THE UNSPOKEN TRUTH ABOUT RARE COIN AUCTIONS

by Scott A. Travers

Public auctions have long played a vital role in the sale of collectible coins–particularly coins of great rarity and value. This role was underscored in 2013 when an extraordinary 1794 Flowing Hair silver dollar sold at public auction for over $10 million. The coin was certified by the Professional Coin Grading Service (PCGS) as a Specimen 66.

Out of needless fear or ignorance, however, many collectors and investors tend to view auctions with suspicion, looking upon them not as opportunities but as traps. They worry that if they attended one, they might end up inadvertently buying a coin they didn’t want–simply because they raised their hand accidentally or sneezed or scratched their nose at the wrong time.

The danger of such mistakes has been magnified through the years by humorous vignettes in the movies and on TV. They seldom happen in practice and are rectified immediately when they do.

Once they overcome this unreasonable fear, collectors and investors soon discover that auctions are replete with golden (and silver and base-metal) opportunities for obtaining exceptional coins–or, conversely, for selling one’s coins advantageously.

It’s true that “auction fever” or a compulsion sometimes grips a gallery and propels bidding levels beyond the fair market value of certain coins. This, of course, is a plus if you happen to be the person who consigned those coins for sale, but something to be avoided if you’re a buyer.

There are easy, effective ways, though, to guard against being infected with auction fever. And once you become familiar with auctions’ idiosyncracies, there are ways to turn these sales to your advantage.

At the outset, it should be understood that the information contained in this article pertains only to auctions conducted by reputable firms and not “online only” auctions.

The first thing to determine when considering public auctions is whether you should buy at an auction at all–or, on the other hand, whether you should sell your coins in this manner.

Auctions are ideal venues for buying and selling certain kinds of coins, but totally unsuited for other types. To cite one outstanding example, auctions are a perfect place to buy and sell truly rare coins–especially those assembled as parts of first-rate collections. The publicity surrounding important auctions, the time that elapses before such sales take place, the eye-catching catalogs that typically are distributed–all these factors combine to build increasing interest, attract potential buyers and stimulate spirited bidding for genuine rarities.

Naturally, such interest helps drive prices higher– which makes it clear why people holding such material often choose to disperse it at public auction.

But buyers benefit, too. They have the reassurance that other informed collectors and investors were willing to pay very nearly as much to acquire those coins. They have the prestige of possessing rare coins with a pedigree–an intangible that can translate into added value later when they sell them. And often, the publicity surrounding major auctions will bring successful bidders offers to resell the coins immediately for a handsome profit.

Here are some examples of other coins that represent potentially good buys at public auctions:

Coins that come up for sale early in the morning or very late at night. Blockbuster auctions sometimes contain many hundreds of lots, requiring the auction company to schedule bidding sessions that start very early in the morning or run very late at night. Even with all of the advantages of Internet and absentee bidding, rival bidders may miss such sessions, making it easier for you to pick up bargains.

Coins that are offered for sale during a period of extreme heat or cold. The weather can work to your advantage. If there is a heat wave or the sale is taking place in the teeth of a raging snowstorm, fewer potential bidders will show up at the actual sale, increasing the odds in your favor.

Coins sold during downturns in the marketplace. Even auction fever can be blunted when the coin market is depressed. Since auctions tend to attract scarcer and more desirable material than other methods of dispersal, this can give you the chance to buy some truly exceptional coins for prices that are really quite reasonable.

Group lots. First-magnitude rare coins get suitably star billing at public auctions. Often, however, parts of the supporting cast end up being lumped into group lots. That’s because time constraints and required minimum-per-lot values don’t permit the sale of each and every coin as a separate lot. Much of the material found in group lots may be of no special distinction, but it isn’t unusual to find scarce and sometimes truly rare high quality coins to be a part of these these groups. And you can pick them up–as part of a group, of course–for under-market prices. There just isn’t enough time for everyone at an auction to look at Internet-only or group lots with meager descriptions in the back of the catalogue.

On the other side of the equation, there also are certain coins that you should avoid buying at public auctions, or check out very carefully before making a bid. You should be wary, for instance, about auction coins that have not been certified independently by one of the leading coin-grading services.

In my book, The Coin Collector’s Survival Manual, Revised Seventh Edition, David Hall, founder of the Professional Coin Grading Service, estimated that 50 percent or more of the uncertified coins appearing at auction have been tampered with in some way–doctored or altered. That’s food for serious thought. Now let’s examine some strategies you should consider when you buy coins at public auction.

If attending an auction in person, something done less and less these days, consider where you should sit in the gallery. Some people like to sit in the back, where they can see who’s bidding and where they can bid freely without being seen themselves by most of the other bidders in the room. Other people like to sit in the front row, so they can bid discreetly on the lots of their choice by giving the auctioneer a subtle signal.

Where you sit is largely a matter of comfort and style, though either the very back or the very front of the room can be strategically advantageous.

Wherever you sit, even if it’s in front of a desktop computer in the comfort of your home or office, I strongly recommend that you figure in advance the maximum amount you’re willing to bid for each and every coin in which you’re interested.

Set limits as to how much you will pay. Calculate these to the cent. And don’t budge one cent from that calculation. Don’t have a ballpark figure just in your mind, figuring you’ll attend the sale and see what everyone else is doing. If you do that, you’ll overpay.

Now that you have a basic idea of what to buy at auction–as well as what not to buy–and when and how to buy it, we come to an aspect that most people don’t even consider: the coins that you should, and should not, be selling at public auctions.

