By SCOTT A. TRAVERS
Public auctions represent one of the most important–and one of the most exciting–methods by which rare coins are bought and sold. Using this method successfully, though, requires constant awareness of changing market conditions and modification of buying and selling strategy.
Over the years, I have been one of the greatest supporters of selling rare coins through public auction; as a consumer advocate, I have viewed this as a medium that was generally pro-consignor. I haven’t been as bullish on buying coins at auction because there are perils and pitfalls that require more expertise on the part of prospective buyers. But I have encouraged collectors seeking to sell their coins to go the auction route, provided they negotiated suitable terms of sale with the auction house of their choice.
From the mid-1970s through the late 1980s, it was said with considerable accuracy that where the action was, in the rare coin market, was where the auction was. Time after time during that period, the biggest, most valuable, most glamorous collections were dispersed at public auctions. Consider these examples:
- In 1977, the John Andrew Beck Collection brought more than $3.2 million at a public auction conducted by Abner Kreisberg of Beverly Hills, California.
- In 1982, the gold portion of the fabulous Louis Eliasberg Collection fetched $11.4 million at a glittering auction conducted by Bowers and Ruddy Galleries of Los Angeles under the simple title, The United States Gold Coin Collection. Two of the 1,074 lots–an 1822 half eagle (or $5 gold piece) and an 1870-S $3 gold piece–were hammered down for prices of $625,000 apiece.
- In 1983 and 1984, Bowers and Merena Galleries of Wolfeboro, New Hampshire, successor firm to Bowers and Ruddy, sold coins from the collection of numismatic legend Virgil Brand for a total of more than $3.3 million at two public auctions. In 1983, Virgil Brand’s library was sold by George Frederick Kolbe, a California dealer in numismatic literature, for $20,500.
- In 1984, coins from the collection of Texas newsman- numismatist Amon G. Carter Jr.–one of the greatest collections of all time–realized more than $8 million at a spectacular auction conducted by Stack’s of New York. Carter’s outstanding collection of U.S. paper money was sold at fixed prices by various dealers.
- In 1986, the Robinson S. Brown Jr. Collection brought hammer prices totaling nearly $1.3 million at an auction held by Superior Galleries of Beverly Hills. That same year, Superior sold the Wayne Miller Collection of U.S. silver dollars at another memorable auction for more than $1.2 million, including the 10-percent buyer’s fee charged on each lot.
- In 1987 and 1988, the storied Norweb Collection realized a total of more than $18 million at a three-part auction sale by Bowers and Merena. The company’s marvelous catalogs contributed significantly to the sale’s success.
- In 1988, the Herman Halpern Collection of U.S. large cents–one of the finest ever assembled–went on the block at an auction conducted by Stack’s and realized nearly $2 million. That same year, Congressman Jimmy Hayes’ phenomenal collection of high-grade U.S. type coins brought nearly $1.2 million–an average of approximately $10,000 per lot. Again, outstanding cataloging served to enhance the coins’ appeal– and, in all likelihood, the prices they attained.
- From late 1979 through early 1981, in a four-part sale that remains the greatest coin auction of all time, the Garrett family collection realized more than $25 million for Johns Hopkins University of Baltimore, which had received the coins in a generous bequest from the Garretts. The sale, conducted by Bowers and Ruddy Galleries, included such rarities as an 1804 silver dollar, a proof 1795 silver dollar and two 1787 Brasher doubloons, one of which changed hands for $725,000–an auction record that stood for nearly a decade.
All these auctions, and others from that period, as well, were true “happenings”–dramatic highlights that stirred great excitement throughout the rare coin market. However, these auctions occurred in a different kind of marketplace. The marketplace of yesterday, the marketplace of the Seventies and the Eighties, had far more stability than the marketplace of the Nineties and thus was more conducive to longer-range planning.
During that period, a collector could consign his or her coins to an auction firm for sale months later–and sometimes even years later–and the marketplace stability would permit the firm to plan that sale carefully, in loving detail, over many weeks without undue concern that market volatility would jeopardize its success. Thus, it was not only possible but routine for major auction sales to feature lavish catalogs in the grand-format style, filled with breathtaking photographs of the coins. And waiting periods of three or four months, and sometimes even longer, were normal between the time a collector consigned the coins and the auction firm sold them.
Even then, to be sure, three- or four-month waits created some inconveniences and occasional market-related problems. But in those days, these weren’t insurmountable; they tended to be annoyances, rather than grave concerns. Those memorable sales of the not-so-distant past provided opportunities for latter-day hobbyists to build collections rivaling those that were being dispersed. People like Harry Bass and Ed Trompeter seized those opportunities to acquire great rarities. In the process, they engaged in sometimes fierce but more often friendly bidding competition which reinforced the mystique of those great auctions. It created an ambiance of elegant excitement. At the same time, it reinforced the perception of marketplace stability. And, of course, it played a key role in pushing price levels to unprecedented heights in those crowded and exhilarating auction rooms.
The marketplace today is significantly different–and as a result, I am no longer as bullish as before on selling rare coins at public auction. The current marketplace is volatile, unstable and speculative, and under these conditions there is markedly greater risk in consigning your coins for sale at auction.
