Thinking of Consigning Coins or Paper Money to a Numismatic Auction House?

Consigning your coin or paper money collection to an auction house seems easy enough. Choose an auction house.  Talk to the auction director. Agree to consign.  Sign a contract,  hand over your collection, wait for a generous settlement check. It sounds simple enough, but there are many things you should be very clear about before you sign on the dotted line.

Here are just a few of those things to consider: reserves, insurance valuations, commission rates, auction venues, conflicts with other major auction houses, best time to sell, and a great deal more.

As time goes by I will discuss many of these subjects on this website, but if you need help now, contact me today.

Does It Make Sense to Set Reserves?

Under certain conditions, auction consignors can set the minimum amount the auction house will accept as the winning bid on a lot. This is called a reserve, or a protective bid.

Auction houses typically charge consignors a fee for lots that fail to meet reserves. This should motivate consignors to carefully consider their reserves, and to keep them as low as possible.

One important point about reserves often gets lost in the fine print of an auction consignment agreement – reserves are usually expressed as the minimum hammer price acceptable by the consignor, not the hammer price less the seller’s fee. A clause in the auction contract should clarify this issue so that there are no misunderstandings about how the auction house will execute your reserves.

Here’s an example. A consignor asks an auction house to put a $10,000 reserve on an item. The consignor has agreed to pay a 5% seller’s fee. The item opens at $9,000 and is bid up to $10,000 and sold at that price. After the sale the consignor gets his statement and sees that he will only receive $9,500. He gets quite upset and calls the auction director. The auction director explains that according to their contract the consignor’s $10,000 reserve refers only to the hammer price of the lot, not the hammer price less the buyer’s charge. Be sure you understand the terms in your contract that relating to reserves.

If you do decide to submit reserves, submit a clearly printed list of your reserves in order to avoid costly errors, and have someone at the auction house sign that they have received it.

Auction directors love consignments without reserves because this almost guarantees that every item will sell. If that is in accordance with your wishes, by all means go ahead and consign without reserves; unreserved auctions often produce excellent results. Just be sure and tell the auction director you don’t require reserves, and do this before you negotiate the auction contract. It may help you negotiate a lower seller’s fee.

Many dealers and collectors put reserves on their lots because they think this will guarantee fair price realizations. They consider reserves to be insurance against any unusual circumstances that might interfere with the auction process. Inquire about what would happen if no reserves were set, and unforeseen circumstances beyond the control of the auction house occur. Most auction directors are fair and sensible. They use good judgment to protect their consignors and their bidders. If conditions turn out to be unsuitable for the auction they might postpone the sale. That is exactly what happened when the World Trade Center was attacked. Auctions scheduled on or about 9/11 were postponed. On the other hand, at least one auction house I know decided to go ahead and conduct an auction during a blizzard. (As it turned out, the auction did OK. Internet bidding proved to be quite active.)

What happens when there are no reserves set? Barring any unusual conditions, in the absence of reserves most numismatic auction houses start the bidding at a set percentage of the low end of the estimate range for any particular lot. 60%-65% of the lower estimate is typical. Check the terms of tale or the auction contract and see if this is mentioned. If it is mentioned in the terms of sale then every lot is, in effect, covered with a reserve. If it isn’t mentioned, asked the auction director what he will do in the absence of any bids.

If you insist on reserving your lots be reasonable. Submitting reasonable reserves requires some serious homework. Start off by determining how much each significant item in your collection is worth. Do the research yourself, or have a professional do it for you (see How Much Is Your Collection Worth?). Don’t forget to consider the buyer’s fees as well as the seller’s fees when trying to establish what you can expect to get for an auction lot.

Once you think you know what is a fair and reasonable reserve price, apply the algebraic formula below.

Here’s an example: A consignor wants to end up with $1,000 (“Expected Realization”) after the seller’s fee of 5% is applied. How much should his reserve be?

