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Paulus

Factoring in Commission, VAT, P&P, etc, when Buying and Selling Th

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This topic is little more than me 'thinking out loud', and will come as nothing new to the experienced dealers and collectors on this brilliant Forum. I hope it is useful to some readers however.

It is important to factor in the total cost of buying a coin at auction, since the 'hammer price' will be subject to commission + VAT, and postage, Buyers' commission varies from zero on platforms such as eBay, to up to 20% + VAT (so 24%) at traditional 'bricks and mortar' auctions such as DNW, ST James, London Coins, etc. Sellers' commission varies from 10% on eBay to up to 20% + VAT (so 24%) at traditional 'bricks and mortar' auctions.

So, working on the 20% + VAT scenario (for both buying and selling), buying one or more lots at auction and selling them at a later date at an auction with the same fees, would require a mark-up of 62.5% on the hammer price, just to break even.

This 62.5% 'mark-up' would apply to all lots bought and sold at auctions charging you 20% + VAT for buying and selling, and excludes P&P.

Factoring in P&P costs, let's say £10 to have the winning lot sent to you, and £8 to send to auction for selling, then a single coin you bought at auction for £200 hammer would need to sell at a similar auction for £350 hammer just to get your money back!! And that doesn't take account of the cost of having your money tied up in the meantime, however you decide to account for that, (if at all).

My workings (if they are wrong please shout)!

FactoringAuctionFees_zpsc69ee2f5.png

Some logical questions and observations follow:

  • If buying a coin to sell (in the short-term as a dealer, the medium-term as a collector who anticipates upgrading, or the longer term as an investment) it is vital to be aware of the 'hit' involved if buying at auction
  • Buying at coin fairs (much recommended) avoids all ancillary costs (travel apart), allows you to engage/negotiate with the seller, and will inevitably result in making contact with other collectors
  • To what extent do people think that this 'built-in' 'inflation' to coin prices at auction contributes to the jaw-dropping hammered prices we are seeing for the top end at Heritage (for example)?
  • I am relatively new to (serious) coin collecting (6 years now!) (by which I mean >10% of my spare time and >5% of my residual income (after bills etc) is spent on the hobby), am I right in thinking that 20% + VAT has been in place for the established auction houses for many years?
  • I would imagine that a dealer that deals with an auction house on a regular basis would be able to negotiate the 20% down by quite a bit - otherwise it's a killer isn't it?
  • I wonder if everyone appreciates that the 'dream' coin they have just won at auction would need to fetch > 62.5% hammer at the same auction house for them to break even (P&P aside) if they needed to sell it - reminds me of the 'hit' when driving a brand new car off the forecourt!

Very interested in any responses :)

Edited by Paulus

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Yep, that's why I say you should not confuse investment and collecting because the numbers are quite sobering. With investments, the necessity to be able to sell just as quickly as you can buy is paramount. Selling through auction has a 3 month lead time in most cases which ought to frighten off investors, but not collectors who are likely in for the long term. So not only do you have to wait for your money, but you also end up with less in many cases than would be if you sold to a dealer. The problem is that everyone wants to have their cake and eat it, whether it is to sell for full book price, or buy everything at 99p on eBay. Ultimately, if you want both the former features, then the middleman won't bother and the market will become illiquid.

The 20% commission has only been around since 2010-2011. Buyer's commission was only introduced in the early 1980s, in case of Spink at 5% in 1983. This was presumably to counteract a precipitous downturn in the British economy and coin prices in general which fell by a third -ish, and led to a considerable reduction in their income. Prior to that, all expenses were met by the vendor. Within a year or two it had risen to 10% + VAT and roughly at the turn of the millennium increased to 15%. As they all pee in the same pot, other houses broadly followed this schedule.

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And the last auction Iot I won (DNW) I paid 20% plus VAT.

The question is then, where do dealers get their new stock from? Of course it will be from a variety of sources, but it can't be mainly from auction sales, so is it mainly from people selling their collections? Many dealers have a lot of new stock every month, I am intrigued!

The market does not seem illiquid, quite the opposite, I have a feeling I am missing something obvious ...

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Depending on the estimated value of coins a seller brings to auction, the seller's commission could be zero or it could be negative (meaning the seller would get some of the buyer's commission). If the house really wants your collection, e.g., as a drawing card for other submissions, most will "deal" on the seller's side. I personally have experienced this willingness.

If you're just auctioning a single coin, and it's not worth all that much, yes you will get hit most likely with a 10% seller's commission. Large house's overhead is substantial. Advertising costs money, and many companies will take your coins around to show them at large shows.

