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Reserve Price for Auction Houses

21 posts in this topic

I think that the auction houses, specifically TeleTrade and Heritage, should follow the same procedures as that of ebay. Namely, each auction item should tell the bidder that this item has a reserve on it and further say when that reserve has been meant.

 

I believe that the price of some coins are artifically inflated to increase profit without the bidder knowing that they are only bidding against a computer.

 

What recourse does one have with these auction houses to show reserves?

 

What are your thoughts?

 

Todd

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Todd,

 

The two are slightly different in the final handling. Teletrade will allow a seller to place a reserve, but then allow the seller to actively bid on the coin during the sale. The seller can bid until they win the coin, and establish a "market price" with their bid. Heritage does not allow a seller to bid on their own coins.

 

The problem that you refer to of artificially inflating the prices is definitely a Teletrade phenomenon, and is especially prevalent in modern issues.

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When I look over the coin industry and consider what areas are concerns for me, I think this is one. What I am saying is that much harm can be done to the coin industry, as a whole, when the auction game is rigged. I like a level playing field and think this is one area where the industry should have a standard.

 

I believe some hid behind these auctions to mask there high prices, knowing that they could not get there asking price anywhere else. I have had offering that are very high and passed. Only to find them at one of these auctions week after week looking for that one person who will unknowingly bid against themselves to get to that high price.

 

Have any of you experienced this?

 

Keith - I agree that Heritage is less prown to this than TeleTrade.

 

Todd

 

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Todd,

 

From what I've seen, a dealer will take a newly made pop. top coin, usually a high grade state quarter or commem, and offer it the first time on Teletrade, setting a reserve, then actively bidding in the sale until they win the coin. This causes Teletrade to register a sale and a price realized. The seller has to pay buyer and seller fees. Then, about three to four weeks later, they offer the same coin again, and it sells for about 85 to 125% of the first "sale" price, locking in the price that the dealer originally wanted. By the time a similar coin gets offered, you typically see the third sale at 50% or less of the first or second price, if that.

 

Teletrade does the industry a huge disservice by allowing sellers to bid on their own material. Even if TT wants to allow that, if the seller wins the coin, it should not show in the prices realized section. The seller winning the coin is the same as the seller resetting their reserve upwards, not actually selling the piece.

 

For Heritage, if you list a coin with a $1000 reserve, and the bid increment is $10, a few days before the auction, Heritage will bid $990 on your behalf if the coin has not reached that level yet. I believe that they allow you to actively bid on your own coin from the floor, but you are not allowed to bid electronically for your own piece as part of the auction consignment agreement.

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Keith - I agreee with you. It is an unfornuate situation.

 

Is there anything that can be done to correct the TeleTrade problem?

 

I would love to hear from the laywers looking at this post.

 

Todd

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Teletrade doesn't actually support reserve prices, per se, though the effect of their Buyback bidding is virtually the same. It differs in the way in which the bidding is handled. Here's the description from Teletrade's web site:

Buybacks (Unsold Coins)

 

Teletrade does not enter minimums or reserves on behalf of consignors. Consignors are permitted to bid on their own coins, but they must do so by placing Buyback bids no later than one hour before the auction begins (see "Maximum Bidding" instructions on how to enter Buyback Bids). Consignors will be charged a flat 5% fee (minimum $5) on their full Buyback bid on any lots bought back in this manner. The maximum fee for any Buyback lot is $100. However, any consignor who buys back a lot by actively bidding or placing maximum bids during the auction will pay both the buyer's and seller's fees for that lot.

The description isn't particularly well written, but the way I read it is that a Consignor can avoid paying both buyer and seller fees on a buyback if the Consignor places a Buyback bid in advance whose value is sufficient to exceed the highest maximum bid entered by other participants during the live auction. During the live auction, the computer simply processes the Buyback bid as it would any other maximum bid. If the Buyback bid is ridiculous enough, it will ultimately prevail at hammer.