Reserve submitted to the auction house should be = Expected Amount / (1- Seller’s Fee)

Reserve submitted to the auction house should be = $1,000 / (1- .05)

Reserve submitted to the auction house should be = $1,000 / .95

Reserve submitted to the auction house should be = $1,052.63

Round this amount to the nearest bidder increment, $1050, and submit this as the reserve.

If the coin fetches a hammer price of $1,050 the consignor will then net $997.50 ($1,050 less the 5% seller’s fee).

Setting reasonable reserves is the key element in maximizing auction results. Set the reserves too high and you won’t sell all of your items. You will also end up paying reserve fees. Set your reserves too low and you may fail to maximize your results.

Here is another good reason to set a reasonable reserve; “It only takes two bidders to sell an auction lot at a fair price.” I have heard these words throughout my career as an auction director, but they are not necessarily true. It only takes one bidder if you set a reasonable reserve on a lot.

Agree to reasonable reserves and you may be able to convince the auction director to waive the reserve fees entirely, or to give you a certain number of reserves at no charge. Many different reserve fee arrangements are possible. The usual arrangement is to charge the consignor 5% of the hammer price of any reserved lot that fails to sell.

For example, a consignor reserves a lot at $10,000. The lot is estimated at $10,000-$15,000. There are no bids on the auction book. The auction director opens the lot at $6,500. Someone on the auction floor bids $7,000. The auctioneer sees the consignor’s reserve in the auction book and bids $7,500. No one else bids. The lot goes “to the book” because it fails to meet its $10,000 reserve. The consignor is charged a reserve fee of $375 (5% of $7,500).

Reserves must be agreed to by both the consignor and the auction house before the auction. They cannot be unilaterally changed. Auction houses usually prohibit a consignor from bidding on their own lots during an auction. Auction contracts usually specify that a consignor has to submit his reserves at least 48 hours before a sale, and that he cannot bid on his own lots from the floor during the sale. Some consignors try to get around this by having someone else bid on their lots in an attempt to drive up prices beyond the consignor’s reserves. These consignors end up paying both the seller’s fee and the buyer’s fee when this tactic fails.

If you are going to submit reserves, be sure to do your homework. Determine the value of each significant item; take into consideration what an educated buyer would be willing to bid. Take both buyer’s fees and seller’s fees into consideration. Seek professional help if needed. Contact us.

What Numismatic Auction Insurance Issues Relate to Consigning?

Most auction houses are extremely careful with a consignor’s material, and losses in transit, in storage, or during viewing are minimal. If you consign your collection to an auction house you need to know if you are protected by insurance, who is paying for that protection, and what will happen if there is a loss.

The most numismatic auction houses carry their own insurance coverage and you may, or may not be charged you for that service. Read your auction contract carefully. You will usually find a clause that says “The consignee (the auction house) shall insure all items while in its possession.” That means the auction house will carry the insurance and pay for the insurance.

Sounds simple enough, but what actually happens if a key item in your collection gets stolen or damaged during lot viewing? How much will the auction house pay you?

This can depend to a large extent on what value you assign to each item when you give the consignment to the auction director.

When you consign your material to an auction house be sure to get a signed receipt stating the “value for insurance purposes” of every significant item.

If an item is lost by an auction company before it appears in a catalog, that item should be replaced with one of equal value, or you should receive a check based on the value for insurance purposes that you and the auction house have agreed to (as indicated on your receipt of goods from the auction house). What you receive may be based on the number indicated on you receipt, but the insurance company may challenge the value indicated on the receipt if it has any doubts about how the insurance value was arrived at. One way to avoid this problem is to have a professional numismatist assign the values independently.

The same principals apply if an item is lost during viewing, but what happens if an item is damaged during viewing or shipping? Coins, or paper money in a third-party grader’s holders are usually not an issue here, but “raw” coins or paper money may be subject to damage.

If you have any questions about the way your lots will be handled during viewing, ask the auction director. Some companies will simply not allow items to be taken out of holders during viewing. Others will have a staff member personally supervise the showing of an item. The staff member will take the item out and put it back after it has been viewed. The issue of damage is rarely addressed in an auction contract, but it should be.

If an item is sold at auction and then somehow disappears, you should receive the full amount you were entitled to anyway.

