Auction House Practices

[Neo]

The consignor took a bit of a dip on this recent sale.

The US OS for Knight Without Armor sold on emovie on Sept 16 for $585.00.

http://auctions.emovieposter.com/Bidding.taf?_function=detail&Auction_uid1=3578418

Yet this very same copy was bought at HA, on July 27, 2013, for $896.25 (inc BP)

http://movieposters.ha.com/itm/drama/knight-without-armor-united-artists-1937-one-sheet-27-x-41-/a/7078-83501.s

After the emovie's 22% commission, the consignor received $456.30

Ouch.  

In my 45 second Google research, I saw a forum where people were talking about a "secret reserve" gimmick at Heritage.  It's basically a sneaky way of setting a reserve price, and it's part of the business model for a lot of auction houses.

From the terms and conditions at Heritage Auctions:

13. Notice of the consignor’s liberty to place bids on his lots in the Auction is hereby made in
accordance with Article 2 of the Texas Business and Commercial Code. A “Minimum Bid” is
an amount below which the lot will not sell. THE CONSIGNOR OF PROPERTY MAY PLACE
WRITTEN ”Minimum Bids” ON HIS LOTS IN ADVANCE OF THE AUCTION; ON SUCH LOTS,
IF THE HAMMER PRICE DOES NOT MEET THE “Minimum Bid”, THE CONSIGNOR MAY PAY
A REDUCED COMMISSION ON THOSE LOTS. ”Minimum Bids” are generally posted online
several days prior to the Auction closing. For any successful bid placed by a consignor on his
Property on the Auction floor, or by any means during the live session, or after the ”Minimum
Bid” for an Auction have been posted, we will require the consignor to pay full Buyer’s Premium
and Seller’s Commissions on such lot

For the record, I have no idea whether there was some secret or hidden reserve that wasn't met on this item.  However, considering the terms state that it is allowable for consignors to bid on and/or set a secret reserve price on their own items at Heritage, one could question whether every item that Heritage "sells" actually sold, or if the "winning bid" was just the consignor's bid or secret reserve price.

[CSM]

In my 45 second Google research, I saw a forum where people were talking about a "secret reserve" gimmick at Heritage.  It's basically a sneaky way of setting a reserve price, and it's part of the business model for a lot of auction houses.

From the terms and conditions at Heritage Auctions:

13. Notice of the consignor’s liberty to place bids on his lots in the Auction is hereby made in
accordance with Article 2 of the Texas Business and Commercial Code. A “Minimum Bid” is
an amount below which the lot will not sell. THE CONSIGNOR OF PROPERTY MAY PLACE
WRITTEN ”Minimum Bids” ON HIS LOTS IN ADVANCE OF THE AUCTION; ON SUCH LOTS,
IF THE HAMMER PRICE DOES NOT MEET THE “Minimum Bid”, THE CONSIGNOR MAY PAY
A REDUCED COMMISSION ON THOSE LOTS. ”Minimum Bids” are generally posted online
several days prior to the Auction closing. For any successful bid placed by a consignor on his
Property on the Auction floor, or by any means during the live session, or after the ”Minimum
Bid” for an Auction have been posted, we will require the consignor to pay full Buyer’s Premium
and Seller’s Commissions on such lot

For the record, I have no idea whether there was some secret or hidden reserve that wasn't met on this item.  However, considering the terms state that it is allowable for consignors to bid on and/or set a secret reserve price on their own items at Heritage, one could question whether every item that Heritage "sells" actually sold, or if the "winning bid" was just the consignor's bid or secret reserve price.

Indeed.  And this is something our former member Bruce has been highlighting for quite some time...

[Mirosae]

I always thought the minimum bid was the starting price. I noticed that some start at say 1500 (minus BP). So nor sure if it is "sneaky". Unless I am missing something?

What I have noticed is that some consignors would seem to take away their posters if no one bids. No opportunity to get it in the "post auction" buy. The Laura insert was the one I noticed it had been taken out from the post auction buy in July.

