Heritage Auctions, revisited

[earlywynnfan]

The other Heritage Auctions thread appears to be derailed to the point of no return (I know, I helped.) So I'd like to bring it back to the forefront again. I just had a lengthy, quality phone conversation with Chris Ivy.

Two issues from HA stuck in my craw. The first was their "house bidding" policy, where the House may bid on items to win them and re-sell them. I understand both sides here. The house is trying to flat-out win some deals if they can to profit the house; this means I can't win as many deals to flip to profit my house. I don't love this rule, but I don't necessarily think it's improper, except two things: do they actually limit themselves to only bidding one week before closing, and do they pay the 20% hammer fee, just like I do. According to Chris, yes, all bids are placed 7 days prior WITHOUT the knowledge of any in-place ceiling bids, and yes, they do pay the buyer's premium. (The latter means that the house actually loses money, since they don't get their buyer's premium from an outside source, which means they're already behind in trying to make a profit.) Now how do I know this actually happens? Well, as Chris said, you have to have faith that an auction house actually practices what their rules say. I have no reason to doubt him based on my personal HA experiences (which are fairly limited). This House Bidding policy falls somewhere between "completely wrong" and "absolutely wonderful." Our own values will have to decide where, and I'm sure we'll all bid accordingly.

The second issue came from their term #21:
21. The Auctioneer, its affiliates, or their employees consign items to be sold in the Auction, and may
bid on those lots or any other lots. Auctioneer or affiliates expressly reserve the right to modify
any such bids at any time prior to the hammer based upon data made known to the Auctioneer
or its affiliates. The Auctioneer may extend advances, guarantees, or loans to certain consignors.

This reads to me that any employee can consign an item (they can, I suggested they label the items as such, a la Mears) and the employee can then bid on an item, which to me is extremely close to the textbook definition of shill bidding. Chris told me that it doesn't work that way. If an employee logs in and tries to bid on their consignment, the system won't let them. The only thing an employee can do is set a reserve. So no, the employee can not "up" the hammer price. (Can they get their cousin Joe to do it? Absolutely, but HA will fire them if they find out, and this could happen through any auction house. At minimum, if Cousin Joe wins the item, they're on the hook for fees on both ends, shipping, and their item back.)

I am glad I reached out to Chris to get my issues answered. I found him very helpful. Please note that what I've written is my summation, so please don't use any of these as "Chris Ivy said..." While I didn't appreciate Jonathon's tone or replies in the previous thread, I at least now have a better understanding of what they do.

Also, FWIW, I'm a little disappointed that a thread of 9 or so pages (before derailment) went on and I'm the only person who called the company directly -- besides Leon.

Ken
earlywynnfan5@hotmail.com

[travrosty]

if they promise they put their bid in 7 days prior, why dont they modify rule #21 to state that instead of reserving their right to modify, cancel and change any bid using any knowledge or data made available to them right up to the hammer?

that is saying one thing and reserving the right to do another. if they bid 7 days before and no exceptions, then put it in the rule.

[Runscott]

Originally Posted by earlywynnfan

The other Heritage Auctions thread appears to be derailed to the point of no return (I know, I helped.) So I'd like to bring it back to the forefront again. I just had a lengthy, quality phone conversation with Chris Ivy.

Two issues from HA stuck in my craw. The first was their "house bidding" policy, where the House may bid on items to win them and re-sell them. I understand both sides here. The house is trying to flat-out win some deals if they can to profit the house; this means I can't win as many deals to flip to profit my house. I don't love this rule, but I don't necessarily think it's improper, except two things: do they actually limit themselves to only bidding one week before closing, and do they pay the 20% hammer fee, just like I do. According to Chris, yes, all bids are placed 7 days prior WITHOUT the knowledge of any in-place ceiling bids, and yes, they do pay the buyer's premium. (The latter means that the house actually loses money, since they don't get their buyer's premium from an outside source, which means they're already behind in trying to make a profit.) Now how do I know this actually happens? Well, as Chris said, you have to have faith that an auction house actually practices what their rules say. I have no reason to doubt him based on my personal HA experiences (which are fairly limited). This House Bidding policy falls somewhere between "completely wrong" and "absolutely wonderful." Our own values will have to decide where, and I'm sure we'll all bid accordingly.

The second issue came from their term #21:
21. The Auctioneer, its affiliates, or their employees consign items to be sold in the Auction, and may
bid on those lots or any other lots. Auctioneer or affiliates expressly reserve the right to modify
any such bids at any time prior to the hammer based upon data made known to the Auctioneer
or its affiliates. The Auctioneer may extend advances, guarantees, or loans to certain consignors.