When you consign a large and valuable collection to an auction house, be sure they carry enough insurance to protect you if the collection is stolen or lost. You can verify whether or not they have enough protection by asking them to furnish you with a certificate of insurance. Have the insurance company assign a pre-determined amount of insurance to specifically cover your collection. That way if there is a catastrophic loss involving the auction company, you get paid before any other claims.

Before you ship anything to an auction house, find out if their insurance policy covers items that are being shipped to them. If they have this coverage, your shipment will be protected while in transit to the auction house and the coverage will cost you nothing.

Be a wise consignor. Read your auction contract, read the Terms of Sale, and seek professional help if necessary. Contact us.

 

Who Will Catalog Your Material?

Before you consign to any auction house, find out who will describe your items. Some auction houses have reduced their staff, and their expenses, by letting their best numismatists go.

Unless everything in your collection has already been attributed, certified, and described by an experienced numismatist, be certain the auction house you choose has a widely-recognized expert catalog your collection.

Choosing an auction house with first-class numismatic catalogers insures that all rare varieties are identified and described properly. A numismatic expert will recognize all of your significant items and describe them as separate lots. Every significant  item will be in the proper place in the catalog, in strict numismatic order, where it can easily be found by knowledgeable bidders.  The provenance (the mention of previous auction appearances or private treaty sales records) will be included in the catalog descriptions. The length of the descriptions will correspond to the importance of the items. There will be no spelling or grammatical errors. There will be no misattributions, wrong images, wrong dates or denominations.

A skilled cataloger will present a fair and balanced word picture that mentions any relevant defects but also emphasizes the positive attributes of each example. Being overly negative can kill any chance of selling a lot. Failing to truly represent any defects will result in a high rate of returns.

A skilled and experienced cataloger will give estimates that reflect the true market value of your auction lots. If the published estimates on your lots are unrealistically high, the lots may open higher than anyone is willing to bid. If lots are consistently estimated too low, the auction will take a very long time and bidders may become impatient and loose interest.

Always choose an auction house with a staff of experts that are appropriate for the type of material that you are selling;  at the very least, be sure the auction house you choose uses a competent guest cataloger who can handle your collection properly.

Ask the auction house to allow you, or a competent auction consignment agent,  to proofread the descriptions of your lots before they are published. Some auction houses simply won’t agree to do this. Others are happy to comply.

You may be a recognized expert in a specialty area, and you may know your collection better than anyone else. Sometimes the best way to get correct descriptions is to write them yourself. Most auction houses are delighted to sell a collection that is fully cataloged by a knowledgeable consignor.

An independent auction consultant can help you sort through these issues; he will prepare your collection for consignment, select items that need to be certified, negotiate a fair consignment agreement, and make sure that your collection is realistically estimated and described properly.

If you need professional help, contact us.

What Really Goes on Up There at the Auction Podium?

What Really Goes On Up There at the Auction Podium?

 

When a live auction begins, it often looks as if the auctioneer is the central figure in a mystery movie with a pre-determined plot. As each lot comes up for sale, the auctioneer and his assistants seem to be following a script; they know where each lot begins; they seem to know what the next bid will be, and they often seem to know where each lot will end. To add to the mysterious atmosphere, auctioneers have a vocabulary that is never heard outside of an auction room, and they sometimes chant the words in a mesmerizing sing-song manner, almost like an itinerant preacher. While a professional coin dealer in the audience may understand the meaning of just about everything that goes on in the auction room, a novice might sit there scratching his head, thoroughly mystified.

 

What is really going on up there? How are the “openers” for each lot determined? Where do bids come from when it often seems as if no one in the audience is bidding? Is the system fair to both bidders and consigners?

 

Determining “Openers”

 

The level that each lot starts at is known as the “opener.” Some auction houses prepare “openers” and print them out for the auctioneer. Other auction houses have their openers entered into a data base that is monitored by one of the auctioneer’s assistants.

