How Auction Prices Represent True Value

Something that seems lost on the news media is how auction prices represent true value. Of course they are quick to tell us how a fine collectible car or piece of art has fetched a new record high price. But when it comes to reporting the liquidation of a manufacturing plant it is always touted as “pennies on the dollar!”

 

The truth is, in a properly promoted and conducted auction all items can be reasonably expected to achieve true market value for their current circumstance and condition.  The facts that most folks fail to recognize are the condition and the circumstances. If you are a buyer or a seller this is of paramount importance to you.

 

To consider the fine collector car, when it sets a record at RM Auctions you can count on it being rare and in amazing condition with impeccable provenance and delivered to you with the utmost of reliability. Naturally those cars that come to market rarely and are an appreciating asset will set record high prices when sincerely offered. I love those auctions.

 

In the case of commercial equipment we have a completely different set of circumstances and that set of factors equally affects values achieved at sale. Because in almost all circumstances those factors are negative in implication, while the machinery brings in lower prices than new or even dealer used stock it is still fairly priced.

 

When you are buying or selling at auction try to keep in mind all of the “values” the machine came into the shop with new that may not be available to the auction buyer:

 

  1. Most obviously, it is usually not new. With rare exception there are hours on the machine. Lifespan used up.
  2. Often it is not the newest model. If it were not a valuable consideration most folks would trade in perfectly good cars much less often. Energy efficiency is just one of many values that are usually higher on more modern machines
  3. Warranty is almost always non-existent in an auction situation
  4. Factory Support is often not available on older equipment
  5. Financing is usually not something the auction process cannot support.
  6. Timing of purchase and delivery is also not something the buyer can dictate in an auction setting
  7. Provenance is often lost in a bankruptcy or liquidation process. Service records are usually not available.
  8. Rigging and shipping is on the buyer to arrange. The item is usually not sitting in a prefect dock high warehouse situation with an accommodating dealer staff waiting on the truck
  9. Manuals, tooling, specifications all may be missing
  10. Forced Sale? Court order or business liquidation timeline will press prices lower

 

 

 

When you subtract the value of many of these things you get down to the real price the machine should sell for.

 

Of course some might ask why anyone would buy under those circumstances? The truth is, if  you do not need those benefits then you may be better served to not have to pay for them. My dad had a motto of “Why by new when used will do?”. Many times that cost savings between new and auction items of comparable caliber is the difference between a profitable business and going broke. Not every machine needs to be high tech and not everyone needs that new car smell.

 

Furthermore, if you are a cash buyer who is knowledgeable in the machine type you can save a lot by relying on yourself so as not to pay finance and support charges. My father used his GI Bill to take a class in refrigeration repair at a local community college just so he could rely on older, auction bought equipment in his restaurants.

 

It may also be a case of specific machines no longer being offered new. If you are reliant on a fleet that is no longer supported, maybe you are buying for spares. Perhaps you can see that day down the road and want to lay in spares now before it gets tough to do.

 

And of course competent dealers all watch the auctions to get key items lacking all of the above so that they can bring those features back with older machines and add their own value to the transaction. If you are an end user shopping, I strongly recommend you consider dealer stock with all of its broader values including the helpfulness and expertise reputable dealers bring to the table.

 

Whatever the reasons, there are motivated buyers in the secondary market. They compete hard to get the equipment that meets their needs. They buy “as is, where is” and do the work required. Without that marketplace where would all of the machines go? The thing to keep in mind whether buying or selling second hand is just this, these machines are not selling for pennies on the dollar, they are bringing what they are worth in that condition and that circumstance on that day.

 

Whether you are buying or selling we at Gavelhost wish you the best of luck regarding the machines you need to make your living.