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.