Wednesday, August 24, 2016

Why do items sometimes sell cheap?

The sentiment comes in a variety of forms, but it is always rooted in the same curiosity.

"She got a heck of a deal on that!"
"That sold cheap!"
"He stole that one!"
"Why did that item sell so cheap?"

To answer that question in relation to personal property auctions, we have to examine several factors.  Demand, promotion and competition all play large roles in how an item will perform at auction.

What is the demand of a particular item?  Some items are more sought after than others.  This is constantly affected by styles, trends and social commentary.  Demand can also be very different in different parts of the country and even within a city.  In my area chalk-painted furniture is in high demand.  A nice original mahogany desk will not generate the same demand as it would if the same desk were painted light green, blue or white.  A decade ago the opposite was true.  In a world of ever changing tastes, understanding demand is important to understanding if something sold "cheap."  Keep in mind too the demand curve.  Pretty much anything will have demand at a certain price.  A worn out dump truck might not be in demand at $10,000, but to someone, it might be at $1,000.

Even if you had a warehouse full of gold bars, fine art and vintage Cadillacs, they would still need to be properly and professionally promoted to realize a market price.  If people aren't aware that things are available, they don't know to bid.  Putting a flyer on a telephone pole is not going to yield the exposure needed to fully reach prospective bidders.  If assets are not well promoted, they might sell "cheap."  Good promotion tactics are very advanced and targeted through a variety of channels.

If items are in demand and properly promoted, bidders will compete to buy them and prices will move upward.  This only happens in the auction format.  It is an inherent advantage over other forms of sale.  Interested parties will bid against each other until only one still perceives value.  Competition arises for a variety of reasons too.  Perhaps a retail business is competing with someone who has sentimental attachment to an asset.  Both will have different points of value for different reasons.  This point also brings up the debate of live versus online auctions.  Well promoted online auctions generally expose items to more potential bidders, theoretically increasing competition.  Without any competition, an item could certainly sell "cheap."  The psychology of competition at auction is actually a great idea for a future blog.  I'll have to revisit that!

If all three are aligned, auction magic happens.  An in-demand item that has been properly promoted to competing bidders will always fetch market prices.  The biggest disconnect in this equation is usually our perception of value.  Our opinion of value might be quite different than someone else..... the other bidder.  Are there variables?  Sure!  Sentimental value, associated expense (if the item must transported modified or repaired) and the risk tolerance of the bidder all can affect hammer prices.

Generally speaking, I contend that items can sell"cheap" at auction if the auctioneer does not promote them and assist in generating competition.  However, when orchestrated properly and professionally auctions show us the market.  Auctions are the market.

I'd love to hear your opinion.

#AuctionAlex  #AuctionsWork  #NAAPro

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