Let’s start by considering the coins you should not be selling at auction. Simply stated, you should not be selling generic or bullion-type coins. With millions of vintage Liberty head and Saint-Gaudens double eagles ($20 gold pieces) being dumped onto the U.S. market by European banks, common dates of these coins grading under MS-63 will be trading near melt for the foreseeable future.

First of all, the commissions charged by auction firms would eat up too much money. Dealers who make markets in bullion or generic coins often work on a margin of just a few percentage points. If you consigned such coins for sale at auction, though, you could end up paying a commission 20 percent or more. And you can be reasonably certain that the prices realized by those bullion coins or generic coins at an auction would not exceed what market-makers are willing to pay for them–and what they advertise publicly to pay for them.

Let’s take, for example, a 1924 Saint-Gaudens $20 gold piece graded MS-61 by PCGS. If you were to sell such a coin to a local dealer with gold valued at $1,300 an ounce, he would likely pay the melt value: $1,257.75, which represents the price for 0.9675 of an ounce of gold.

If you consigned that 1924 Saint to an auction, you would get $1,257.75 less the auction commission. Plus, you would have the marketplace risk–the risk that gold bullion could go down in value between the time you consigned your 1924 Saint and the time it was sold at auction. This cuts two ways, of course, as gold could increase in value between the time you consign your coin and the time it is sold.

When you sell to a dealer directly for the spot price of gold, you have immediate control; you can time your sale and use your best judgment in deciding when to sell. You can even sell a few coins at a time and sale average, if you have a quantity. When you sell at auction, you’re at the mercy of the marketplace–and with something as volatile as gold bullion-related coins, that risk can be substantial. The same logic applies to generic silver coins–which, while they may have a certain amount of value as collectibles, also are tied importantly to the value of the silver they contain.

These, then, are the coins you should not sell at public auction. What should you be selling at auction? Almost everything else. Rare coins. Scarce coins. Coins with questionable toning. Scratched coins. Worn coins. Major rarities. Semi-classic rarities. In The Coin Collector’s Survival Manua, I quote an executive of a leading coin auction company as saying that coin auctions are weighted in favor of the consignor. In other words, auction companies have a tendency to view the consignors, not the buyers, as their ultimate customers. This has been reflected in recent years by the trend toward shifting more of the burden of underwriting auctions’ costs from the sellers, or consignors, to the buyers. The standard buyer’s fee is now 20%. Some coin auctions have a buyer’s fee of 25%. Smart buyers know to place any bid with that 20 or 25% buyer’s fee carefully calculated in.

Let’s take a look at how auctions are conducted–their mechanics. This is a subject rarely discussed, and I do so from a perspective that is unique, for I not only buy and sell coins at auctions for my clients but also was a licensed auctioneer for many years. My firm conducted private offering competitions known as Lightning Sales, which were not auctions.

The nucleus of a public auction–the centerpiece of the sale, from the auctioneer’s standpoint–is “the book,” the list of bids obtained before the sale from people who can’t or won’t attend. With a successful book, an auction firm doesn’t really need to have many people physically present at the sale. With the advent of advances in Internet online bidding, most people bid online. One recent sale I attended in New York that was conducted by a highly reputable firm had only a dozen active bidders in the room.

People in the room are told that bidding will open at a small increment over the second-highest book bid. And reputable auctioneers scrupulously adhere to this rule. Let’s say that on a certain lot, before the auction begins, there are only two bids–one for $500 and the other for $5,000. These book bids form the basis for the start of the public bidding.

In this particular case, the bidding might open at $550–10 percent more than the second-highest book bid, which is $500. If no one on the floor is willing to bid more money, then the person who bid $5,000 will get this coin for $550. This kind of disparity between the two top book bids isn’t likely to happen in practice; theoretically, however, it could. And knowing this, some people are too liberal with their book bids. This can have costly consequences. Let’s say two different people take this approach on the same coin, and both bid about $5,000. In that case, bidding would probably open at about $5,500–10 percent more than $5,000–and both of these bidders would be stunned.

The lesson is to use proper caution in submitting a book bid, and not to offer more than you would if you were in the room.

When consigning coins to an auction house, astute sellers insist that the firm maximize both the coins’ presentation in its catalog and how it describes those coins. Astute sellers seek to have the coins submitted to the grading service that will assign the highest grades to them.

The old adage used to be, “If you don’t know your coin, know your dealer.” That has now been modified to state: “If you don’t know your coin, know your grading service.” Typically, the auction firm charges a commission to both the consignor and the buyer of each coin. From the seller’s standpoint, however, this is negotiable, and sellers with good negotiating skills can obtain advantageous terms. I use my carefully honed negotiating skills to good advantage in obtaining auction contracts for my clients, and I will not reveal those secrets here. If you hire my firm, you will find out how it’s done.

Often, I receive my compensation directly from the auction house, and the compensation is tied to a percentage of the prices realized. For that reason, I’m in the same corner as my clients, pushing to maximize how much their coins realize.

You should keep in mind, however, that you won’t necessarily come out farther ahead on every coin just because you’re paying an advantageous commission. That’s because savvy buyers take the commission structure into account on every single lot, as discussed earlier.

Buying and selling coins at public auction can be a rewarding experience in more ways than one. It’s exciting and enjoyable, and often witnesses moments of both high drama and very high monetary stakes.

Knowing the tricks of the trade can add to both your pleasure and your profit.

And that’s a combination that’s hard to beat.

THE EXCITEMENT OF PUBLIC COIN AUCTIONS

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.

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