Lyle is an auctioneer and has an upcoming auction on Saturday. In that auction is a 1957 Cadillac Series 62.
Saturday arrives and a huge crowd has assembled, mostly around this ’57 Cadillac.
Lyle has been wondering for over a week what the car will demand. He has seen online data which suggests these sell anywhere from $5,000 to $50,000 and even more in a few isolated cases.
With about ten minutes before the car is set to sell, Lyle is standing by the car and has an idea. Why not have the crowd around the car yell out to him what each of them think the car is worth?
Further, maybe have a contest and give the person with the closest guess some sort of prize?
“Ladies and gentlemen … I invite you to yell out to me what you think the final selling price will be for this car and your bid number. The person with the closest guess will receive a $50 Starbucks gift card.”
Guesses begin to be heard, “$25,000 … $5,000 … $15,500 … $22,500 …”
Incidentally, we previously discussed questions about value on Facebook prior to selling the same at auction: https://mikebrandlyauctioneer.wordpress.com/2015/02/03/im-going-to-sell-it-at-auction-whats-it-worth/
The guesses trailed off, and Lyle focussed on selling the ’57 Cadillac in a few minutes. Apparently, it’s worth $19,000, Lyle thought, based upon the pre-auction crowd appraisal.
The car sells, with a buyer ultimately offering a high bid of $27,500. However, the buyer reveals to Lyle that he thought the car was worth as much as $45,000 … that is until he heard the guesses from the crowd prior to the auction.
And … maybe other bidders thought the same? In other words, did the crowd appraisal affect the ultimate price of this car? It appears so.
Additionally, what if the owner of the car was within earshot? Hearing pre-auction estimates as high as $25,000 and an ultimate sales price of $27,500 might be reassuring of a good job; that is until he also hears that the buyer — in his opinion — paid $17,500 less than market.
Of course, could crowd appraisals help sale prices? What if the crowd appraisals indicated a value of $45,000 to bidders thinking the car was only worth $27,500? Yet, what would a seller think of a crowd appraisal of $45,000 with a final bid coming in even a bit less?
I’ve been an auctioneer a long time, and I can recall 100’s of auctioneers over the years telling me that when selling real estate and other material assets, appraisals are to be avoided as they tend to cap the price bidders are willing to offer.
Those same auctioneers would tell me auction marketing is the only true “open price discovery” mechanism, so appraisals are not needed. If that’s the case, why are crowd appraisals originated by auctioneers (on Facebook and elsewhere) so prevalent?
As we noted in a prior article, a recent Facebook inquiry suggested a certain car was worth somewhere between $600 and $6,500. Is the general public at large, with diverse backgrounds and geographic regions the best group to estimate value?
Sotheby’s professional auctioneers/appraisers suggesting a painting is worth between $7,000,000 and $10,000,000 is certainly more reliable than asking a crowd on Facebook what the same painting is worth, isn’t it?
That is, so long as Sotheby’s has the incentive to accurately provide pre-auction estimates. We wrote about auction performance fees here: https://mikebrandlyauctioneer.wordpress.com/2015/04/06/auction-performance-fees-2/
Crowd appraisals are certainly not a new concept; and, do they encourage conversation and awareness of the subject item? I suppose. Yet, I’m hardly alone in thinking there’s been an excess of them lately. And, worse yet, it’s questionable at best if there is a net benefit for the auctioneer’s client.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.
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