Auctions and Valuation Data

Auctions:  The concept of collector car auctions has always baffled me.   I like them because they are a good snapshot on what the auction market is on a given item, sort of.   It is important to note that the auction market is a very different market than two people standing next to each other in person negotiating and conducting a transaction. Buying hay or cattle or antiques at an auction, in person, is one thing, but buying something like a vehicle at an auction, site unseen no less, is not for me.  It is a fad that has thankfully cooled for the prudent car collector yet blossoming for the mainstream public.  Note the term prudent I used there. Auctions are marketing events and while I love to see the wheels of commerce turn, as a buyer my preference is to spin my wheels a bit slower.

I like auctions because they are pseudo public transactions where the data can be used as “comparables” to like-kind items. While they are in fact skewed with buying and selling fees, and hype, they can be used as a guide, a VERY loose guide.  I don’t know if the buyer was there in person. Nor do I know how much they inspected the car, or if they even drove the car.   Maybe the sale price resulted from an auction that took place on a Thursday where there were 4 people in the room. The hammer still dropped, the car still sold. Is that a good reflection of where the market is at for that car? 4 people in a room on a Thursday someplace in Ohio? Worse yet somewhere in the desert?

I rarely use online auction results, i.e. eGouge, in valuing a collector car because I believe buyers are holding back a bit on their offer as a means risk mitigation because they are in fact buying something site unseen,  at least I hope they are.

Every car has a story and that story is a huge factor when I buy or sell a car. The story must be shared and understood.   I have to ask when buying or selling a car at an auction, or even worse at an online auction, how much of that story is able to be told and conveyed from seller to buyer? The auction house acts as a facilitator between buyers and sellers. There is immediately an insulator inserted between the buyer and seller, online or in person. This is going to restrict the conveyance of the story. That is a problem for me.

Auctions are a game you need to understand before you play.  I have bought and sold cars at auctions and because of my experiences, and the reasons shared above, I avoid them for business but enjoy the people watching, the cars and the social aspect. Again,  good entertainment and eye candy. However, I have seen first hand cars “short-saled” or “quick-hammered” to an auction house’s good buying customer. Often times the bids being announced are fishing bids by the auctioneer.  There is not any real money behind the bids even though the bids appear to advanced in steps. This is just one example of the smoke and mirrors that take place.  Know your auctioneer and watch the room. Again much too fast and loose of a game for me to play in. No thank you.

Valuation- Collector car appraisers use auction results in valuing a car. Insurance companies use auction results in determining a car’s value for loss purposes.   This is really the only sales data out there. I use a combination and try not to use auction results. If I do, I create a separate “auction value”.  If you ever see a seller using “Appraised Value”, know that the only hard core data available to the appraiser was auction results. Again, auction sales are very different than NON-auction sales. Moreover, online auctions and very different than in-person auctions.

Word of mouth transactions can often be like the big fish stories, a bit embellished. Good sources I will trust, others I toss back into the lake. 

Auctions are fun and exciting. Great eye candy and again good social events. To blend and consider auction results that include seller and buyer fees, hype and pressure, and alcohol the same as a buyer and seller standing in a driveway or garage conducting a transaction is absurd. I have a horse on both races and know better than to trust auction data as the sole valuation metric.   You should too. Use your gut.  

This meme is spot on…

Our worst fear has come true.  Someone is actually using auction results as data that drives costs that affect Joe consumer car guy each and every day, the premiums we pay for our collector car insurance policies.  How stupid are we? The collector car insurance companies generate premium revenue based on their own price guide?  Here let me pour water down your back and then tell you it is just raining? hahah. -Jake