 

How are the opening levels determined? All of the bids mailed in by absentee bidders are entered into a data base. Any reserves that were placed by the consignors are entered into the data base as well. In the absence of any absentee bids or reserves, the auctioneer or his assistant will take into consideration the estimates placed on the lots.

 

Preparing the openers is a complex task, and how well it is accomplished will have a significant effect on the outcome of the auction. To see how it is done, examine the following examples.

 

Three Absentee Bids Determine the Opener

 

An auction lot has no reserves. Bids of $100, $150, and $180 have been placed on this lot by three separate absentee bidders. The auction company’s estimate for the lot was $100-$150. Since this auction company has a policy of opening all lots at two-thirds of the low end of the estimate range, or more, any one of the three absentee bids is acceptable.

 

Our auctioneer correctly opens the lot at $160, and asks if anyone is willing to bid $170. If someone in the audience bids $170, the auctioneer will see the $180 bid in his printout or on his computer screen, and he will let the room know he has $180 “at the table” or “on the book.” A bidder in the audience might bid $190 and win the lot, or there may be further competition from the floor, phone or Internet.

 

The Consignor’s Reserve Determines the Opener

 

Sometimes the consignor’s reserve determines the opening number. If a consignor submits a reserve and there are no other bids on a lot, it may be opened at, or near, the reserve.

 

The Auction House Estimate Determines the Opener

 

In a case where there are no absentee bids placed on a lot, and no reserve has been submitted by the consignor, the auction estimates come into play. Some auction houses publish estimates in their catalogs and on line, some do not, but the estimates usually appear in the auctioneer’s book, and help him determine an opening bid.

 

How does that work? Read the terms of sale. The auction Terms of Sale may state that in the absence of any bids or reserves, lots will be opened at a fixed percentage (typically two-thirds) of the lower end of the estimate range. For example, a lot with no bids, estimated at $1,000-$1,500, will usually be opened at $650. Note that the opener was rounded up from $633 (two-thirds of $1,000). Auctioneers try to keep the openers at numbers that reflect the suggested bidding intervals published in the auction catalog.

 

If the auction house is well-known for establishing accurate estimates, consignors often have enough confidence to skip the process of setting reserves on their lots.

 

Reasonable openers are important. If there are few absentee bids, and the openers are set way below the true value of lots, the auction will take forever (unless the bidders in the audience or on the phone are willing to “jump” their bids to price levels nearer to the actual market values). An opener set above the actual value of a lot will result in a “No sale.”

 

The Auctioneer Walks a Tightrope

 

What happens when the auction house receives only one bid, and it is well above the consignor’s reserve? An auction director trying to come up with a proper opener in this example may feel like he or she is walking a tightrope. He has to try to be fair to the bidder, the consignor, and to the auction house as well.

 

Suppose a bidder calls an auction house and says “I want to buy Lot 1005 and money is no object. Just bid whatever it takes.” No sensible auction house will accept this kind of bid. The sensible auction director tells this bidder that he must come up with the maximum price he is willing to pay, or find an agent to bid for him. Our eager bidder submits a $25,000 bid on the lot, despite the fact that it has been estimated at $5,000-$10,000. The auctioneer sees that the auction house has already received a bid of $5,500 in the book. There is no reserve on the lot. He opens the lot at $6,000, clearing the $5,500 bid, and potentially saving the $25,000 bidder a great deal of money.

 

The consignor later overhears the $25,000 bidder telling a friend “What a wonderful auction house this is. They saved me thousands and thousands of dollars. I was willing to pay up to $25,000 and got the lot at $6,000.” The consignor complains that by opening the lot at $6,000 the auction house cost him thousands of dollars.

 

Another auction director handles the same situation differently. He opens the lot at $9,000; just above the price that the specialists working for the auction house would be willing to pay. The bidder in this scenario pays $3,000 more than he would have in the example above.

 

Is the auction house acting properly in the second case? The answer may be found in the auction contract or in the Terms of Sale. There will almost always be a statement that informs all concerned that the auction house retains the right to buy lots for their own account, and to sell lots that belong to the auction house. While some people consider this to be a conflict of interest, others see that the actions of the auction house help maintain fair market realizations.

