The Advantages of Selling to a Dealer

Before making a pitch, let’s make two things clear:

1) A dealer can’t make any money if you don’t sell to him
2) An auction house can’t make any money if you don’t consign with them

The ultimate concern about selling directly to a dealer is that you will sell too cheap.  It is human nature to assume the worst in people.  However, you can’t assume that every dealer is out to rip you off.  Take more than one offer.  Talk to a local coin shop.  Dealers expect you to get more than one offer.

The reality is that every dealer knows there are auction houses and other dealers competing for your business.  As a dealer, if I make you a low offer then there is a 99% chance I won’t be able to buy your note because someone else out there will tell the truth and make an honest offer.

FACT: An auction house has never lost money by auctioning a note.  I can say with certainly that every dealer gets overly ambitious and loses on several purchases per year.  It happens.  They think their customer needs X when they actually don’t.  Or the dealer thought something was more important than it actually was.  Dealers take chances and stretch on notes.  Dealers need inventory and will buy items even at a no profit level just to have it in stock to draw attention to their other notes.

TV shows like Pawn Stars (on the history channel) have painted people in the buy low sell high business as profit hungry and cheap.  The 50-300% profits you see on TV are not realistic for currency dealers.  Depending on the type of currency, most dealers work on a 5-20% profit margin.  That profit margin has to cover advertising, website expenses, show travel, selling expenses, etc.  No one out there is doubling up on anything.

More importantly, how can a dealer help you:

1) You get paid within a matter of days, not months.  Timing isn’t always important to every seller.  Even if you don’t need the money right away, the anxiety of shipping and waiting for the auction can still be stressful.

2) There are no guessing games.  When a dealer makes an offer, that is what he can pay.  There is no range or best case scenario pricing games.  You can accept, reject, or counter.  You are fully in control.

3) You get one person’s full attention.  Auction houses have several people in each department and they talk to dozens of people a day.  Even if you have a really nice piece of currency, you are still talking to a different person from original contact, to estimates, to shipping, to payment.  Most auction houses are professional and will make things work.  But there are still a lot of moving parts.

4) Dealers are specialized.  Even the best auction house still can’t compete with the knowledge that every dealer will have in his specialty area.  Auction employees have to know a little bit about a lot of things.  Specialized dealers only have to know a lot about one thing in order to have a niche.  The more specialized a dealer is, the more he can pay for items in his area.

Obviously, this information is biased, but it is 100% accurate.

If you have a note you are curious about, send us an email and give us a chance to make an offer.

The Auction Trap

Currency auction houses make money in two ways.  They make the difference between what the buyer pays the auction house and what the auction house pays the consignor.  Furthermore, some auction houses require all pieces of currency to be graded.  The auction house makes a percentage of that grading fee.  The grading fee per note typically ranges between $35 and $125.  Some auction houses charge extra money for restoration services, insurance, photography, and cataloging.  The add-ons can add up quickly.

Years ago there was just one fee involved to auction a piece of currency.  This fee was simply called the seller’s commission.  If the seller’s commission was 10%, then if a collector paid $1,000 for a note, the auction house would keep $100 and the consignor would get $900.  However, today there is also a buyer’s premium.  All currency auction houses charge the buyer either 15 or 20% of the winning bid.  So while an auction house telling you that they charge you 10% sounds very reasonable, they don’t always remember to tell you that the collector is also paying them 15-20%.

All collectors know about the buyer’s premium.  So if a collector values a note at $9,200, then he is only going to bid $8,000.  Assuming the consignor is getting charged 10%, then he gets a check for only $7,200, despite the fact the note was worth $9,200 to the collector.  Should an auction house really make $2,000 for taking a picture and writing a few sentences about an item?  Make sure you understand the difference between seller’s commission, buyer’s premium, bid price, and hammer price.

