Practical Advice: Unethical Games that Some Stamp Auctioneers Play

  In earlier "Practical Advice" articles, I offered some tips for those interested in consigning or bidding at stamp auctions. This article shall consider a few of the unethical practices employed by some auctioneers, and how to avoid being victimized.

   

   Whether one bids at or consigns to stamp auctions, it's important to realize that not all stamp auctioneers are completely honest or trustworthy, and that many fall somewhere between the extremes of saintliness and criminality. There do exist a few who cheat bidders and consignors, betray their trust, and hurt the hobby. Fortunately, completely unscrupulous auctioneers are rare.

   However, there are practices utilized by some auctioneers which are unfair to their customers. Bidders can often avoid "misunderstandings" resulting from such practices by carefully reading the fine print of an auctioneer's conditions of sale before bidding, and if necessary, requesting that his bids be accepted on condition of amending particular terms. A consignor should never fully trust an auctioneer until he's built a relationship with him, or has taken precautions to avoid being cheated. 

   Among the unethical practices to which I've been subject as a bidder (or of which I've been informed by others) are the following:

- Overgrading: many auctioneers and mail sale dealers are rather "liberal" when it comes to grading, ignoring minor defects which nevertheless have a major effect on market value. In addition, some of these individuals make a practice of delaying refunds on returned lots (sometimes for months), or refunding the cost of the lots minus shipping and handling. Grossly mis-describing lots is a disservice to bidders, and in my opinion, the best way to avoid  inconvenient and infuriating situations is by providing the auctioneer with references, and then bidding conditional on "inspection prior to payment - net in 10 days of receipt" terms on won lots. Grossly mis-described lots should be returned without payment for shipping, and should an auctioneer send some lots which are purchased by the bidder while others are grossly mis-described and returned, the "round-trip" costs for shipping these lots should be deducted from the payment for those kept.

- Excessive shipping and handling costs that are way over the cost of postage: this is usually trivial enough to be considered more of an insult rather than an injury, and is sometimes noted in the conditions of sale as a minimum shipping cost. However, sometimes the conditions of sale are rather vague about such costs and do not provide any guidance regarding amounts that will be charged, and auctioneers will attempt to use this vagueness as a license to bilk their customers. Once, an auctioneer tried to charge me $25.00 as the combined shipping, handling, and administrative cost on a $140.00 single stamp lot, which could have been sent to me via insured mail for about $5.00. Auctioneers sometimes justify such practices as means of charging successful bidders for the cost of producing the auction catalogs, which are often provided for free. This seems rather odd to me, since one would think that auctioneers would consider successful bidders among their best customers and would encourage them to bid in the future, rather than penalizing them for the costs of providing catalogs to those who did not bid, or who bid too little to win anything.  In any case,  shipping and handling costs should be clearly noted by the auctioneer, and factored into the bidding.

- Inadequate time allowed for an extension of the return privilege for purposes of obtaining expertization: despite the fact that expertization can sometimes take 6 months or more, there are some auctioneers who allow only 4-6 weeks. A possible reason for this term is that it allows the auctioneer to bilk bidders who neglect to read the conditions of sale by selling them fakes and forgeries as authentic stamps. If bidding in an auction with such terms, either request an amendment so as to allow for sufficient time for expertization, or else avoid bidding on lots which might require it.

- Disallowing returns on lots containing over a certain number of stamps: this is normal and acceptable when it comes to collections, but can prove problematic for sets of stamps. Should a bidder receive a set of stamps described as sound when one or more of the stamps is grossly defective, then he should be allowed to return the set. An auctioneer who uses such a condition to sell defective stamps as sound ones is basically attempting to implement an unconscionable contract.

- Purging bidders who return stamps from mailing lists: this strategy has been used by certain mail bid sales and auctions. Bidders who return mis-described stamps are sent  refunds, and then are purged from the mailing list, and receive no more catalogs. Ultimately, the auctioneer builds an extremely valuable mailing list of "suckers"- collectors who reliably overbid on overgraded, defective stamps, and never return them.

- "In-bidding", or secretly raising the second highest bid at auctions in which the winning bid is supposed to be one advance over the second highest bid. This is usually impossible to prove, and frequently an auctioneer who does this will attempt to lessen suspicion by not raising the second highest bid on every lot won by a bidder. There is really no means of preventing being cheated in this way; therefore one should never bid more than one is willing to pay for a lot.