 

Why Is One Auction House Better Than Another?

 

Why is it that some auction houses consistently manage to sell almost every lot they offer for sale, while others have many lots that don’t sell? Good auction houses know the market value of what they are selling; inferior auction houses do not. As a consignor, maximize your auction results by consigning to an auction company that knows the value of what you are selling. The same advice holds true for potential bidders. If an auction house knows the value of what it is selling, any reserves will be realistic, and reasonable bids will win the lots.

 

When openers are carefully set, almost every lot will sell quickly. There will be few “ties” between the floor bidders and the book bidders. The sale will end at a reasonable hour and everyone goes home happy.

 

Is the Bidding Rigged? It Sometimes Feels That Way.

 

The actions of an auctioneer may sometimes appear to be suspicious to bidders. When a bidder fails to win a lot, or when the auctioneer constantly bids against a bidder it sometimes feel as if that bidder is being singled out or cheated. IT may feel that way, but it probably isn’t true.

 

A bidder in the audience sees a lot opened at a reasonably low level. He raises his hand and places a bid, but the auctioneer immediately tops each he makes. This happens over and over again. The bidder feels that he is being forced into paying the maximum amount he is willing to bid, every time. Is the auctioneer really taking bids “from the chandelier,” (making bids up in order to get the floor bidder to bid more), or is the auctioneer simply acting on behalf of bidders who simply submitted their bids earlier, and are depending on the auctioneer to act as their agent?

 

Most successful auction houses get to be that way because they are scrupulously honest. Their reputations are a great deal more important to them than the few extra dollars they might earn by trying to force bidders to go one increment more. In all likelihood, the auctioneer is opening the lot a few intervals below the highest bid he has on the book. This is done in compliance with a statement you might see in the Terms of Sale, or it may be the unwritten policy of the auction house to simply open a lot one bidding increment above the second highest bid received.

 

If the auctioneer has two bids on the book, $500 and $1,000, he will open the lot at $600.

The floor bidder will bid $650, the auctioneer responds with $700, the floor bidder bids $750, the auctioneer responds with $800, the floor bidder bids $850, the auctioneer responds with $900, the floor bids $950, and the auctioneer bids $1,000.

 

Why did the auctioneer open the lot at $600 instead of $550? He did it to avoid a potential tie at $1,000. Ties lead to arguments, and they waste time. The auctioneer started the lot with an opener that could not lead to a tie with the $1000 book bid.

 

Are Consignors Being Cheated?

 

Consignors sometime leave the auction room thinking they were cheated when they were not. A consignor sees the auctioneer open a lot at $1,700, $100 above the consignor’s reserve of $1,600. There is a $2,500 bid entered into the book. Bidders from the floor and phone compete with bids from the auctioneer, who finally wins the lot at $2,500 and announces that it sold to a mail bidder.

 

The consignor complains “If the auctioneer had a bid of $2,500 or more on the book, then why did he take the chance of only opening the lot at only $1,700? What if there were no more bids from the floor or telephone bidders? The lot might have closed at $1,700, and I would have lost a potential $800.” That same consignor may be thinking “What if the bid on the book was $10,000? I may have been cheated out of an additional $7,500!”

 

Before you consign or bid in a sale, be sure to read the Terms of Sale, look at an auction contract, and learn as much as you can about the reputation of the auction house you patronize. Find a customer familiar with the auction house and its policies, or contact us to get professional advice.

How Do You Determine the Value of Your Collection?

How Do You Determine the Value of Your Collection?

If you want to maximize your auction results you need to accurately determine the value of the significant items in your collection. This is essential if you are going to successfully navigate your way through the auction process.

“How much do you think the collection worth?” is often the first question an auction director’s asks a potential consignor. If an auction director looks at your inventory list and sees that the values assigned to the most significant items agree with his valuations, everything generally goes smoothly. If he doesn’t like what he sees, the differences will need to be resolved.

Here are some of the things an auction director decides, based on the perceived value of a collection – Should he travel to see the collection or ask the potential consignor to bring the collection to him? What value should he assign for insurance purposes? Will he allow reserves, and what should they be?