 

My suspicion is that this is how many unsold items actually occur. For example, another recent thread on this board discusses some SMS coins that went unsold on Teletrade a few days ago. The final bids for a couple were very high (over $10K). If the Consignor were paying both buyer and seller fees on these items simply to set a market price, the Consignor would be spending dumpsters of cash. Instead, I suspect the Consignor set a ludicrously high Buyback bid and achieved the same result for a total of $100, as outlined in Teletrade's policy above.

 

Does this make sense?

 

Finally, I've become annoyed by Teletrade's practice of allowing Consignors to bid on their own items, whether it be live bidding or through preset Buyback bids. I believe the practice should be prohibited. Period.

 

If you don't want to sell an item, don't enter it into an auction. Most people understand this principle (at least in simple terms) by the time they leave high school. Teletrade's buyback privilege can have only one purpose - market manipulation. I see no other reasonable justification for it.

 

As Todd rightly suggests, I'd encourage Teletrade to use a simple Reserve price policy such as found on eBay. As it stands, the number of items left unsold but with high ending bids on Teletrade at auction close is ridiculous.

 

Best regards,

Beijim

 

P.S. I think I saw an example only last night of what Keith describes. A modern commemorative silver dollar (it may have been the Smithsonian in PF70UC) closed at a final bid over $900. The item description listed this coin as Population 1. BUT ANOTHER EXAMPLE OF THE SAME COIN had closed a week or two ago on Teletrade for a high bid of over $1000, also listed as Population 1. I suspect it was the same coin, and the Consignor is doing exactly what Keith outlined.

 

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Beijim,

 

The Buyback process is the same as any major auction house's Reserve process. If the Buyback bid exceeds the market bids, then the coin returns to the consignor, and the coin is listed as unsold.

 

However, the consignor is allowed to actively bid on a piece during the auction. Using a Buyback bid and active bidding, a consignor can control the hammer price of the auction. If the consignor wins over his own Buyback bid, then the consignor pays seller and buyer fees, but Teletrade records the piece as sold instead of unsold.

 

Another problem with Teletrade is that an individual bidder can run up a price, even if a Buyback is not in place. If the bidding is at $3, and the next bid is $6, you can click to bid $6. If you do it again, you now have bid $9. I did that once by mistake, and ended up paying more for a piece than I had planned. You can carry an item through multiple levels of bidding even if you are only outbidding yourself.

 

 

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Most auction houses frown on bidding on the floor on your own items. Of course that would be hard to inforce, and you could always get a friend to bid in your stead. I wish coin auctions would do like the currency auctions. The currency auctions have a low and high estimate listed and the lowest bid accepted is 60% of the low estimate.

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I have to say that the post here (at NGC) has done much better than the one I placed on PCGS.

 

These are great comments.

 

I tip my hat to you.

 

My question is haw can we go beyond "encouraging" TeleTrade to inacting TeleTrading to change their reserve policy.

 

Perhaps a letter from a laywer to them might help.

 

Todd

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I'll go against the crowd here. First off, I've long felt that 'shilling' does no good. All you do is replace a legitimate bid with a fake bid or you buy the item back because at the time you valued it more than the available market at that point in time.

 

Why shouldn't a consignor be allowed to bid on their own stuff? All it means is that the consignor valued it more than the market at that point in time. Also, if the owner values the item at $500 and the bidding has stopped at $300, why shouldn't he be allowed to keep bidding until it either gets to a level he is happy selling the item at or he buys it back? (Note: This is different than eBay style bidding where you can retract your bid after learning the high bid).

 

No one is forcing people to bid higher. The idea that the owner sets the market price with a fake sale and then resells it near that price is faulty. I have a pop 1 coin and I put it on TT. I put a reserve of $10000 and it opens at $3. Throughout the day of the auction, I bid it up slowly. Other bidders come in and bid during this time, but they are outbid by the reserve proxy bid system. At the end of the auction, I have placed the "winning" bid at $11000. The coin is recorded as sold at $11000 and that is now the market price? Wrong! Sellers don't set market prices. Sellers and buyers set market prices by meeting in the middle.

