I was recently asked why I have always had such an issue with an auction house having undisclosed reserves as well as their bidding on lots on behalf of the bidder in order to work towards that undisclosed figure. The prevailing counter argument seems to be that no one is forcing a collector to bid on anything. I suspect that there may not be a consistent legal position based on locality since you can find language such as this listed in various auction house bidding policies and instructions:
– Reserve bids may be executed on cataloged lots on behalf of the seller and shall be executed confidentially in a manner similar to the execution of absentee bids.
To me, this is deceptive business practice on two distinct levels. In the first case, by the auction house executing these phantom bids, it creates the perception that there is more interest in the item than truly exits. Once again, no is forcing anyone to bid on any item, but the collector psyche is an intriguing one to say the least. I suspect that bidding decisions are often made because of a desire “not to miss out” on what someone else also appears to want. Even if the disclaimer was made that that these “in house reserve bids” would only be made up to the point of the reserve, the auction house clearly has a hand in creating the false impression of interest in the item. I have no idea how many times I have re-bid on an item, only to have actually been bidding against myself. Remember the auction house is going to garner a larger fee based on what I am willing to bid, so if they can lead me to believe that another collector (when there isn’t one) is after the same item and I am at risk of missing out by not going higher, how is not a deceptive business practice?
From a marketing standpoint and also understanding the collector mindset, I can see why starting an item low with a hidden reserve has appeal to these auction houses. It is designed to protect the investment of the consigner and lead the collector to believe he can obtain the item at a low price. Additionally, if the auction house has offered a cash advance on the item, then they also have equity and a real financial interest in the item as well. Starting at a low bid de-sensitizes the process as the decision becomes an incremental one and not one involving a “lump sum” decision if you will. As collectors and bidders, it is often easier to tell ourselves and focus on the increment of just “another $50, $100, or $1000” rather than the end purchase price, and trust me, this is not lost on those auction houses you are engaged in bidding with and against.
The second issue I have with what I feel is a deceptive business practice, is that it also leads to a false impression of what the true market value or priced realized is. Yes, I fully realize that with any collectable, the value is what someone is willing to pay for the item. But what about when the item never truly sold for the price depicted? For example, an auction house conceals a fairly high hidden reserve and then bids the item up to just under that figure. In reality, the item never sold, yet they taut it as a sale and price realized in order to attract future consignments for related items. The reality is that auction house sales are a significant factor in pricing within the industry and hobby, especially when buyer’s premiums are factored in. Think about it, if you were buying an item from a dealer and he said, “my price is $2500 because I sold one just like this last year for $2500.” How do you as buyer or the collective hobby react when they learn that no such sale was ever made, and in fact this false sales figure is just that…a false impression of the market. With dealers, this is not easy to see or learn about, but with auction houses, it is not so transparent. Look for items that appear to have sold for decent money, only to see them show up in subsequent auctions the next month. Remember as a consigner looking to flip an item you just bought and paid handsomely for, the reason the item brought the price it did was because you were in the bidding process (and maybe the auction house was as well). With you being removed, there is one less bidder, and in fact the high bidder not participating in the process. That is of course unless the auction house will let you bid on the item or simply as a matter of policy, do it for you on the next go around.
I spend time addressing this issue as I am seeing a number of individuals entering this hobby for the first time and their initial purchases are not for $100-$200 jerseys or bats. For those that are and considering bidding in auctions, take the time to read the various policies and understand what they entail. For MEARS Auctions, we have made a point to make this very easy and very public. No Shill Bidding and No Hidden Reserves. The people you are bidding against are other collectors, not the house or the consigner. Unlike some auction venues that have recently established this as their position after years of entertaining what I feel is a deceptive business practice, MEARS Auctions has always run this way and our policies. While recent as an auction house, our policies are well grounded and nested in our core beliefs that have been resident since our inception as a hobby/industry entity…In short, Full Disclosure and Full Accountability.
As always, collect what you enjoy and enjoy what you collect. Take the time to truly learn about those you do business with and you will enjoy all of this that much more.
MEARS Auth, LLC
For questions or comments on this article, please feel free to drop me a line at DaveGrob1@aol.com