[erik1925]

In my 45 second Google research, I saw a forum where people were talking about a "secret reserve" gimmick at Heritage.  It's basically a sneaky way of setting a reserve price, and it's part of the business model for a lot of auction houses.

From the terms and conditions at Heritage Auctions:

13. Notice of the consignor’s liberty to place bids on his lots in the Auction is hereby made in
accordance with Article 2 of the Texas Business and Commercial Code. A “Minimum Bid” is
an amount below which the lot will not sell. THE CONSIGNOR OF PROPERTY MAY PLACE
WRITTEN ”Minimum Bids” ON HIS LOTS IN ADVANCE OF THE AUCTION; ON SUCH LOTS,
IF THE HAMMER PRICE DOES NOT MEET THE “Minimum Bid”, THE CONSIGNOR MAY PAY
A REDUCED COMMISSION ON THOSE LOTS. ”Minimum Bids” are generally posted online
several days prior to the Auction closing. For any successful bid placed by a consignor on his
Property on the Auction floor, or by any means during the live session, or after the ”Minimum
Bid” for an Auction have been posted, we will require the consignor to pay full Buyer’s Premium
and Seller’s Commissions on such lot

For the record, I have no idea whether there was some secret or hidden reserve that wasn't met on this item.  However, considering the terms state that it is allowable for consignors to bid on and/or set a secret reserve price on their own items at Heritage, one could question whether every item that Heritage "sells" actually sold, or if the "winning bid" was just the consignor's bid or secret reserve price.

The HA term above states that any "minimum bid" placed by the consignor must be done so prior to the auction taking place and that those minimums are posted online (the online auction catalog) several days before the auction happens. How then would this be considered a secret or hidden reserve when that minimum required bid is viewable by all, before the auction even takes place?

It's not like ebay, in which someone places an item with a $5.00 opening bid but the hidden reserve is often never met (and never even known).

[Neo]

I always thought the minimum bid was the starting price. I noticed that some start at say 1500 (minus BP). So nor sure if it is "sneaky". Unless I am missing something?

What I have noticed is that some consignors would seem to take away their posters if no one bids. No opportunity to get it in the "post auction" buy. The Laura insert was the one I noticed it had been taken out from the post auction buy in July.

An "opening bid" appears to be different than a "minimum bid" set by consignors.  However, allowing consignors to bid on their own items, as stated in the terms for Heritage is, in fact, allowing them to set a hidden reserve price.

Here's a link, where a guy wrote an article, about using "hidden reserves" at Heritage and other auctions.


"As a seller, I find the ability to have a hidden reserve on eBay, as well as other auction houses I have used... Sotheby's, Christie's, Heritage, etc., quite useful."


https://www.facebook.com/notes/stanton-mccandlish/why-hidden-reserve-price-auctions-actually-cost-sellers-money-on-ebay/10150970269121621

[Neo]

The HA term above states that any "minimum bid" placed by the consignor must be done so prior to the auction taking place and that those minimums are posted online (the online auction catalog) several days before the auction happens. How then would this be considered a secret or hidden reserve when that minimum required bid is viewable by all, before the auction even takes place?

It's not like ebay, in which someone places an item with a $5.00 opening bid but the hidden reserve is often never met (and never even known).

The terms state that the "minimum bids"” are generally posted online several days prior to the Auction closing .  It's saying they generally place this "minimum bid" before the auction closes.  They do not say they post such a bid before the auction opens.

[erik1925]

Great article Brandon.

I guess I'm a little confused by this aspect.

I don't recall ever seeing a poster in an HA auction NOT selling because some secret, or hidden reserve was not met. Tho, we have all seen this on ebay.

I assumed that when one consigned to HA, that they would tell or discuss with HA what the opening /minimum bid was that they wanted their poster to be set (to start) at. Is this not the case? Or are you saying that because a consignor has the ability to bid on their own item, that the number they bid somehow sets the reserve?

I guess too, I was reading this line that you capitalized initially: THE CONSIGNOR OF PROPERTY MAY PLACE WRITTEN ”Minimum Bids” ON HIS LOTS IN ADVANCE OF THE AUCTION.