In the mid- to late 1980s, we witnessed the development and rapid growth of sight-unseen trading in the coin market. Coins that had been “slabbed”–that is to say, certified and encapsulated in sonically sealed, tamper-resistant holders– came to be treated virtually like commodities because they were viewed as being interchangeable in many instances. This commoditization of coins led to large-scale purchases by limited partnerships and investment funds, and as the scale increased, so did the market’s volatility.
Because of the wide and fast price swings, the risk was substantially higher that you might consign, say, $1 million worth of coins for sale at an auction three or four months down the road–and by the time the sale took place, those coins’ market value might have declined precipitously, perhaps by half or more. That was a risk–a very significant risk–that just didn’t exist a few years earlier.
As this is written, in early October 1992, the coin market as a whole remains extremely sluggish. Yet, even now, volatility is high, and no one can say with any assurance that prices won’t be sharply lower (or, for that matter, sharply higher) three or four months from now. Stability, in short, is a thing of the past.
I don’t mean to paint an entirely black picture of coin auctions’ potential as a sales vehicle. They do have important pluses, even today. Those pluses are so important, in fact, that if you can overcome the very great obstacle of marketplace risk–the risk that your coins will decline in value dramatically before the gavel comes down–public auctions remain one of the very best ways to sell your coins.
The primary advantage is the competition public auctions stimulate. If you try to sell your coins directly to a dealer, you’re quite likely to get a low offer. Dealers have a vested interest in the outcome of such a transaction. But auction houses routinely receive commissions from the sale of consignors’ coins–so if you sell at auction, the auction firm will have the same interest at heart as you do: It will want your coins to bring the highest possible prices so that it can maximize its commissions.
Auctions alleviate half of the sale risk: the risk that you’ll be offered prices far below your coins’ actual value. The other half of the sale risk is that your coins will lose value between the time you consign them and when they’re sold.
Public auctions maximize the price a coin brings at the exact time the gavel falls. If the auction firm is reputable and has brought together a representative cross-section of bidders, the chances are good that you’ll get top dollar for your coin–top dollar, that is, in terms of the current market. That’s because competition will drive up the price. Another advantage to selling your coins at auction is the fact that auction houses generally create beautiful catalog. These not only help attract bidders, but also serve as keepsakes and records of the sales. Besides being helpful to consignors, these catalogs also benefit the marketplace as a whole by stimulating interest and serving as a stabilizing force.
Auctions sometimes do well even at times when the market as a whole is in a slump. The fact is, auctions sometimes invent buyers and create demand by conjuring up an air of excitement–by transforming the sale of coins into a real event. That happened, for example, at the Eliasberg sale; the market was shaky, but the auction was spectacular. Bowers and Ruddy and, more recently, Bowers and Merena, have done a phenomenal job of creating such events over the years. Unfortunately, public auctions also have disadvantages, at least from the perspective of the consignor. The big one, already mentioned, is the risk that your coins may go down in value before an auction takes place. There are, however, other negative factors, as well.
One is the fact that you have to wait so long to get your money. Typically, that wait includes not only the three or four months before the auction, but also 45 days afterward. That’s the time auction firms normally give successful bidders to pay for their purchases.
Auction firms to provide cash advances to consignors; as
a rule, they’ll advance up to 50 percent of the estimated value of a coin. But, in such instances, the interest rate is normally quite high–18 percent, customarily. So unless you negotiate a low interest rate for such an advance, this won’t be a very attractive alternative.
To guard against excessively low bidding, a consignor has the option of buying back his or her coins. In that case, however, the auction firm will usually charge its regular fee of 10 or 20 percent of the coins’ prices realized. So buying back coins can become an expensive proposition. Also on the downside, auction sales cannot be canceled by a consignor except in unusual cases where special contractual provisions have been made. Thus, the auction company will proceed with a scheduled sale even if the marketplace is all but devoid of money.
You can protect yourself against some of these risks, especially if you are consigning many thousands of dollars– even millions of dollars–worth of coins. In such cases, auction firms have the incentive to make accommodations. For one thing you need to be sure that every coin you’re selling has a reserve on it. That way, if it doesn’t bring this minimum amount, you can buy it back and sell it at a later, better time.
You can seek an arrangement whereby you will pay a smaller-than-usual fee–perhaps 5 percent or even less–when you buy back your coins.
And, if you are a major consignor to a sale, you can seek a cancellation clause giving you the option to have the sale postponed, without penalty, if–in your sole discretion- -market conditions mitigate against putting the coins on the block on the scheduled date.
Given the market’s volatility, it’s advisable to cost- average the coins you consign for sale at auction. In other words, don’t put all your “eggs” in a single sale; sell your coins at various sales over a period of time to minimize the risk that they’ll all hit the market at precisely the wrong time.
Selling coins at auction can be a rewarding experience, in terms of both psychic income and prices realized. But to maximize your pleasure and profit, and minimize your risk and potential loss, you need to take steps to protect your interests.
If you take the necessary precautions, you may very well find that auctions are the place where the action is for you.
COPYRIGHT © 1992, 2003, 2007 BY SCOTT A. TRAVERS
ALL RIGHTS RESERVED.