On the buyer's side, I would agree that if you are a large and frequent buyer with a company, I would imagine that they would be a bit flexible with you. It's all just dollars and sense for the auction companies. How they can maximize their profits versus their expenses. A company like Heritage, for example, has a huge number of people on the payroll, so they need big sales and lots of expensive coins for their live auctions. The less expensive coins at Heritage are now relegated to internet only sales where I would imagine the costs to the company are less. St. James, having a much smaller operation, can afford to offer more attractive terms to sellers. I think everything is negotiable for the sellers at most companies. I would guess that the seller on the Stacks' Ford sales, which brought in umpteen million dollars probably had very attractive terms.

Edited by marvinfinnley

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Every sale has one or two things that get through under the radar because people are too busy focussing on the choicest pieces, but to all intents and purposes there are very, very few bargains to be had. Those with a good database will pick up the things that move within the trade, or those bought by dealers at auction. The big problem for dealers is eBay as it is a place you don't want to be. The costs are too much to absorb, the odds are stacked against the seller by the platform owners and the buyers mostly don't want to pay the prices seen in the parallel universe.

There are collections coming through, but not in the quantity the market demands. There is a perennial shortage of quality material, which is why the market is where it stands at the moment. All the top stuff goes well over book 95% of the time.

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At auction, as a buyer, at least with a fair auction, you know that the price you pay, whatever it is, isn't very far away from the price another person is willing to pay for the same item.

When you buy a coin from a dealer, you know that he's tacking on a substantial overhead to his cost, such that another buyer might be far below what you pay if you had to sell. That's why I'd much rather buy at an auction where there are many people bidding. That's where you get an idea of what the "real" value of a coin is.

Edited by marvinfinnley

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My preferred option by far is at a coin fair, no postage, no commission, deal with the seller face to face. Yes, he (or she) is a dealer with profits and overheads to consider, but if you know the value of the coin you are after, and the price you are prepared to pay, it should be a level playing field.

Edited by Paulus

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The ROI (Return on Investment) calculation is only relevant if you are considering selling at some point in the future. In general, I am a buyer and not a seller. I have sold a few coins via Heritage (individual to individual, not auction) but always at a net profit. I am careful to factor in commission, postage, etc. to my overall cost of ownership.

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When I buy things at auction it is with the intention of keeping them in my collection, so really the only question is whether I think it's a fair price to pay or not.

Yes, I'm aware of the 'add ons', but I am essentially a collector and so in it for the longer term.

When selling I only sell individual coins to (ideally) recoup what I paid so I can put the money towards upgrades and additions to the collection. So it's not worth my while going to an auction house.

My preference is another enthusiast collector, then I know the coin is going to 'a good home'. Plus we'll probably be able to agree on the price whereas dealers who don't particularly know the area won't recognise the rarities etc.

Next best is to part exchange with a dealer for a coin I want and then a fair way down and third choice is eBay. eBay is not perfect. But it's simple to use, waiting time is minimised and has a huge audience with costs that are not exorbitant.

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Interesting thread this one. Coins that I sell come from three sources really - eBay, fairs, and auctions. I make good money on those I buy from eBay, and my margins are always squeezed on the coins that I acquired from auctions and fairs. That may be down to my frankly weak haggling skills when I'm face to face, or down to the fact that if I have made the effort to drive to Bracknell I don't want to come home empty handed.

None of these confounding variables apply when I'm bidding on eBay, so I do wonder if a coins true value is more likely to be found by looking at eBay prices (achieved, of course!), because if we're thinking about the purity of the transaction, nothing else is involved in an eBay purchase. Just the coin.

CCGB (eBay edition). Wouldn't that be interesting?

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Interesting thread this one. Coins that I sell come from three sources really - eBay, fairs, and auctions. I make good money on those I buy from eBay, and my margins are always squeezed on the coins that I acquired from auctions and fairs. That may be down to my frankly weak haggling skills when I'm face to face, or down to the fact that if I have made the effort to drive to Bracknell I don't want to come home empty handed.

None of these confounding variables apply when I'm bidding on eBay, so I do wonder if a coins true value is more likely to be found by looking at eBay prices (achieved, of course!), because if we're thinking about the purity of the transaction, nothing else is involved in an eBay purchase. Just the coin.

CCGB (eBay edition). Wouldn't that be interesting?

You are myth breaking here, Declan, and your point will soon again disappear into the myth/mist! I 100% agree but would add, there are two very distinct markets in coins, which doesn't require any expansion! Other than to say, one of them happens in the single-lot coins of the big auction houses (exception - where Rob points out, the radar has has a wobbly), at a price where only making 10% net is very nice! The other? Well, it doesn't take a rocket scientist to work it out! It just needs to be worked with the same degree of integrity as any other business does! More in fact...let's not stoop to their level?

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