale. None of the specialist high price stuff, and people don't bid in secret!

Z said...

And in those sales, sarcastic queries about how high the reserve is would receive a chuckle, and probably applause. I think I've spent all too long in the fine art world and should get down and dirty in the local salerooms again ;-)