- Allowing buyers to beat a winning auction bid for several days after the close of the auction: I've been informed that at least one mail bid auction engages in this practice. Obviously it would be unthinkable at a public stamp auction, and one wonders why anyone would want to bid at all  if  winning bids simply become increased reserves for buyers to beat after the auction is over.

Among those that I've experienced as a consignor (or of which I've been informed by others) are as follows:

- Collections or accumulations returned to the consignor after having had some of the most valuable stamps within them stolen: this is usually due to theft by prospective bidders inspecting the collections, although it is sometimes unclear whether the theft was committed by such individuals or by the auctioneer or one of his employees. Since stamps are small, it isn't very difficult for a thief inspecting a collection before an auction to drop a few into his case when the attendant isn't looking. When submitting collection lots, it's prudent to note the most expensive stamps within them in the description, and even to photocopy them and provide a copy to the auctioneer, so as to provide evidence justifying a reimbursement, should a theft occur.  Inadequate security can result in dishonest customers either blatantly stealing items from consignments, or employing other larcenous tactics, such as hiding valuable stamps within an accumulation among common ones, so that the accumulation may be won for a low bid.

- Inadequate insurance of consignments, coupled with a refusal by the auctioneer to take responsibility for resulting losses: this can be a very costly lesson. If an auctioneer is unaware of his private insurer's policies or has a claim denied through no fault of the consignor, then he is still obligated to take financial responsibility for the loss, rather than passing it on to the consignor. In order to avoid such situations from arising, it's best for consignors not to put too much faith in verbal agreements regarding insurance made with a stamp auctioneer, even if  he seems generally honest. Insist on having all such agreements in writing.

- Changes in management resulting in changes in business practices and relationships to customers;  it is always worth remembering that companies consist of human beings, and that trust should always be earned. A change in the management at a stamp auction firm can result in the quality of service improving, declining, or staying the same, if the new management faithfully carries on the traditions of the previous owners. At worst, it can result in a radical degradation of its business ethics and treatment of its customers. It's best not to assume that a firm will remain the same if its management changes. Ideally, there should be sufficient mutual trust between the customer and the auctioneer and a fundamental understanding that each will take responsibility for his mistakes (or, in the case of the auctioneer, those of his employees), and pay for them if costs are incurred.

   In the U.S., there has been a trend towards consolidation in the stamp auction business, resulting in a dramatic increase in the combined commissions (the seller's commission plus buyer's commission) that stamp auctioneers charge.  These have risen from about 20% a decade or two ago to the current outrageous levels of 25%-30%, with little or no real improvement in the quality of service. In fact, most auctioneers have significantly increased the required minimum lot values and minimum consignment values, thereby making their services less accessible to mid-level consignors. Some of them justify the increased commissions and increased lot and consignment minimums by arguing that their costs have increased, but I believe that the main reason is that the stamp auction business has become more of an oligopoly than it once was. There is a crying need for an auctioneer who offers reasonable commissions and better terms to for those with mid- and high level consignments, and should such an auction house be established, it would not only do very well, but might also result in others  lowering their commissions in order to compete.

   I have recently started a petition against excessive stamp auction commissions, which I encourage readers to copy and circulate. It gives the signer the option of indicating the maximum commission level that he or she will tolerate as a consignor, and includes an address to which to send completed petitions. When a sufficient number of people have signed the petition, copies will be sent to the American Philatelic Society and the American Stamp Dealer's Association.

   Until such needed reforms are implemented, there are other less expensive means of selling stamps. Ebay's stamp auctions have a far larger audience than that of any stamp auctioneer, and Ebay waives the insertion fees on the first 50 unsold lots per month. The total commissions on items sold amounts to less than 15%, even after combining the insertion fee, final value fee, and Paypal fee. Members of the American Philatelic Society's can use its online StampStore, by sending in stamps mounted on pages, with brief descriptions of the stamps, catalog values, etc.. The member sets the price, and if sold, the A.P.S. charges a 20% seller's commission. This is a recent innovation, similar to the organization's Mail Sale Circuit books, which have no online component and which provide a convenient means of selling  inexpensive stamps. With both Ebay and the A.P.S. StampStore, the seller sets the minimum bid or price, and in both cases, reserves can be lowered online, via re-listing lots on Ebay and by changing the price online with StampStore.

   I have no information on whether any of unethical practices described above are utilized by stamp auctioneers in other countries, so I encourage readers outside of the U.S. to express their views on this in the Comments section. Also, if any reader wishes to inform me of other tricks that some auctioneers play on their customers, I'll consider adding the description of it to this article.   

