Losing Money at an Auction

Auctions and middlemen

The biggest mistake that you can make is to send your rare book to an auction. I have written this page to help you eliminate the middlemen. If you sell your book at an auction, the auctioneer is a middleman making a profit. Further, most bidders at your auction will be other middlemen—dealers buying your book for further resale at a higher price and more profit. I would rather pay the full amount to a private individual like you, and eliminate the time, uncertainty, risk, and anxiety that keep me from bidding at auctions.

Auctions do not determine the market price

Auctions average only two-thirds of the market price for a book, because it is not a perfect market where supply equals demand. In a perfect market, all interested buyers would have to be present at the auction. Instead, the auction determines a segregated market price only among those participating—a fraction of the entire field of collectors. Most Mormon auctions have only have a dozen regular bidders, and a dozen bidders cannot be the whole market, nor can a dozen bidders determine market value. Further, the number bidding on a typical high-end book in an auction is usually only about three people, all of them dealers bidding at wholesale prices for resale at a profit. Also, it is difficult for them to allocate scarce cash resources in advance, especially with no guarantee that they will be the successful bidder, and so they are likely to bid only whatever funds they have available. Finally, dealers discount heavily for anticipated risk, including the uncertainty of bidding absentee on something unseen, or traveling to attend and then not being successful. Therefore, even if the auction did determine the market value, it would be a wholesale market value rather than the retail market value, and a deeply discounted wholesale price besides. Instead, if you sell your book directly to me, I will show you past auction records and pay you more than auction prices, so there is no risk for you.

Why auctions are wholesale markets

Auctions are basically wholesale auctions to dealers for resale, rather than sales directly to affluent collectors. This is because the end-collector of Mormon books is usually an officer of a multi-national corporation, or a venture capitalist, or an entrepreneur, or a doctor, or a lawyer, or an athlete, or an entertainer, or a celebrity—or somebody else who places a premium price on his or her time. These people:

• Will not even hear about your auction
• Will not remember to bid on the day or at the moment that the auction takes place or ends
• Will not be present in the country on the day of your auction
• Will not have the time to leave board meetings or family and social activities—they are hiking in the mountains as boy scout leaders, or rushing to high council or bishopric meetings, while trying to run their corporations in an uncertain economy, and even busier in the summer
• Will be preoccupied investing in something else at that particular time
• Are uncomfortable with the auction procedures, or buying books without professional advise
• Are dissatisfied with the inaccurate descriptions in auctions, and descriptions shortened even by experienced dealers, and will assume yours is inaccurate too; and the major auction houses have no experts in Mormon books
• Are too careful to bid on a book that they have not seen and examined personally, and are dissatisfied with poor quality images, and have no way to know if a book is truly complete
• Are dissatisfied with the amateur packaging and shipping from auctions, and will assume yours is the same way
• Are dissatisfied with the discourteous sellers from auctions, and will assume you are too
• Do not have the time for hours of catalog or online searching every week to find something worthwhile
• Do not have the expertise to get books properly restored and presentable, so they only buy from a specialist
• Want to retain their anonymity, and so usually only buy books in discreet private transactions with minimal documentation
• Are too savvy to send large sums of money to a seller without first receiving the book, because of theft of the book or mail loss
• Are aware of forgeries and counterfeits being offered in auctions, and of course inadvertent misidentification
• Are too intelligent to tolerate the shill bidding, one-word pseudonyms, and concealed email addresses of sellers.
• Are too sophisticated to tolerate the arrogance of power by the major traditional auction houses and major online auctions houses—including disrespectful service departments, revealing private account information, demeaning policies, lack of appeals processes, and unreachable management
• Are too busy to be playing on the Internet

These are additional reasons that auctions average only two-thirds of the market price for a book. Bidders must discount their highest bid in consideration of many of these risks.

Personally, I rarely find out about auctions until after they are over, to my disappointment. For example, recently a Joseph Smith-period Book of Mormon sold to a dealer at the largest auction for $3,500, who then resold the book to another dealer for $10,000, after which it was reoffered by the successive dealer for an even higher amount. Currently, the most successful individual bidder on Mormon books is a used car salesman and body shop owner in Utah, not the final collector to whom he will resell your book.

