ESTATE AUCTIONS VS. ESTATE SALES
Many people, confronted with the overwhelming and unfamiliar task of disposing of personal property due to a family member or friend dying, have little or no idea what the key differences are between an auction and a tag sale (tag sales are sometimes called “estate sales”).
A tag sale involves, basically, a person hired by the fiduciary who will “price” each item with a tag, indicating that the item is available for sale at that price. Too, most tag sale attendees assume that there is room to negotiate, so a fair share of items marked with a price sell for less. Tag sales are sometimes spread over more than one day, where prices are systematically lowered on the second day, third day, and the like, to facilitate further sales. Typically, at a tag sale, a fair share of the items do not sell.
An auction involves, basically, a person hired by the fiduciary who will market and sell items “to the highest bidders.” Most auction attendees understand that items will be sold to the highest bidder, and that they will win any item where they outbid all others. At an auction of personal property, there is typically no set prices, and the market sets the ultimate selling price. Typically, at an auction, all the items sell.
Let’s begin with an overall statement in regard to the basic sales mechanism used by tag sales versus auctions:
A tag sale uses a price discount model where items sell for, at most, the price tagged on the item, or less.
An auction uses a competitive bidding model where items sell for whatever the highest bidder is willing to pay.
The other major difference between a tag sale and an auction is a tag sale service provider must know how to price every item being offered, or suffer less than optimal results. An auction service provider (an auctioneer) relies on the bidders to realize full price discovery.
Let’s use an example; an estate has a signed and marked Rookwood Vase dated 1921. However, this vase has an unusual scene on it, which is not documented in any Rookwood books or reference guides. At a tag sale, how is the tag sale service provider to price this vase? This presents the basic flaw in tag sale marketing:
If this vase is under-priced, it will sell for less than market value.
If this vase is over-priced, it will not sell at all.
This same vase at auction will sell. It will sell to the highest bidder. What will it sell for? Whatever it is worth — market value.
Then, there is the dark side of tag sale marketing:
1. Upwards of 80% of the items in a tag sale are sold below market value.
2. Upwards of 20% of the items in a tag sale will remain unsold.
3. 100% of the items will sell for no more than the “tagged” price.
4. Often times, items are under-priced and directed to other dealers, family or friends of the tag sale service provider.
5. Some tag sale providers over-price some high-end items until the final day of the tag sale, where they can contact other dealers, friends or family, and discount the item to them.
6. Almost always, the tag sale provider lacks the expertise to properly price all items, therefore full price discovery is not accomplished.
7. Regulation and licensing of tag sale service providers is almost nonexistent in the United States. A harmed seller would have no choice but to sue in court for damages.
8. Most tag sales lack sufficient marketing to attract the most qualified and interested buyers, therefore applying downward pressure on sales results.
An auction attracts large crowds of ready, willing and able buyers, through extensive widespread marketing, who have to compete to purchase items they desire. Full price discovery is accomplished, and nearly all items sell, and all items sell for market value.
When is a tag sale a preferred method of selling? An auctioneer had on his website the following two reasons why a client might prefer a tag sale over an auction:
The X Factor: You are hesitant because of the “unknown factor” of what your merchandise will bring at auction.
Control: You might like to have more control over the prices that you feel your merchandise should bring by providing some input or setting prices at which they are offered to the public.
We would ask the following questions about these two reasons:
1. What exactly is the “X factor?” In what market scenario does someone know what their item will sell for? At auction, it sells to the highest bidder. In a tag sale, it basically sells for less than market value, or doesn’t sell at all.
2. Control? How can someone control the price at which something will sell? Items sell only if a ready, willing and able buyer agrees with the price. Here again: At auction, it sells to the highest bidder. In a tag sale, it basically sells for less than market value, or doesn’t sell at all.
I would submit that a tag sale is never preferable to an auction. With a tag sale, an item will sell for less than market value, or not sell at all; an auction, on the other hand, virtually guarantees market value.
How does an auction compare to a tag sale or estate sale? Quite favorably.
Excerpt from: An auction versus a tag sale or estate sale
Posted by Mike Brandly, Auctioneer, CAI, AARE in Law, Auction
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years