This reads to me that any employee can consign an item (they can, I suggested they label the items as such, a la Mears) and the employee can then bid on an item, which to me is extremely close to the textbook definition of shill bidding. Chris told me that it doesn't work that way. If an employee logs in and tries to bid on their consignment, the system won't let them. The only thing an employee can do is set a reserve. So no, the employee can not "up" the hammer price. (Can they get their cousin Joe to do it? Absolutely, but HA will fire them if they find out, and this could happen through any auction house. At minimum, if Cousin Joe wins the item, they're on the hook for fees on both ends, shipping, and their item back.)

I am glad I reached out to Chris to get my issues answered. I found him very helpful. Please note that what I've written is my summation, so please don't use any of these as "Chris Ivy said..." While I didn't appreciate Jonathon's tone or replies in the previous thread, I at least now have a better understanding of what they do.

Also, FWIW, I'm a little disappointed that a thread of 9 or so pages (before derailment) went on and I'm the only person who called the company directly -- besides Leon.

Ken
earlywynnfan5@hotmail.com

Thanks, Ken, for taking the time to call Chris and have an intelligent discussion, as opposed to simply screaming "foul". I have always found Chris to be a great guy to work with.

Thanks also for getting clarification on the hammer fee. That should make some people feel a bit better (including myself). The derailment was ridiculous, but entertaining - I also think that it will serve to benefit the forum in the long run. Some members needed the enlightenment that it provided.

[E93]

What they say they do and what their rules allow them to do are two entirely different things. I wish they would modify their rules to bring them in line with what they claim are their actual practices.

According to rule #21 as I understand it they could check all "absentee bids" and max them out a minute before closing the auction. I know they claim they do not do that. So why not change rule #21? I would love it if Chris Ivy would respond to this.
JimB

[earlywynnfan]

Originally Posted by E93

What they say they do and what their rules allow them to do are two entirely different things. I wish they would modify their rules to bring them in line with what they claim are their actual practices.

According to rule #21 as I understand it they could check all "absentee bids" and max them out a minute before closing the auction. I know they claim they do not do that. So why not change rule #21? I would love it if Chris Ivy would respond to this.
JimB

He explained to me about changing the actual rules. While I wish their system was better, it at least made sense. You might want to call him if you have issues.

I did tell him I thought the more transparency in the hobby the better, and he agreed. On the other hand, he said that he was in a situation where he would never make everyone happy. I had to agree with that.

My feelings, and I relayed this to him, was that I understood how he could take a day a week just putting out fires. But I thought this was bigger than many issues, it got a lot of people angry, and I think he (and HA) would benefit from taking the time to come on here himself to state their policies once and for all. I also let him know that I thought Jonathon was not a particularly good spokesperson on the forum, he seems to inflate more than explain. Just my opinion, but from reading the threads, I'll bet I'm not alone.

Ken

[RUSH2112]

Originally Posted by earlywynnfan

(The latter means that the house actually loses money, since they don't get their buyer's premium from an outside source, which means they're already behind in trying to make a profit.)

Ken
earlywynnfan5@hotmail.com

Really? loses money? outside source = WTF?

Any buyers premium paid out by the auction house to itself would be a profit to the auction house sales division in one column of the books and a loss to the buying division in another column.

You need not be an certified accountant to figure that one out.

The auction house is always in a better position to make money on any one item because they purchased at a discount.

[smotan_02]

So it seems that the Auction Houses that are in the best position to promote the most transparency are the ones that are only an Auction House and do not double as a retail store.

Note: Promote does not mean practice

[Exhibitman]

OK, speaking lawyerly for a moment, I have to call BS on Ivy:

First of all, the fact that he says HA doesn't do something does not trump the express terms of the auction rules that allow it do so something. Having the right to do something that you do not do voluntarily is not the same as being prohibited from doing something by contract. If HA is committed to not bidding in the last 7 days or not allowing its employees to bid on their own stuff, it should be part of the express rules of the auction. Otherwise it is a meaningless voluntary posture that can be changed at will.

Second, because there are no teeth to the purported policies it leaves open the possibility that HA can do what Ivy says it does not at any time, which creates the appearance of impropriety. Us bidders have to trust the AH to do the right thing. If the rules expressly authorize the wrong thing, we cannot have that trust. No trust = lower bids.

Finally, I just wanted to point out that HA can rewrite the rules any time it wants, so there are no real barriers to conforming the rules to what Ivy says are the actual practices.

[glchen]

If it is as Chris Ivy states, I'm fine w/ Heritage's policy here. You just need to consider the price one week before the auction ends at that lot's reserve. I'm not exactly happy with allowing employee consignments b/c I think there's too much potential for conflict of interest. I can probably live with this, however. As others have stated, however, I just wish they would write these into their rules. If it is in the rules, the auction house will be compelled to follow them. Look at what's just happened to Mastro/Allen. A number of the charges were because the auction house had set a Code of Conduct, and then when these were not followed, the principals were charged with fraud.

[travrosty]

Originally Posted by E93

What they say they do and what their rules allow them to do are two entirely different things. I wish they would modify their rules to bring them in line with what they claim are their actual practices.