 

If the true value of the above coin is $5000, then just because there is a so-called sale price at $11000 doesn't mean that is the market value. This coin will actually sell for $5000 the next time at auction if the owner doesn't buy it back at a higher level. The idea that a knowledgeable bidder (one who would be bidding for a pop 1 coin) would all of a sudden value this coin at $11000 is wrong. If they did, then they would have bid that the first time and beaten the reserve.

 

Take a look at the 1953-S 50¢ in MS66FBL that was auctioned a year or so ago. Two bidders wanted the coin and it sold for $69000. A few months later with one bidder removed, the coin sold for ~$31000. Where is the market price? If the market price were established after the first sale, then why did the coin realize less than half the very next time it was auctioned? Wouldn't other people have stepped into the bidding between the $31000 and $69000 level?

 

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gmarguli - I think the difference is that one should know if they are bidding against the owner of the coin and not hide what they are doing.

 

Todd

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There is definitely something involved in the placing of fake bids that has an effect on the price that people pay for something in an artificial way. A bidder is willing to pay up to $X for an item, but is trusting in the auction process to operate in a certain way in order to indicate to them what they have to pay to get the item. They are expecting to acquire the item for slightly more than whatever anyone else is willing to pay, but for less than the max bid they've decided on.

 

They ARE willing to pay slightly more than the other bidders, provided those other bidders are legitimate. This is because those other bids are anecdotal evidence to them of the market's desire for that coin. That's ONE WAY that they can know they're not getting ripped off.

 

Someone entering shill bids is screwing with that formula and is artificially "encouraging" the legit bidder to pay more for that piece. They are doing this in an atmosphere of misinformation - which is the idea that there's another bidder willing to pay this amount. A reserve is not at all like shill bidding as it makes it explicitly clear that this is the value the owner currently places on the item and does not indicate to other buyers that there's a market out there should they wish to flip the item at some later date.

 

I agree, though, that someone who judges the market for an item solely by one or two other bidders is probably making a mistake. But then, apparently there are legitimate cases where the presence and interest of one other bidder DOES make a significant financial impact:

 

Take a look at the 1953-S 50¢ in MS66FBL that was auctioned a year or so ago. Two bidders wanted the coin and it sold for $69000. A few months later with one bidder removed, the coin sold for ~$31000.

 

Say that other bidder was real. Then the winner of that bid had a decent shot at flipping the coin to the other bidder for at least close to what he paid. If it was a shill, then he's been misinformed. He's no longer taking a calculated risk that there is a market out there for the coin at near what he paid for it - he is instead dealing with a pretty good certainty that there isn't a market, if the only other bidder was a shiller.

 

This can become pretty obvious with punishment bidding:

 

The situation

The community opinion

 

In this case, these were relativley fake bids. Had they been real bids, the eventual buyer might have been buying things that were near the value he paid, at least until that mysterious other bidder lost interest. If that mysterious other bidder would never pay real money to someone else for those items, then that's misinformation.

 

You can argue that it's cavaet emptor, and that people who let themselves get pulled into these things by not sniping, or by trusting the presence of one or two other bidders as good market information are just silly. And that's probably true.

 

But does it really make shilling and/or punishment bidding "ethical" or "acceptable practice" just because a wiser bidder wouldn't fall into this trap? (shrug)

 

Arch

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While I certainly don't relish the thought of bidding against the owner of a coin, I think the auction houses are well within their rights to allow consignors to reserve/protect/ bid on their own material. I do like the policy of some firms which

exclude buybacks from published prices realized lists.

 

 

It is a fine balancing act for the auction companies - if they set the buyback fees too high, they will discourage some consignors, get less material for their sales and the auctions will suffer, as a result. On the other hand, if the buyback fees are too low, consignors will take advantage of that, set higher reserves, buy back more coins and discourage bidders from participating. I have seen each of these scenarios unfold as auction companies have experimented with various buyback arrangements.