I was thinking this is where any minimum or what could be termed "reserve" price had to be indicated by the consignor prior to the auction taking place.

All this stuff is fascinating.. and I'm just trying to get a full grasp of how it all works. 

[Neo]

Great article Brandon.

I guess I'm a little confused by this aspect.

I don't recall ever seeing a poster in an HA auction NOT selling because some secret, or hidden reserve was not met. Tho, we have all seen this on ebay.

I assumed that when one consigned to HA, that they would tell or discuss with HA what the opening /minimum bid was that they wanted their poster to be set (to start) at. Is this not the case? Or are you saying that because a consignor has the ability to bid on their own item, that the number they bid somehow sets the reserve?

I guess too, I was reading this line that you capitalized initially: THE CONSIGNOR OF PROPERTY MAY PLACE WRITTEN ”Minimum Bids” ON HIS LOTS IN ADVANCE OF THE AUCTION.

I was thinking this is where any minimum or what could be termed "reserve" price had to be indicated by the consignor prior to the auction taking place.

All this stuff is fascinating.. and I'm just trying to get a full grasp of how it all works.  

Part of the 13th term from Heritage is written in a very ambiguous way, as the term "minimum bid" can be interpreted to mean various things.  However, the part where the term specifically states that consignors can bid on their own items, and then only pay the fees if their bid is the winning bid, is detailing how consignors can set a hidden reserve price on their items.  

The issue with a consignor bidding on his/her own item, and then only being required to pay the auction fees if he/she wins, is that the "winning bid" was not an actual sale.  In that case, the consignor's bid won the item, and it would be listed as a sale at Heritage, although he/she only paid the auction fees, and per the terms, wasn't required to foot the bill for the hammer price.

[Mirosae]

Thanks for sharing Brandon. Most interesting. That could for example explain why some bids seem to go in very early which makes no sense to me for auctions like HA. But of course, just speculation. Every bidder is different.  Very interesting..and confusing too! I will need to learn the rule book by heart if i ever dare to consign to HA. Thanks



 

[erik1925]

If that interpretation is all correct, then one would think that HA should change that term and say that ANYONE who bids on a piece in an HA auction, consignor included, should be required to pay the hammer price as well as the BP.  If a consignor, for some reason, is wanting to bid on his own item, he should have to pay -- and in full. (imo).

That idea, that a consignor can place a bid, and if he is the winning bidder, only pays the various fees and not the hammer price is fascinating. And how then, can HA actually call it a true sale, when no sale has even occurred? 

Thanks again, Brandon.

[Simes]

If that interpretation is all correct, then one would think that HA should change that term and say that ANYONE who bids on a piece in an HA auction, consignor included, should be required to pay the hammer price as well as the BP.  If a consignor, for some reason, is wanting to bid on his own item, he should have to pay -- and in full. (imo).

That idea, that a consignor can place a bid, and if he is the winning bidder, only pays the various fees and not the hammer price is fascinating. And how then, can HA actually call it a true sale, when no sale has even occurred? 

Yup - totally agree. 

So shill bidding is not only allowed, but encouraged by not requiring auctions fees if it goes against the vendors' bets.

What a weird system.

I still wonder at their Secret Maximum bids.  I had placed a max bid for some lobbies and in the Sunday night bidding after the closure of the week's bidding, my max was maxed out but not surpassed.  Of course, anything is possible, but really...

[Mirosae]

Yes re: secret max bids. I had the same thought about their max bids...it has happened to me 3 times but ONLY on the Sunday auctions.  It looks and feels a bit odd. That said, It hasn't happened to me at their Sig auction. I was gladly surprised to see that I had gotten the poster for a lesser amount.

[MoviePosterBid.com]

if I remember correctly, the "vendor bid" must be placed at least several days in advance of the auction itself, but yes can take place after the auction opens for the Signature Auctions. However, if you do this, Grey discourages your action and you do pay the BP (which yes, is like a sale. The house is still getting their portion).