According to rule #21 as I understand it they could check all "absentee bids" and max them out a minute before closing the auction. I know they claim they do not do that. So why not change rule #21? I would love it if Chris Ivy would respond to this.
JimB

me too, why not officially restrict themselves to what they are claiming they are doing already. nothing to lose on their part, and it would only show everyone else they are serious about it.

[travrosty]

Originally Posted by RUSH2112

Really? loses money? outside source = WTF?

Any buyers premium paid out by the auction house to itself would be a profit to the auction house sales division in one column of the books and a loss to the buying division in another column.

You need not be an certified accountant to figure that one out.

The auction house is always in a better position to make money on any one item because they purchased at a discount.

exactly right, if they win, they figure they got it at the wholesale price, and any flipping of the item will outstrip any buyers fees they would have collected had they not bid, - or else they would not have bid.

[Jaybird]

Originally Posted by travrosty

me too, why not officially restrict themselves to what they are claiming they are doing already. nothing to lose on their part, and it would only show everyone else they are serious about it.

good question. I can't think of many possible reasons not to amend their official rules.

[Fuddjcal]

Heritage can call it whatever Heritige likes. Fudd calls it Shill Bidding...but I wonder if it is "legally" called shill bidding because "they tell you up front" they are shill bidding? I just like the word shill...

If I'm reading the definition right from Wikipedia it makes sense.


"A shill, plant, or stooge is a person who publicly helps a person or organization without disclosing that he has a close relationship with that person or organization. Shill typically refers to someone who purposely gives onlookers the impression that he is an enthusiastic independent customer of a seller (or marketer of ideas) for whom he is secretly working. The person or group who hires the shill is using crowd psychology, to encourage other onlookers or audience members to purchase the goods or services (or accept the ideas being marketed). Shills are often employed by professional marketing campaigns. Plant and stooge more commonly refer to any person who is secretly in league with another person or organization while pretending to be neutral or actually a part of the organization he is planted in, such as a magician's audience, a political party, or an intelligence organization"

[Exhibitman]

Originally Posted by glchen

If it is as Chris Ivy states, I'm fine w/ Heritage's policy here.

I'm not. If was the underbidder and the lot would have sold for much less than what Heritage bid, then Heritage just took a wad of cash out of my pocket. Why should Heritage get that profit, especially when Heritage doesn't have to pay shipping, BP or sales tax? And since they don't have to factor in those things, their "wholesale" price can be even higher.

[Matt]

Originally Posted by glchen

If it is as Chris Ivy states, I'm fine w/ Heritage's policy here. You just need to consider the price one week before the auction ends at that lot's reserve.

Not quite - as I understand it, they enter a ceiling bid at that time, so you can be bid up by their bid much closer to auction end. If they entered a fixed price bid a week in advance, I think it would be as you said.

[Runscott]

There are costs associated with running an auction house - that's what the buyers premium is for.

[travrosty]

then what are consignment fees for the seller for?

it used to be that there were no buyer fees, but they figured out they can get away with it, then it was 10 percent, then 15, now 20 and more and more.

they are working for the seller, you have to take pictures, describe the item, put out a catalog, etc. so i understand consignment fees.

just what work do they do for the buyer? there should be no buyer fees. they should be thanking the buyer.

[Runscott]

I'll re-phrase: auction houses have costs and have to get paid by someone. If you and I were bidding against each other and you didn't have to pay a buyers premium, then you'd have a 20% advantage over me. Not saying it's right for them to bid in their own auctions (I don't think it is), but because they are a business and have costs, it's not a 20% advantage.

...maybe there are some accountants here who can chime in as to the actual advantage they are getting by paying the buyers premium to a separate company.

[Jaybird]

Lest this just fade away without being addressed by Heritage, I thought I might bump it to the top on the eve of the National.

Heritage? You still planning on bidding on items in your auction on Thursday?

Can we please have a list of the lots that you have placed or are planning on placing bids on?

[3-2-count]

I'd like to see that list to please. It would be nice to know what items I may be shilled on.

[Wymers Auction]

Originally Posted by travrosty

then what are consignment fees for the seller for?

it used to be that there were no buyer fees, but they figured out they can get away with it, then it was 10 percent, then 15, now 20 and more and more.

they are working for the seller, you have to take pictures, describe the item, put out a catalog, etc. so i understand consignment fees.

just what work do they do for the buyer? there should be no buyer fees. they should be thanking the buyer.

Travis it is a very simple answer. Undercutting is what caused this example this guy sells for 25% then the next guy goes to 20% to try and steal his clients. Next thing you know we have auctions advertising no commission. I get calls from potential consignors every now and then that not only want one hundred percent of bid price, but also want a cut of the BP. Some auction houses also compare their services to others and feel that if they can charge 22% BP why can't I? I think bidders are already starting to factor these higher buyers premiums when they bid. I think also when you use a higher bp you tend to lose the last second bidding due to calculation.