Bargain-Buying at Live Auction Sales

Live or offline auction sales provide a host of excellent buying opportunities for entrepreneurs who are willing to spend time researching and attending sales. These efforts are usually rewarded with incredible buys, which can be resold for two, three, or even four times as much as cost.

There are four main types of offline auction sales: public auction sales, police auction sales, government surplus and seized-items auction sales, and estate sales. There are other types of offline auctions, such as charity auctions and retailer inventory-reduction auctions, but these seldom provide many buying opportunities with resale potential. Likewise, seldom will you find new merchandise being offered at auction sales, unless it is a retailer or manufacturer bankruptcy sale. For the most part, live auctions are for the purpose of selling secondhand goods, such as cars, homes, furniture, antiques, tools, and equipment. Therefore, buy-and-sell entrepreneurs dealing in the sale of new products would do well to focus their buying efforts on sources that are better suited, such as wholesalers and manufacturers.

Auction Terminology

Before bidding at an auction, you first have to know auction terminology. The following are a few of the more common auction terms:

• Conditions of sale. Conditions of sale are the terms under which the auction will operate, including buyer's premium in effect, reserves in place, payment options and terms, and date by which items must be removed from the sale site. These sale conditions are generally printed on the registration agreement, announced by the auctioneer at the beginning of the sale, and printed in the auction lot catalog.

• Bidder number. Before being able to bid on items, you must first obtain a bidder's number, which is issued at the registration desk. The bidder's number is boldly printed on a paddle or piece of cardboard and is large enough to be seen by the auctioneer or bid spotter during the sale. When you have successfully purchased an item, the auctioneer will ask for your bidding number and assign this number to the item purchased, so you can claim it at the end of the sale.

• Bid. A bid is the amount of money you offer on a particular item you wish to purchase. Low-value items will generally increase by dollar increments, while higher-value items can increase in hundred or thousand-dollar increments.

• Opening bid. The auctioneer usually opens bidding, at which point bidders can wait as the opening bid drops, or begin to bid, driving the price higher.

• Absentee bid. People who are not physically at the auction sale can bid on items by telephone, by e-mail, by predelivered letter stating the lot and bid price, or through the auctioneer's website.

• Reserve. A reserve is the minimum price a seller is willing to accept for an item. For instance, if bids top out at $200 for a desk, but the reserve is $250, the desk will not sell because the reserve price was not reached. The auctioneer informs bidders that the reserve was not met, though he will not disclose the reserve amount, and moves on to the next lot for sale.

• Buyer's premium. To increase revenues many auctioneers now add a buyer's premium to the total value an item has sold for, which can be represented as a flat fee or a percentage of the total value. For instance, if a desk sells for $200 and the buyer's premium is 10 percent, then the buyer must pay $220 for the desk, plus applicable taxes. As a rule of thumb, buyer's premiums are generally 5 to 10 percent of the total sales value of items purchased.

• Preview. A preview is the opportunity for bidders to inspect items before the sale. Larger sales generally have a preview day or half-day preview time anywhere from one week before the sale to the day of the sale; smaller sales generally have the preview an hour or two prior to the sale. Some auctioneers also list sale items on their Web sites for preview prior to sales. The purpose of the preview is to give bidders the opportunity to closely examine the items for condition and details prior to bidding.

• As-is. As the term suggests, when you purchase items at auctions as-is, where-is, these items are sold absent of any warranties. You get what you see, with no guarantee it will work or as to the overall condition.

• Lots. The term lot(s) has two meanings. First, every item being auctioned receives a number, which is referred to as a lot. Second, often a number of small items, such as hand tools, are grouped together in one lot and sold to the highest bidder. So a lot can be one item, or a number of items grouped together.

• Pick. When more than one identical item is being auctioned, such as six computer monitors of the same size and age, the first successful bidder will get to choose which one they want and how many they want at the same price. The buyer may choose to buy one, some, or all. He or she gets "The pick of the lot." The items not purchased by the first successful bidder are auctioned once more until all have sold, or the auctioneer has moved on to the next lot.