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gmarguli - I think the difference is that one should know if they are bidding against the owner of the coin and not hide what they are doing.

 

It would be impossible for the auction house to know for sure if a bidder is also the owner. Therefore, there is no way for the auction house to "warn" bidders that this is the case for each individual lot. The auction houses tell the bidders that the owners are allowed to bid on their own lots. Every bidder should assume they are bidding against the owner. Every bidder should bid what the item is worth to them.

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I think we are talking about two types of bidders here. One is the experienced bidder who prices things based on their value in the marketplace and what they are worth to them. Then there is the other bidder, the clueless insufficiently_thoughtful_person who doesn't do research and bids based on the assumption that the underbidder knows the value of the item. The experienced bidder, I don't feel is harmed by the shilling. The clueless bidder is harmed by their cluelessness, not the shill bidding itself. smile.gif

 

 

They ARE willing to pay slightly more than the other bidders, provided those other bidders are legitimate. This is because those other bids are anecdotal evidence to them of the market's desire for that coin. That's ONE WAY that they can know they're not getting ripped off.

 

The "I will pay one increment above other legitimate bidders" logic is grossly flawed. It's very clear to anyone who has had their eyes open that the auction market can EASILY be manipulated. I have no idea if I am bidding against the owner or 5 people who all are bidding on the owners behalf or other so-called legitimate bidders. That's why you set a price you are willing to pay based on the market and your desire for the item. It should have nothing to do with what others - who you have no idea who they are - are supposedly willing to pay at that second in time.

 

Honestly, I don't care. I research the value, figure out what it is worth to me and I bid according to that. On eBay I have purchased several coins from a seller I know shills his auctions. At the end of the auction I put in my bid and sometimes I win and sometimes the shill is higher. I don't care. I either got the coin at a price I was willing to pay or the owner valued it more than me. He also gives me great service. laugh.gif

 

 

 

Someone entering shill bids is screwing with that formula and is artificially "encouraging" the legit bidder to pay more for that piece. They are doing this in an atmosphere of misinformation - which is the idea that there's another bidder willing to pay this amount. A reserve is not at all like shill bidding as it makes it explicitly clear that this is the value the owner currently places on the item and does not indicate to other buyers that there's a market out there should they wish to flip the item at some later date.

 

At most of the auctions I've been to, you don't know if you are bidding against the reserve or another bidder. You also don't know the reserve. Does it really matter if I put a coin up for auction and I tell the auction house I want the reserve set at $10000 and everyone bids until that is met or it gets "sold to the book" OR I don't set a reserve and I place a mail bid for $10000 and everyone bids until that is met or it gets "sold to the book" OR I floor bid the item until I either buy it back or it hits $10000 and I let it sell to someone else? The result is the same. For everyone at the auction, it just appears that someone else was willing to pay more than you.

 

 

 

 

 

I agree, though, that someone who judges the market for an item solely by one or two other bidders is probably making a mistake. But then, apparently there are legitimate cases where the presence and interest of one other bidder DOES make a significant financial impact:

 

Take a look at the 1953-S 50¢ in MS66FBL that was auctioned a year or so ago. Two bidders wanted the coin and it sold for $69000. A few months later with one bidder removed, the coin sold for ~$31000.

 

Say that other bidder was real. Then the winner of that bid had a decent shot at flipping the coin to the other bidder for at least close to what he paid. If it was a shill, then he's been misinformed. He's no longer taking a calculated risk that there is a market out there for the coin at near what he paid for it - he is instead dealing with a pretty good certainty that there isn't a market, if the only other bidder was a shiller.

