Wednesday, 31 August 2016
Much like going to the horse races, there’s a buzz in going to the auctions. But the similarities don’t end there – people will proudly tell you about their “wins”, but usually not about the times they went in over their heads and paid too much or bought something which wasn’t what they thought it was. The truth is, most of us have bought and sold goods through an auction at some point, and it’s very different to buying from a conventional business. So what are some of the considerations to making it work?
The first question to ask is: why are the goods in an auction? The most common reasons are:
- financial distress (needing money fast, lenders have re-possessed or they couldn’t afford/wasn’t viable to keep the gear, etc),
- can’t sell the goods any other way (possible issue with suitability of the goods, seller is not set up to sell the goods for instance to support it post sale)
You need to know the above about the seller’s motivation so you can determine if the price is reflective of the risk. Are you buying a bargain, or buying some else’s problem?
You can of course reduce your risk by conducting your own inspection of the gear prior to purchase, or getting an expert to do so for you. The cost and time of doing so can be well worth it, particularly as even if they look similar, all earth moving machinery is different. Even if the hours are the same, previous operating environment can impact on longevity. Not realising that for instance repairs are required can add significantly to the cost of getting the machine operable. A lot of machines also undergo “the auction rebuild” (= a coat of paint, makes it look like new), and you need to check for yourself that the description matches what you think you are buying. To truly snaffle that bargain, you will have to inspect a significant number of machines (not from only one auction, but track it over several auctions at multiple locations), then rely on that “nobody else” had spotted your item and has sufficient cash on the day to match your price on the same gem you wanted (tip – more than one industry expert is watching every auction, so even unreserved items won’t sell for a song).
Even with the most thorough inspection though, goods purchased at auction are sold as is, where is. That means that the warranty period ends at the fall of the hammer.
One of the key success tips to buying at an auction is to do your homework and make sure you set a budget, then stick to it. Remember to factor in these important costs into your calculation:
Price you pay.
This is NOT the bid price. In most auctions, you have to add your buyers premium (which can vary considerably, from about 5% to 25%). Frequently auctions are GST exclusive, and often there are administration fee’s. So when the prices are being called out, your bill will be significantly higher than what you heard…
Pick up costs.
On site auctions in particular limit which transport providers you can use (monopoly market = much higher freight costs). But even for other auctions, do you need to for instance take a blade or body off for transport – and did you check what site restrictions exist for this to be done? We know of more than one buyer who paid more in freight to get the machine home than the cost of the machine. When buying parts, how will you package them prior to transport (or will you use some of your productive hours to go and collect)?
Warranty and repair costs.
What cost did you factor in for repairs, compared to if the machine was purchased from a reputable dealer?
As a rule of thumb, the seller also pays a premium of a similar amount to the buyers premium. The auctioneers rarely own the items they sell (and hence don’t have the holding costs). I can tell you with confidence that no dealer has the same margins that an auctioneer clips on the sale prices, so if the seller can afford to sacrifice that much margin too, was the buy price still a bargain?
Add up the above costs, and remember this as your maximum price on bidding day. It’s easy to get caught up in the euphoria. If you are about to exceed your own budget, ask yourself why the item is now worth more than the maximum you’d set the day before? And remember that when those famous words “Going, going, gone” echo out amongst the dead silence, the highest bidder just paid more than anyone else wanted to – did they have deeper pockets on the day, or was it that winning feeling that crept in?
As always, onwards and upwards!