Also, make sure you understand what an estimate is.  The low or high estimate really means nothing to a collector.  A collector is going to pay what he thinks the note is worth based on book values, auction history, and prior experience.  The auction estimate is really just there to play games with the consignor who doesn’t know anything about currency.  If you approach an auction house and say “a dealer offered me $9,000 for this note, what do you think it is worth?”  100% of the time the auction house will tell you it is worth more.  Auction houses only make money if you consign with them!  They might tell you that they would put a low estimate of $12,000 and a high estimate of $18,000.  However, the bidding always starts at 50% of the low estimate.  So while they can tell you any high estimate they want to, what really matters is the low estimate.  If the low estimate is $12,000, then the opening bid would only be $6,000 and there is nothing to stop the note from selling for $6,000.  Even if it got up to $11,000, due to fees and commissions you would still net less money than taking a dealer offer of $9,000.

The biggest argument of the currency auction house is that any dealer or collector interested in your note will be willing to pay the same amount or more if you consign your note to their auction as they would pay you privately.  This is 100% not true.  Only a very small percent of dealers participate in auctions.  Dealers are by nature very speculative.  If you show a dealer a note, he is likely going to think of the highest price possible he can get a customer to pay, and then pay you a value a little less than that price.  If you put the note up for auction, then dealers can’t bid speculatively to resell the note.  Once the note has a public auction price then that price is the new value; whether it is higher or lower than the previously perceived value does not matter.  No dealer can buy a note out of an auction and then try to sell it to a collector who obviously didn’t want to pay the winning bid price at the auction.

Another myth is that collectors participate in every auction.  While almost all serious collectors follow auctions, many simply cannot afford to buy everything they need for their collection at auction.  If a collector has a budget of $10,000 and there is $40,000 worth of currency he needs at auction, then he has to be really cheap on a lot of items, or save his money for the one he needs most.  So while your note is ultimately worth $1,500 to the right collector, that same collector can only afford to bid $1,000 because he likes other items more.  You likely could have sold the same note to a dealer for $1,300.  That dealer could then work out terms with a collector at $1,500.  Or the dealer could offer the note to the collector a couple months between major auctions when the collector won’t have many other buying options.

Every consignor’s dream is the bidding war.  That is the main reason most people put something in an auction; they hope two people get carried away and pay way too much for a note.  The reality is that if you put something in an auction that 90% of the time it will sell for what it is worth and the consignor is going to pay a lot of fees to figure out that truth.  5% of the time the note will sell for a little less than it is worth, and 5% of the time it will sell for a little more than it is worth.  You have to remember that collectors are some of the savviest people out there.  They know what similar items have sold for in the past, and in today’s market no one wants to look like the sucker in the room.  Bidding wars very rarely ever happen.  There is no mystery collector out there looking to pay “whatever it takes.”  99% of collectors are regular people with mortgages and college funds to save for.  If something is too expensive then they will pass and keep living life.

The biggest auction misconception is that by putting a note in an auction that the note will sell for the highest price anyone wanted to pay for it.  The only truth to an auction is that a note will sell for a what the under-bidder wanted to pay for it.  We never know how much the winning bidder was willing to pay.  But in most situations a good dealer has a great idea of what the most money the best collector would pay for a note privately.  However, they can’t bid up someone in an auction and then try to sell the note back to the very same collector they were bidding up.  In a private situation the dealer can buy for 10% less than what he thinks his customer will pay.  In an auction the dealer can’t participate at all.

The last and perhaps biggest secret is that auction houses own some notes in their auction.  This is a huge conflict of interest.  An auction catalog can only be so long.  This means that auction houses have to decide which notes will get big pictures and which notes will get long descriptions.  It is not surprising that notes owned by auction houses often get a lot more attention than better and more valuable notes consigned by the general public.  If you are an auction house then you are obviously going to promote a note where any sell price over X is profit, rather than promote a note that no matter how low or high the note sells for, the auction house is still just making 20%.

There are other auction problems that you would expect in any auction setting:
-bidder collusion to keep prices paid down
-10 hour marathon auctions that don’t end until 3am
-long delays between consignment deadlines and settlement checks
-lost shipments
-inaccurate descriptions resulting in returns

There are certainly positives to consigning to an auction.  Just make sure you also understand the negatives.  You can contact us directly to have a frank and honest conversation about what you currency is really worth.