Lack of expertise at auctions

If you sell your book at auction, there is an immense amount of work and research in preparing your description. If you miss any element in your description, the book will sell for only a fraction of its potential value. Sadly, most books sold online are incorrectly described, and sell to eager dealers who snatch them up for resale at their real price.

Further, auctioneers are generalists who do not have experience in Mormon books, and they would not be expected to fetch as high a price for a book as a specialist—who usually buys the book at the auction for less than he would have paid directly. I am not aware of any auction house employing any person remotely familiar with Mormonism or Mormon books. They know nothing about the value of Mormon books, or how to properly describe them, or how to reach the Mormon market. Therefore, auctions invariably cause the seller to lose money.

Trying to collect your money from a dealer

The best potential price is never realized at an auction, and mostly only dealers bid at them for books to resell privately to their better clients like me. If you do successfully sell your book at auction, the bidders on expensive books usually back out after the auction for one reason or another, usually “buyer’s remorse” or anxiety about sending a check to a stranger, and in many other cases want to receive your book before payment. Usually the winner is a dealer from Utah, and some of them will never send your money to you. Instead, to distinguish myself from those dealers, I will pay you the market price or more, in a cashier’s check, in advance.

Costs of selling at an auction

At three New York auction houses selling rare books, the buyer’s premium on a book at the price in my example is 28%, 28%, or 27% when you bid directly. At the house charging 27%, bidding through either of two outside online services adds another five percentage points, bringing the buyer’s premium to 32%. That house also charges the seller 10% on a book selling for more than $2,000, besides insurance and the cost of illustration. On a $6,500 hammer price, the two commissions together come to $2,730.

On a taxable retail sale delivered in New York City, the buyer pays 8.875% sales tax on the hammer price, the buyer’s premium, and shipping billed by the auction house. A dealer buying for resale with a valid resale certificate can be exempt. You will have to wait until an auction is scheduled, and a catalog is printed, and under the terms in this example you will have to wait 45 days after the auction to be paid. Instead, I will pay you immediately with a cashier’s check.

Riskily, there may not be an interested buyer present at the auction to bid, as happened when a first edition Book of Mormon was sent to auction—and the book might either sell for a small percentage of its retail value, or you as the seller might owe a buy-in charge on a reserve price (minimum price below which you refuse to sell the book) without even selling the book. Under the same terms, the minimum charge on an unsold lot is $25, and a book that receives a bid below its confidential reserve can draw a buy-in fee of 5% of the reserve.

Based on the facts above, if you had a book for which I would immediately send you $15,000 in a cashier’s check, suppose the auction bidders will go only to $10,000, two-thirds of the market value, as explained above. Before deciding how much to actually place as a bid, the bidders will have to mathematically or intuitively back out the buyer’s premium, sales taxes, and shipping from the $10,000 that they are willing to pay. With a 32% buyer’s premium and $150 shipping, the bid ceiling is about $6,844.58. At $500 bidding increments, their bid is $6,500. The next bid of $7,000 would cost them $10,223.36.

After paying your own commissions and costs, you will receive $5,400 from the auction. How much you keep after income taxes depends on your gain. For the figures below, suppose you have no tax basis in the book and the entire $5,400 is long-term collectibles gain. At the two income-tax rates used in my example, you would have $3,385.80 left, less than a quarter of what your book was worth.

The 9.3% state rate is an assumption about the seller. The 28% rate is the maximum federal rate on long-term collectibles gain. Any basis in the book reduces the gain, and a loss or exemption changes the calculation. A direct sale can also produce taxable gain. On the same zero basis, at the same two assumed rates and with no selling expenses, my $15,000 offer would leave you $9,405 after those taxes.

Instead, please give me the chance to give you the fair-market (generally full-retail) value for your book, which would be $15,000 in this example. Again, there is no risk, because I will pay you with a cashier’s check in advance.