 

As far as I know, both bidders in the first sale were legit. They both just really wanted the coin and were willing to pay well above market for it. From what I heard, all the other bidders except these two dropped out around the $25000 level. Shortly after winning the auction the high bidder reauctioned the coin for whatever reason. The winner of the coin was the previous 2nd place bidder. The two bidders had to know that the fair market value was around $25000 when they saw all the other bidders drop out, yet they chose to pay what it was worth to them.

 

In the case IF there was only one determined bidder, shilling could have pushed the price up more for that bidder. However, you're on a level playing field. The shill doesn't know when you will put your paddle down and you don't know when you will reach a value level that it is worth it to the other person (either owner or legitimate bidder) to put their paddle down. Also, you can call that person a shill or a salesman. After all, if the shill could determine that the other bidder was willing to pay more, then so could a salesman who would have an incentive to bid. Maybe that salesman just happens to be the owner?

 

 

[...]In this case, these were relativley fake bids. Had they been real bids, the eventual buyer might have been buying things that were near the value he paid, at least until that mysterious other bidder lost interest. If that mysterious other bidder would never pay real money to someone else for those items, then that's misinformation.

 

I have no sympathy for someone who doesn't do research. There have to be price sheets for those things. There has to be previous auction data. If you bid based only on what you see others doing, then you are at the whims on them.

 

 

 

But does it really make shilling and/or punishment bidding "ethical" or "acceptable practice" just because a wiser bidder wouldn't fall into this trap? (shrug)

 

If shilling works, then it is capitalism at its best. The seller is getting a better price for his item. If shilling doesn't work, then no one is harmed. I personally view shilling as a seller establishing a market price. That is a level where he is happy selling the item. That is also a level where the buyer is happy to buy. The reasons why the buyer is happy to buy at that level aren't of concern to me.

 

 

And everyone who buys something at auction should keep in mind that they won the item because theoretically they were willing to pay more than everyone out there.

 

And for what it is worth, I don't shill my eBay auctions. I've found that overall they sell for fair prices. Some go too low and some go too high. Overall they average out. I've never wanted to try and play a game of where the other bidders "are".

 

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This has been an excellent example of debating the merits of transparent and concealed bidding schemes and I think each scheme has its own strengths and weaknesses. I am not writing to add anything at this time to that. I am writing, however, to mention that one question that has largely gone without an overt opinion is what to do about companies that engage in concealed bidding schemes. This might seem simplistic, but, I think one way to deal with them is to avoid them. Similar to how one might avoid an ebay seller whose selling/listing/dealing methods are distasteful, one can easily avoid the trap of bidding on coins in a venue where the ground rules are unacceptable. We all have that choice. This immediately would reduce the competition for coins within the venue but would not address aggressive, concealed bidding tactics. It may, though, make those tactics less attractive to those who might use them since the bottom line of the auction house would be hurt and they might change the fee structure to recoup estimated losses by targeting the greater percentage of their sales that truly go unsold.

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One of the problems is that the modern market (where this manipulation is greatest) is extremely thinly traded, and very few coins are sold publicly, with most trading hands privately.

 

When evaluating these private asking prices, how do you know what a fair price might be? First place you look are E-Bay and Teletrade records, and for low pops, you might only see them on Teletrade. If you see three sales for $500 a pop, you might begin to think that an asking price of $500 is fair, even when the things trade for $200 down the road.

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What I don't understand is how in the Heritage auctions, bids can start at $1.00. Who's bidding $1.00 on those coins?

 

No one probably. Heritage starts the bidding at $0 or $1 and then other people bid. I place a bid of $500 and since it is the first bid, it shows up as $1 thanks to the proxy bidding system.

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OK. If there are 3 bidders on a $2,000.00 coin, and the price is now at $200.00, that means at least 2 of the bidders bid below $200.00. Do they really think they will get this $2,000.00 coin for $200.00? Or is Heritage just trying to stimulate the bidding?

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This happens all the time on eBay. People dink around in the early stages of the auction. The serious bidding frequently occurs only at or approaching hammer.

 

Beijim

 

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