You are not allowed to perform this action on the day of an auction by Texas law I believe as your bid is considered a reserve of some sort which much be disclosed in advance of final days bidding.

Concerning the Dietrich poster, IF the poster was bought back by the seller and the bid was $750 ending with BP at $896, that means the owner would have $146 that evaporated (he owned the poster to begin with, now he still owns the poster and is out $146 plus his other costs like shipping both ways. Figure $175)
so it is pretty clear that bidding on your own stuff, particularly in this case, is totally non-productive and I fail to see why anyone would practice this, whether it is allowed by law or not. If it was the case, after getting his $456 on this sale, his real value is less than $300. So my suggestion is that Heritage did indeed sell the poster and the new owner of the poster consigned it to the sale last week.

I actually had a conversation with Grey about this some time back and he pretty much explained that if you go this route, he won't be taking more consignments from you. so your fears are just fears.

Simes, not sure what you mean here.

I still wonder at their Secret Maximum bids.  I had placed a max bid for some lobbies and in the Sunday night bidding after the closure of the week's bidding, my max was maxed out but not surpassed.

you can't bid after an auction closes.

[Neo]

if I remember correctly, the "vendor bid" must be placed at least several days in advance of the auction itself, but yes can take place after the auction opens for the Signature Auctions. However, if you do this, Grey discourages your action and you do pay the BP (which yes, is like a sale. The house is still getting their portion).

You are not allowed to perform this action on the day of an auction by Texas law I believe as your bid is considered a reserve of some sort which much be disclosed in advance of final days bidding.

Concerning the Dietrich poster, IF the poster was bought back by the seller and the bid was $750 ending with BP at $896, that means the owner would have $146 that evaporated (he owned the poster to begin with, now he still owns the poster and is out $146 plus his other costs like shipping both ways. Figure $175)
so it is pretty clear that bidding on your own stuff, particularly in this case, is totally non-productive and I fail to see why anyone would practice this, whether it is allowed by law or not. If it was the case, after getting his $456 on this sale, his real value is less than $300. So my suggestion is that Heritage did indeed sell the poster and the new owner of the poster consigned it to the sale last week.

I actually had a conversation with Grey about this some time back and he pretty much explained that if you go this route, he won't be taking more consignments from you. so your fears are just fears.

You said - since the consignor has to pay the buyer's premium if his/her bid wins, then that is "like a sale."  In that case, Heritage merely collected an auction fee, and did not actually sell the item.

The terms state: "For any successful bid placed by a consignor on his Property on the Auction floor, or by any means during the live session, or after the ”Minimum Bid” for an Auction have been posted, we will require the consignor to pay full Buyer’s Premium and Seller’s Commissions on such lot."  This indicates that Heritage allows consignors to bid on their items on the day of the auction.

If a mod wants to move this into a new topic about Heritage, or auction houses in general, I think that would be a good topic.

[MoviePosterBid.com]

Texas law allows it. In practice I don't believe Heritage does and they discourage it.

.... and to be sure Brandon, if the fees are collected, it is the same as a sale on paper. Heritage collects a fee that is related to a sale. The fact that the seller bought it back is not important to the paperwork. An invoice is generated and money trades hands. That is a sale by any definition

[erik1925]

Im not seeing how a fee generated and based on the hammer price could be considered the same as a sale, whether on paper or not. I would think that for for every auction they run, each invoice has a line designated for the hammer price, another for the BP, another for the seller's fee etc.

And let's say that the consignor does "buy back" the item. If they are not having to actually pay the hammer price, and are only required to pay the BP and seller's fee, then the poster only really "sold" for those combined fees and not the published hammer price with the added BP. As an example, I would think that in order for an auction house to publish & say that a poster sold for $597.50 ($500 + the 19.5% BP added), the auction house would have to actually receive the $597.50. If they are only being handed the BP of $97.50 along with the seller's fee of (guessing here) 20% of the hammer price, then the actual money exchanging hands between the consignor-buyer and the auction house would only be $197.50.

