Auctions can be entertaining, and potentially a way to win a great deal. But don't forget auction houses are running a business.
Auctions have always existed as a way for the free market to value and redistribute possessions. From real estate to cars to antiques, these markets of every day economic life have even penetrated into the world of cable TV as a cheap-to-produce example of reality programming.
But many of us will be personally involved, whether selling off our unwanted family heirlooms through an auction house or as a hobbyist buying and selling for fun, and hopefully, some profit.
Elizabeth O’Brien in The Wall Street Journal summed up some basics that are important to know before we put either our valuables, or our hard-earned managed care/Medicare money, at hazard. Knowing how these events work will give insight and make watching others involved in the frenzy more understandable, if not entertaining.
Auctions are run with a sense of urgency for good reasons. For the auctioneers and for the sellers, that is. As a prospective buyer, the less time you have to think, the less time you have to resist the herding/bandwagon bias, the more that you will get competitive with some other bidder and spend more than you might prefer. This makes both the seller, and the auctioneer peeling off their 10-30% fee happier. So first of all, take a deep breath and slow down.
And those auctioneers know what they are doing. They have learned from long experience how to read body language and especially faces. And a good one will play his bidder like a fish on a line. Also note that some events, particularly charity auctions, encourage alcohol consumption to loosen up your judgment “for a good cause.” Maybe.
Contrary to what you might assume, or hope, as a buyer, bargains are not the rule. So before the auction, do your homework; review the condition of the item(s) you are interested in, check values on line and decide on your drop-dead bid limit. The “Antiques Roadshow” example of someone buying a white elephant for a pittance at some country auction only to find that it is actually a lost Imperial Ming vase worth a fortune is exactly as likely as winning the lottery.
Keep in mind that there might be some “bad bidding” by shills hired to drive the prices up. If they inadvertently “win,” then they will just walk out without paying. And the item will go up for sale again another day.
Another caveat is that there are fakes offered in auctions, just like any other market. Many reputable houses will stand behind high-end items with a provenance (documented history of ownership), but look for such a guarantee in writing before buying anything valuable. Otherwise, you are on your own.
As a prospective seller, be mindful that it is not worth the auction house’s time to sell your low-value items, but if you also have high-value examples, they might be willing to take “the package.” And the free (?) pre-auction appraisals could go low on items that they do not want to sell and high on things that they do.
Lastly, remember that, buy or sell, in auction houses, as in casinos, the house always wins.