Sponsored by Beloit Auction & Realty
By Meghan M.M. Trimm
When I go to the auction I feel like I am using occlumency—a term from the Harry Potter Series that means defense of the mind. The deals are so good and the competition is intoxicating; how can I resist buying everything!? Honestly, I have a little jealousy for the folks who get to do just that. Some are resellers who know they can make a profit. But if you’re like me and you’d like to take advantage of auction deals without losing your shorts, read on. The truth is I have to be frugal (that’s partly why I love auctions), and I also have a few tricks to keep me in line. Here are my best tips to always walk away a winner.
Remember the Winner’s Curse
Auction are competitive buying forums. By nature there is bound to a one winner and maybe a few losers. But there are times when winning the bid doesn’t feel like a win. The winner’s curse is the second guess a winner has after the hammer drops, and there’s no going back: “What did the other guy know that made him stop bidding?”
Remembering the winner’s curse means that when you bid you must be committed to paying for it. You must be sure you want that item as-is at that price. By avoiding the winner’s curse you’ll be happier with your purchases. It may just help you keep a level head in the heat of the moment.
Understand the Law of Irrational Escalation of Commitment
The first thing to note about auctions is that they are really exciting. And the drive to “win the bid” is as tempting as actually getting something you want at the right price. All of that adrenalin can sometimes spiral into irrational bidding.
The Law of Irrational Escalation of Commitment comes from an Economics Exercise where a professor holds up a $100 bill. The students are allowed to bid on the bill starting at $1, but the trick is that the winner has to pay what they bid for the bill AND the second place bidder also has to pay. The exercise ends almost the same way every time. The students out bid each other past the point of profitability. This happens because no one wants to be second place, even though each bidder will lose money in the end.
While real auctions don’t nearly have those consequences, it is easy to get caught up in a bid war when you really like an item. If you can be aware of what’s happening to you, you’re more likely to keep your head and make decisions that you’ll be happy with.
Mental Check Points to Stay in Your Rational Brain
- If you catch yourself bidding just to beat the other guy – time to stop.
- If you catch yourself going above your reserve price – better stop and think rationally about whether or not it’s a deal you can afford.
- You let a deal go occasionally – that’s okay.
Set Your Reserve Bid Before You Start
It’s common knowledge that some auction houses allow sellers to have reserve prices on certain items. The reserve price is the minimum amount they will accept for an item. While less accepted on small items such as personal property, reserves are especially common on big items like real estate where the starting bid is often the rock-bottom seller’s reserve price. Together buyer and seller establish an unspoken range of the item’s worth.
That means you should set a reserve too– the maximum you are willing to pay. When you set foot in an auction you should know the highest number you’re willing to bid to, and you should have taken buyer’s fees into consideration. Use the following practices to help you set your reserve price.
- Look up auction/retail prices: For special items, do some browsing online and see what people are paying for them on E-bay, Craig’s List, and retail sites.
- Know how much you can spend: Check your bank or count your cash. Know what your absolute ceiling is. This is helpful when you are bidding on multiple items.
- Decide what it’s worth to you: Pick a number. Seriously, pick and stick to it. To help me pick, sometimes I imagine what my two most trusted shopping advisors (my mom and my sister) would say if they were helping me decide. Is that chair worth $40? Yes. Is it worth $50? Yes. Is it worth $55? No. Okay, I’ve got my reserve.
Keep a Wish List
My most helpful winner’s tip is to make a wish list. Your list limits your choices, but it also sets you up for guilt free spending when your item of choice comes up!
To make your wish list write down items you want, prioritize them (with some room for flexibility depending on what comes up for auction first), and set a reasonable reserve price. Because of how my family operates I usually make this list with my husband. That’s an extra layer of commitment to stick to our plans.
When an item comes up, I adjust the reserve depending on quality, and go for it. It’s a great way to remove anxiety from the bidding process. And hey, I love getting what I want.
If You Loose You’ll Get Another Shot
One thing I’ve noticed about wish list items– from jewelry to canoes to real estate—even if I think nothing can be as good as what is sitting in front of me—I will always be proved wrong. For every lost Jackson Pollock there will be a René Magritte.
Auctions move so much volume, that even though everything in a given auction feels novel and priceless, chances are you will see the same or similar items again. Do your research.
Last summer my family fell in love with a three bedroom two bath house in Beloit, WI. We thought we’d die if we lost it—well, we are still renting if that gives you clues to how that dream ended.
But you know what? We lived. AND We haven’t stopped loving other houses we’ve seen. One of these days we’ll have the winning bid on the house of our dreams. We’ll get another shot.
Love Your Auctioneer
Remember the auctioneer is working for the consignor. The auctioneer will encourage the crowd and shame the audience. But successful auctioneers never lie. They are legally bound to be transparent.
The industry itself is predicated on honesty and transparency, after all. So, when the auctioneer shouts out enticing tidbits of information about the item of your desire, consider them. If you can think rationally about knew information you will always have a leg up on the competition.
To know for sure if you’ve got a trust worthy auctioneer, find out if they are a part of a well-respected association such as the National Auctioneers Association.
Finally, have fun. That makes everyone a winner.