In this continuing example, how then can an auction house publish and say this poster "sold" for $597.50, when they never received that full amount, when all was said and done?

Maybe I'm looking/thinking about this this all wrong  ... I'm just tossing this out there, based on Rich's comment of how the fees constituted a sale, and it got me to thinking...... (not always a good thing, I know.  )

[Neo]

.... and to be sure Brandon, if the fees are collected, it is the same as a sale on paper. Heritage collects a fee that is related to a sale. The fact that the seller bought it back is not important to the paperwork. An invoice is generated and money trades hands. That is a sale by any definition

In actuality, the consignor didn't exactly "buy it back" in a case like this, when all he/she paid were the auction fees, and the final hammer price + the usual fees were not paid in full to the seller.  

I just wanted to point out one of the tactics that some auction houses utilize, and how that may or may not have applied to the Dietrich poster that Jeff mentioned in his initial post.

[MoviePosterBid.com]

I'm just going to take this into another direction for simplicity

the concept that this CAN happen is true.
the likelihood that it DOES happen is so tiny as to be in the 100th's of a percentage point for the simple reason that when you bid on and "buy back" your merch (and yes, it's called buying back) all you are doing is increasing your personal costs into an item you already own and for which there is no investment benefit. The item does not increase in value. Unless someone new enters the fray, the same bidders who only went to xxx are the potential bidders next time who most likely won't bid any higher than they did before.

if an item hammers at $750 and you would receive $600 from Heritage, investing another $146.25 means this poster is only worth $453.75 if you try it again and it achieves exactly the price you bought it back at. Where is your benefit? Where did it increase your income to behave in such a fashion?

the fear that such activity takes place is not driven by reportings of people who come here or go to MoPo or any other forum and say "oh yeah.. that Son of Frankenstein card was mine, I bought it back and paid the auction house my fees as I was pretty sure I could get more money"

that's not where this fear comes from. This fear comes from the .001% possibility it can happen AND by competitors charging that because it can happen, you should be afraid of it.
On Wall Street and on Main Street that's called "irrational fear". Something that is statistically so tiny so as not to exist is not worth the worry

[Neo]

The "hidden reserve" game is played at auction houses all the time.  The guy in the link I mentioned above talks in great detail about the hidden reserve game at various venues.  If you go to a live auction, you can see various things going on, such as when the auction employees talk to the consignor about lowering the hidden reserve in an auction when bids start to get close to the hidden reserve, and offer to adjust the commission fees, and there are various other scenarios that are all part of the business model for many auction companies.

[MoviePosterBid.com]

The "hidden reserve" game is played at auction houses all the time.  The guy in the link I mentioned above talks in great detail about the hidden reserve game at various venues.  If you go to a live auction, you can see various things going on, such as when the auction employees talk to the consignor about lowering the hidden reserve in an auction when bids start to get close to the hidden reserve, and there are various other scenarios that are all part of the business model for many auction companies.

hidden reserve has nothing to do with an auction buy-back Brandon.
If I give Heritage my House of Dracula poster to sell and the reserve price is $2000, neither Heritage nor any other auction house states "the reserve is $2000". None.
That is the hidden reserve. You don't know what the reserve is. The consignor can ask to have it raised or lowered contractually but there is a deadline and Heritage will not let you change your mind the day of the auction. They have a vested interest in seeing the items being offered honestly as they make their money by taking fees and by that point they have labor and costs involved. By the way, I think you can find on the Heritage site exactly when they accept your final reserve notice and it may be 7 days prior to close of auction. So Sunday internet auctions, reserves are concluded before the auction goes live and the Signature auctions which take 21 days the reserve is noted a week before the live session. Again, being afraid of this situation is irrational fear.

I read that article from start to finish and it's a good article, but I don't believe it's saying what you think it is

[erik1925]

And just to get back to the original post auction comment I made about this poster and it being the same copy that was sold on HA in July of 2013. Here is a detail side by side of one area of the poster, showing the same scratches (or slight mended tears), in Robert Donat's hair. The emovie detail is on the left, HA, on the right.