Auction-Buying Tips

Remember, the greatest auction-buying tip you will every get is simply this: Caveat emptor, which is Latin, meaning Let the buyer beware. Seldom are auction items covered by a warranty or guarantee of any kind. There are the occasional exceptions to the rule, but for the most part, you get what you buy. Therefore, the onus is on you and no one else to ensure that you know what you are buying, its condition, and its value before you make the bid. The following are a few indispensable tips for buying at auction sales:

• Go to the preview to inspect items of interest, and be sure to take your auction toolbox, which should include a flashlight, magnifying glass, camera, and mirror. These items will help you to properly examine an item to determine its condition before bidding. Also, recheck items you intend to bid on the day of the sale to ensure no damage occurred during the preview.

• Do your homework and know the value of what you want to purchase before bidding. Make sure to factor in all costs, including buyer's premiums, time, transportation, repair or alterations if required, plus a return on investment. You have to buy cheaply enough that you can add in all related expenses and still be able to resell the item(s) at a profit. It is a good idea to keep a logbook and list expenses for each individual sale, along with items purchased, and what they were later resold for.

• Don't get carried away in all the excitement and bid on items you did not intend on buying. Also, never bid higher than your preset limit on any one item, not even if it is only $10.

• Once the auctioneer has said "Sold!" you cannot retract your bid if you were the successful bidder, but you can at any time up until that point. If you are feeling uneasy about the item or the price, get out of the bidding by telling the auctioneer or bid spotter you are dropping out before the gavel drops.

• If you are an absentee bidder, submitting by phone, fax, e-mail, or online, make sure you know the currency the sale is dealing in before you bid.

• If possible, try to attend midweek auctions as opposed to weekend auctions because there are generally fewer people in attendance, which usually means less pressure to drive bids into the stratosphere.

• Look for auctions listing "fish out of water" items because these items can usually be bought for a song. For instance, if you deal in antique furniture and you notice an auction selling mainly computer and office equipment but listing a few pieces of antique furniture, then at least go to the preview to examine the antiques. Dealers generally shy away from these sales because of the limited number of items of interest, and the other people in attendance are more likely to be interested in the computers than the antiques.

• Get to know auctioneers in your area so they can keep you informed about items of interest to you prior to sales. Also ask to be included on their auction notification and schedule lists, which are generally sent by fax or e-mail, and list forthcoming auction sales and the items available.

• On items that interest you and are within your preset price range, enter the bidding late, as this often discourages other bidders from continuing because they feel the item will go out of their range. Last-minute bidders coming into the game can even force the most determined bidders to give up.

• Come to the sale with suitable transportation and equipment, such as loading dollies so you can leave with your purchases. Trips back to pick up purchased items cost time and money, driving up the prices of items that must be resold to make a profit.

• Look for deals in need of a little elbow grease or minor repairs. Some of the most profitable auction finds are ones that require a little TLC to bring them back to their former glory.

• If you are interested in items that did not sell because the reserve was not met, be sure to give the auctioneer your business card with the lot number of the item and the maximum price you would spend for the item printed on the back of the card. The auctioneer can easily present your card to the seller, who may accept the offer after the sale and contact you.

Public Auctions

The most common type of auction sale is a public auction. As the name suggests, these sales are open to the general public. Items available for sale vary greatly--cars, real estate, furniture, business equipment, restaurant equipment, antiques, collectibles, tools, machinery, and anything else imaginable. Items being auctioned can be supplied by private sellers, estates, businesses, and trustees, or any combination of these supply sources. Auction sales featuring household items are generally conducted on weekends and evenings, when the largest number of the target audience is available to attend. Business and bankruptcy sales are typically held Monday through Friday during normal business hours.

Regardless of the type of auction you attend, you must plan and think big. Make the experience worth your while in order to justify your time and expenses. Buying an item for $20 and reselling it later for $40 might be doubling your money, but if it was the only item bought at the sale, a $20 gross profit hardly justifies the time and expense. In fact, you would be losing money. Only attend sales that have the potential to make you money. Buy items that are $100, $1,000, and more, and look to double or triple these amounts when reselling. Calculate your total fixed costs for the day including an hourly rate for your time, and factor in your costs to market and resell items. Chances are you will come up with a figure in the range of $250, which means if you cannot earn $250 in gross profit from the items you intend to purchase at the sale and then resell, in all probability it would be best for you to skip the sale. Depending on your overhead and other factors, the $250 minimum gross-profit base may be less or more; nonetheless, you still need to know in advance how much profit you have to generate from each sale before attending.