If a collection is really worth $1,000,000, an auction director will gladly travel across the country to see it. If it is only worth $10,000 the auction director will almost certainly ask you to ship it, bring it in, or take it to another auction company.

The value of the collection determines the amount of insurance coverage required. While statistics indicate that very few claims occur, a proper valuation makes the settlement process faster and easier. (See Insurance)

Any reserves allowed will be based on the true value of the significant pieces, and if these reserves are too low the items may not bring what they are really worth. If they are too high the items may not sell at all. (See Reserves)

How Should You Go About Determining Values?

The process begins with accurately identifying each item, and grading it correctly. If the coin has already been certified authentic, and has been graded by a well-respected third-party grading service, this has already been taken care of, but be aware that the grading services are not infallible. Double-check the attributions (go to the proper reference works and identify the variety), and also take note of the rarity ratings assigned by the reference works. The next thing to do is to see if the numeric grade assigned by the third-party grading service is accurate.

A professional numismatist will look for anything that might affect eye appeal; attractive toning, sharper than usual strike, and blazing original luster are all positive attributes. Dark spots, heavy scratches, atypical weak areas in the strike, and dull surfaces are all a minuses. What you do next depends on the particular type of coin.

It is relatively easy to establish values on some coins because they are bought, sold and auctioned on a regular basis. Morgan Dollars or Silver Commemorative Half Dollars are a good example. The “Grey Sheet” or “Blue Sheet” (COIN DEALER newsletter) lists prices for practically every series by date, denomination and grade, certified or uncertified. “Bid” and “Ask” prices are given. A professional numismatist might use the “Ask” price to establish the value of an item for insurance purposes.

Colonial Coins, Early Large Cents, Bust Half Dollars and Dollars, Patterns, and similar types require a more sophisticated approach. A large library of numismatic reference works is helpful. The Internet is very useful here as well. Several auction companies maintain online archives that record auction results. They publish enlarged images that help greatly when checking attributions. Rarities can be researched using the third-party grading services and their population reports. Several other services are available, some quite comprehensive and expensive, others relatively inexpensive but still quite useful.

Setting reasonable reserves requires additional work. (See Reserves)

Before you consign, determine the value of your significant items as accurately as possible. Seek professional help when necessary. The auction process will proceed smoothly and you will achieve higher realizations for your collection. Contact us.

 

 

Is Your Collection Suitable for Auction?

There is no simple answer to this question. Every auction house has its own criteria for accepting material, based on many factors. Here are just three of the questions an auction director might ask in order to determine whether or not your collection is suitable for auction:

What is the total value of the collection?

Are you willing to allow some items to be grouped together?

Will you include your bullion coins in the consignment?

 

What is the Total Value You of Your Collection?

The first question an auction director usually asks is “What is the total value of your collection?” All auction houses have their own minimum value guidelines.

Let’s look at the different policies of three fictitious auction houses, all conducting top-level public auction sales. In our examples, we will call these auction houses Arthur’s, Bill’s, and Davy’s.

Arthur’s auction house has been around for over thirty years and has handled some of the greatest collections in history. They have a basic minimum value guideline of $10,000, so if the total value of your collection comes to less than $10,000 you probably won’t see your consignment in Arthur’s next public auction sale.

Bill’s auction house hasn’t been around as long as Arthur’s, and is not quite as demanding. Bill is willing to accept total consignments valued at $5,000 or more, perhaps because Bill’s has a lower operating cost structure and will make concessions in order to compete more effectively with Arthur’s.

Davy’s auction house is even more lenient. Davy currently has fewer consignments lined up for his next sale. He might well be induced to take on a few single items adding up to only $2,500 if he feels the items fit well into his next offering.

As a general guideline, don’t expect any major auction house to get too excited about your collection if the total value fails to reach $5,000.

If you have a really good relationship with an auction house due to many successful transactions in the past, you might get the auction director to sell a few $500 to $1,000 items for you, even if the total consignment fails to meet their value guideline.