[Neo]

We could go around and around on this, Rich.  There are just too many tactics and scenarios in dealing with some auctions to address them all.

[MoviePosterBid.com]

We could go around and around on this, Rich.  There are just too many tactics and scenarios in dealing with some auctions to address them all.

nobody forces you to do biz with anyone.
there are businesses that I don't spend money at. It's a personal choice.

for me however, as concerns such situations like this, I need proof of poor behavior. I see none.

as to this poster, the most likely scenario is that the poster was sold for $896 at Heritage, the buyer later got bored with it and sold it elsewhere, or traded it off (even more likely than he being the consignor again) to someone else who consigned it elsewhere as when you buy something in a Heritage Signature Auction, it comes with a certificate that states if you want to resell the item later, Heritage will sell it for you AT NO COSTS, which would lend credence to the item being traded off to someone who can't avail themselves of the opportunity as Heritage will only take the item from the actual buyer. Ergo, if I want to sell every item I ever won in a Sig auction, I can give them to Grey and I will have no fees at all. I will get full hammer price (Heritage gets the BP)

there is nothing to fear here and you do know that such laws exist in most states don't you? The auction laws in Utah are almost certainly the same as in Texas in most cases.
Here in Nevada, you don't need an auction license to operate an auction. So I only have to pay attention to consumer laws. That probably gives me a lot more latitude than Heritage has with Texas law. In MIssouri, you do need an auction license. In Georgia you need one. In North Carolina.. I would have to check that, but you may not have to.

I don't see crime behind every corner however. I'm not paranoid that I'm being taken advantage of any more than I am that an ISIS terrorist is waiting out behind my warehouse for me to poke my head out. But that's just me.

[CSM]

Quite simple why one would bid on one's own item = shill bidding in hopes of raising the final result. 

However, the act of actually winning it is either a miscalculation, remorse for auctioning it or the belief that it is selling too cheaply.

[crowzilla]

You all have some wild conspiracy theories going on about "minimum bids" and are definitely reading that the wrong way.
The minimum bid is simply the lowest price a consignor will accept for his item - the reserve price as it were.

When you consign an item to Heritage you a) sign a contract with them stating if there is a minimum reserve (and Grey will not accept any but the rarest of item if you want a reserve) and b) that you will not bid on any items you consign.
When your item goes live on the website, the software Heritage uses blocks the consignor from bidding on their own item, both in the regular session and during the HA Live portion.  I am not aware of any other movie poster auction company that has software blocking the consignor from bidding (though when I left MoviePosterExchange, Peter was talking about having such programming done).

The only way a consignor could make a bid on their own item is if they made a telephone bid or were at the auction in person and it was not realized right away that it was the consignor bidding.  And yes, if this is done you absolutely will be asked to pay the full amount including buyer's premium and Grey will ban you from participating in future auctions.

The "minimum bids" or reserve price a consignor sets is displayed on the website.  Probably the highest profile example of this is when Heritage offered Todd's Bride of Frankenstein one-sheet. Heritage agreed to accept this item with it's crazy reserve price as part of a deal with Todd that enabled them to sell many other high profile pieces (like his Black Cat one-sheet). As with all Heritage auctions, the poster opened up at a price at around 50-60% of the low estimate. There were a few bids and people were excited and hopeful it would sell. Unfortunately, about a week before the auction, Todd's "minimum bid" price kicked in and the poster sat with with two notes, one stating "reserve not met" and the second stating "next bid will meet the reserve".
That is what is meant by a minimum bid - a reserve price. Not that Todd outbid the other bidders and purchased his poster back, but that he placed a minimum bid/reserve on the poster and would not sell it for less than that price.

Heritage only archives actual completed sales. If a sale falls through, or an item is returned it is removed from the database. I know this from example of both an item I have returned and being contacted after the auction when a sale did not go through and was asked if I wished to purchase an item.

as Rich pointed out - In both Missouri and Texas, you must have a license to conduct auctions and then are regulated by the state.
Heritage has such a license. To my knowledge, no poster auction business in Missouri does.