Resources

• Auction Guide
• Auctioneers Association of Canada
• National Auctioneers Association
• Net Auctions
• Price it Yourself: The Definitive, Down-to-Earth Guide to Appraising Antiques and Collectibles in Your Home, at Auctions, Estate Sales, Shops and Yard Sales by Joe L. Rosson and Helaine Fendelman

Police Auctions

Police auctions represent an excellent opportunity to purchase a wide variety of secondhand products at very low prices. Many police forces in the United States and Canada host quarterly, semiannual, or annual auction sales to sell stolen items they have recovered, but were never claimed by owners (that is, the people the thieves ripped off in the first place). At police auctions you will find a vast array of products for sale, including bicycles, tools, car parts, home electronics, computers, jewelry, and shoplifted merchandise, much of it for a mere fraction of the original retail value and current resale market value. There are several levels of police forces--city, county, state, and federal.

So the best way to find out about police auctions in and beyond your area is to log on to police websites, or call and ask who conducts sales and how the organizer can be contacted. Most forces hire auctioneers. As noted below, some are starting to utilize online auction services to sell recovered property. Online or off, police auctions are conducted in the same manner as any auction; you bid on the items you wish to purchase, and, providing your bid is the highest, you will get it. As always, preview items of interest first, stick to your preset bid amounts, don't impulse-buy, and have the right transportation.

Resource

• Property Room Police Auctions

Government Auctions

Government surplus and seized-items auctions and tender sales are other excellent buying sources, especially for large-ticket items that can often be purchased for 10 percent of their original value, making them extremely profitable for resale purposes. Many government agencies routinely hold auction sales or sealed-bid tenders to dispose of government surplus assets and equipment, foreclosed property, seized property, and unclaimed property. A few of these agencies include:

• Internal Revenue Service (IRS)
• U.S. Department of Housing and Urban Development (HUD)
• U.S. Justice Department
• U.S. Marshals Service
• U.S. Postal Service
• U.S. Small Business Administration (SBA)
• U.S. Treasury Department

There are many more government agencies at the federal, state, county, and city level that also routinely hold auction sales to dispose of surplus, foreclosed, and seized property. Most of these sales are conducted like traditional auction sales, but sometimes the sale is by sealed tender, which means you complete a tender form and submit the amount you are willing to pay for a specific item. Tenders are opened after the closing date and the item is awarded to a bidder, mostly, but not always, the highest. Tender forms are available directly from the government agency holding the sale, or the auctioneer conducting the sale.

To find government auctions in your area, contact city, county, and state offices to make inquiries and ask to be included on the auction-sale notification and schedule list. Items routinely auctioned include computers, real estate, automobiles, machinery and tools, jewelry, furniture, electronics, and boats. Depending on the agency and type of items auctioned, sales can be conducted live, online, or both. Most are still live at present, but this is rapidly changing because the internet offers exposure to a broader audience of buyers.

Resources

• Public Works and Government Services Canada--Crown Assets Distribution
• SBA-Property for Sale Auctions
• U.S. Department of Housing and Urban Development--HUD Home Sales
• U.S. Department of the Treasury
• U.S. General Services Administration--government-owned asset sales
• U.S. Marshals Service
• U.S. Postal Service

Estate Sales

Estate sales can be conducted in a similar fashion to an auction, as buyers bid on items live or by sealed bid to purchase one or more items from the sale. Or the organizer of the estate sale may elect to price items individually and hold the sale over a number of days or weeks, until all or most items have been sold. Estate sales can be organized and conducted by auctioneers, estate sales specialists, family members, lawyers, or executors. Regardless of who organizes the sale and how it is conducted, one thing remains constant: Due to the need to settle accounts and inheritances and to dispose of property, it is very possible to purchase items at well below their true market value. Your ability to buy cheaply will be enhanced further if you are prepared to purchase more than one item, or even all of the items for sale. Estate sales are typically advertised in the newspaper classifieds and on websites, as well as in newsletters of companies that organize such sales. To find these companies, search under Estate Sales in your Yellow Pages directory.

Excerpted from 202 Things You Can Buy and Sell for Big Profitsfrom Entrepreneur Press