A Seller's Paradise can be a Buyer's Trap

I’ve been reading with interest the results of the 2012 Florida United Numismatists (FUN) auction.  From the feedback that I’ve been getting from one of my favorite forum sites, Collector’s Universe, very high prices were made on much of the material. A high grade early cent even broke the $1 million mark. From the “buzz” before this auction, it’s no wonder that high prices were paid.  So many were talking about bidding or attending the auctions.  There were multiple ways to bid.  And some very good material crossed the auction block.  At the same time, I’ve been reading comments from some of the attendees that a few lackluster items crossed the auction block yielding higher prices than might have been warranted.

Based on this feedback, I can only imagine that the sellers are giddy with excitement about the auction results.  Most times, sales are made to the satisfaction of both parties involved.  The seller is happy with a good price, and the buyer purchased something rare or exciting that is seldom offered for sale so they are happy too.  Sometimes paying top dollar is warranted.  For example, for almost every news-worthy rarity sold…like items that you hear about in the mainstream media following the sale…a rarified price was likely paid for the era that it was purchased.  For example, the high grade early cent that recently sold for $1 million may make the uninitiated wrinkle their brow and say, “those people have more money than sense”…HOWEVER, in 10 or 15 years, when that cent is sold for $2 million, those same uninitiated folks will likely comment on how "lucky" the seller was to sell their cent for so much money. Luck indeed!

So to be clear, for those items that exhibit (1.) Great rarity (2.) Unusually Original Condition and (3.) a High Degree of Popularity due to their “wow factor”will always be worth top dollar, or even more than top dollar depending on the time horizon of the buyer.

HOWEVER, what about the items that don’t meet this criteria in the same auction?  Sometimes group-think prevails in auctions.  A frenzy can set in.  The spark of this frenzy might be the mere presence of these rare “first water” collectibles that everyone wants.  Observing the auction is exciting and the attendees want to feel that excitement in their price range too.  A well promoted auction doesn’t hurt in fanning the flames either.  Sometimes, auction goers will get carried away in the excitement, or the competition to win the relatively few items available to a relatively overly-large group of bidders.

So ask yourselves these questions:

Would you rather sell an item in a well advertised, well attended auction, or a poorly advertised, lightly attended auction?

Put the shoe on the other foot…would you rather buy an item in a well advertised, well attended auction, or a poorly advertised, lightly attended auction?

The answers should be obvious.  OK, sure...if the collectible you’re looking for can only be purchased in a heavily attended auction, then that is obviously where you will need to go. But should you buy a collectible in the highly attended, well advertised auction if you can get it elsewhere? 

Probably not…but of course, it does depend on the price.  In cases like these, the smart move is to decide on your bid before-hand and stick to it.  If you walk away with nothing, you made the correct decision.

Do you want to make money buying and selling collectibles?   There is a very popular television show on one of my favorite cable channels about a man who makes his living buying and selling classic cars. It’s a great show for car nuts like me. If you watch the show long enough, you’ll realize why the man is able to make a living following his passion. It is a simple formula:  He tends to buy cars outright for prices below what he could buy them at auction, or he will attend smaller, lightly attended auctions for his purchases.  But he only sells them at the larger auctions.  I’m sure he’ll also sell them for full retail in his showroom too.  And the difference between what he buys his cars for, and what he sells them for, is borne by the sellers who he buys from and the buyers who get caught up in a buying frenzy.  Don’t be one of them.

Bottom line:  Unless you collect first-water collectibles that can only be obtained from large auctions, be very, very, careful about what you pay for your more common items in a big and exciting auction.  Realize that in a highly advertised and populated auction, you will be bidding against people who have a great, great, love for their collectibles and some of them do not have to worry so much about dropping large sums of money to pursue their passion.  And they just might have auction fever!  Instead, buy in locations where those people likely won’t be found.

But be sure and surround yourself with them when it’s time to sell.