If all three auction directors turn you down, you could be better off selling the items by “private treaty” (direct sale without using the auction process) or by finding someone who will sell them for you through an online auction (Ebay). ( Direct Sale vs. Public Auction).

Keep in mind that the minimum total value is not the only factor the auction director considers.

 

Will You Allow Some Items to be Grouped Together?

The auction director at Arthur’s determined that your collection might bring a total of $10,000 or more. Arthur then took a closer look at your material and noticed that some of the items are worth less than $500 each. Arthur’s basic policy is to list items worth $500 or more as single lots. He will accept items that are valued at less than $500, but only if you are willing to allow him to group them together in multi-piece lots.

Some consignors refuse to allow their items to be placed into group lots. This can be a major sticking point. If you have a large and valuable collection and you are adamant about having every lot sold separately, be sure to negotiate a clause in your auction contract that reflects that position. You might offer to pay a higher commission rate on these lower value lots in order to have those items listed separately.

A flexible and reasonable consignor is usually a happy consignor in the end. If you can tolerate having some of your items grouped together, you will make your auction consignment much more attractive to auction directors. If your consignment is not large and valuable, insisting that every item must be listed separately may make your collection unattractive to some auction houses; you will be politely told to go elsewhere with it.

Despite what many consignors think, grouping items together is not always bad. Some auction houses have a knack for lotting items into groups that sell at decent prices. Keep in mind that all auction houses work on commission, and they usually try to get maximum results for everything they sell.

 

Will You Include Your Bullion Coins in the Consignment?

It may not always be wise to sell your entire collection at auction. There are times when it makes more sense to sell parts of a collection directly to a dealer or to a fellow collector. A collection containing bullion coins (coins with no numismatic premium – their value is directly related to their gold or silver content) is a good example.

Most auction directors are delighted to accept bullion coins for auction, but it may not be such a good idea to consign these coins. To see why, let’s do a little simple arithmetic.

Suppose spot gold is worth around $1,000 per ounce and you are thinking of consigning some one ounce American Gold Eagle gold coins to an auction.

You check with local dealers, or on the Internet, and find out that there are buyers who will pay $1,020 each. If you consign the coins to an auction and get a 0% seller’s commission, how much can you reasonably expect to realize for each 1 ounce gold Eagle? Probably around $850. Here’s why:

A sophisticated buyer attending the auction sees your Eagles and thinks this way about bidding on them:

“I can buy one ounce gold Eagles directly from various sources for a slight premium above gold, perhaps $1,075.”

This potential buyer knows he will have to pay the hammer price (the amount he bids) plus a buyer’s fee of 15% if he bids in your auction.

Here’s the algebra necessary to figure out what maximum bid he should be submit in order to pay no more than $1,075.

Amount to Bid = $1,075 / 1.15 = $934.78

Our buyer should bid no more than $935. If he wins the coin at the hammer price of $935, he pays about $140 in buyer’s fees, which comes to a total of cost of $1,075.

What does all this mean to you, as a potential consignor?

If all bidders of the bidders in this auction think that way, each Eagle should sell for $935.

You will receive $935 for a coin you could have sold directly to a dealer for $1,020.

Don’t consign bullion coins to auction unless you absolutely have to. Shop around. Get a few competitive bids, and sell your bullion coins directly to a dealer you trust. (See Direct Sale vs. Auction.)

Some estate situations may require that all of the coins in a collection be sold intact in a public auction. In cases such as these, negotiate a separate seller’s fee on the bullion coins, and consider placing reasonable reserves based on the spot price of gold on the day of the auction. If you set the reserves too high, you won’t sell anything. Set them too low and you may not get the best results. Contact us if you want professional help.

 

Other Factors an Auction Director May Consider

What is the state of the current market for collections like yours? What catalog publication deadlines are looming for the auctioneer? What was your previous relationship with the auction house? What potential future business might result from accepting your consignment now? Are similar, or identical items, already consigned to the auction house?

Check our website on a regular basis. We will be addressing these questions, and many others, as time goes on.