   Those interested in joining a community of Stamp Auction bidders and consignors may wish to join the Stamp Auction Bidders' and Consignors' Union (SABACU) group at Facebook. The organization provides a venue for discussion of stamp auctions, and endeavors to represent the interests of bidders and consignors.

Practical Advice: 1905 Article on Bidding at Stamp Auctions

 
W.F. Gregory advised collectors on how to bid at stamp auctions in the February, 1905 issue of "The American Journal of Philately"
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Stamp Auctions

Ding-dong! Ding-dong! Vendue! Vendue! Ringing a bell and shouting “vendue” the town crier used formerly to call the public to attend upon sales by public bidding. By this method all sales by order of courts or other public officials were required to be made.
It was also a convenient method of disposing of miscellaneous property expeditiously.

In later years we find the auction-room a popular method of dispersing many kinds of merchandise. The entire product of a large cotton or woolen mill may thus be distributed among the wholesale or jobbing houses of the country.

This method of selling, once synonymous with sacrifice, is now often the arbiter of market prices.

In no line of business has the auction mart become more popular than the stamp trade. The sales of stamps at auction in New York have reached nearly $100,000 in a single season.

Still it is a matter of surprise how few collectors avail themselves of the advantages of buying at auction. And there are not a few who, not understanding the method, have tried unsuccessfully to buy at auction.

The purpose of this paper, then, is to assist those who are, or would be, buyers, by outlining the course of an auction sale and advising them of their rights and obligations.

First, it must be understood that those who conduct sales rarely offer their own goods. Cataloguers of reputation have sufficient consignments to tax their facilities to the utmost.

The first work of the cataloguer is to separate a collection into lots best suited to the convenience of the probable buyer, be he collector or dealer. From a careful collation of these lots results a catalogue which will enable the would-be purchaser to form a pretty accurate idea, with the aid of a standard catalogue, of what stamps constitute each lot.

The condition of these stamps can only be generally described, as there is no fixed standard. Many collectors erect a standard of quality so very extreme that they can only determine by examination personally, or by a special agent, if the stamps offered will suit them.

The average collector, however, may accept the description in the catalogue to mean “marketable,” unless otherwise described.
Probably not ten percent of the best collections of the world are in the condition required by the ultra-extremist. It is, then, hardly reasonable to expect perfection where there is only a possibility of 1 in 10 of its existence.

Having placed this catalogue before the buying public, many bids may be expected by mail. And it is at this point many bidders fail to understand the character of the sale. If a lot of stamps which a bidder wants is catalogued at $10 and he would be quite willing to buy from a dealer at $6, why should he not bid $6 for it and perhaps get it for less if others did not bid on it?
If one makes liberal bids, it does not follow that he will have to pay the limit. It is customary to execute the highest bid at a fair advance over the next higher, at which bid it would be “knocked down” if there is no competitive bidding from the floor. The room bidders must always be reckoned with.

The bidder should always remember that there are perhaps twenty others bidding on the same stamp, some of whom are willing to pay as much as himself. His bid is, therefore, executed at the limit, the first bid received at this figure taking the prize, if the room bidders permit. Those in the room are always at an advantage in the bidding and usually secure the snaps.

The sale having been completed, in compliance with the law, which in this city is very strict, is absolute, and every bidder may be compelled to complete his part of the contract by paying for and taking away his purchases. No man, under the law, may refuse to accept and pay for his purchase, which has been on public view, even if not in accordance with the catalogue.

If he has been wronged, he may seek redress and will be surprised to find how sensitively the law responds. Appeal to the law is needless, however, as the manager of the sale will wish to avoid any unpleasant notoriety, and the auctioneer to protect his license and his bondsmen.

Some bidders, not satisfied with their purchases, seek an excuse by which to avoid their contract, and display a petty meanness of which they are probably quite ignorant. How hard to see ourselves as others see us. They return lots because they are not satisfied and compel the manager to become the purchaser at the prices they have bid. The manager has no redress but to cut off the offender from his lists.

To make low bids is quite proper and hurts no one except the bidder. We have seen strings of 200 or 300 bids on a single sale where the bidder would get two or three lots no one else wanted. If gunning for bargains, reasonable bids on desirable stamps is often very successful. If the stamps are not the ones wanted or not in accordance with the instructions of the bidder, the bids are canceled.

The small commission charged, usually 5 percent, is often saved many times to the bidder by thus employing an agent who has no direct interest in the sale.

To summarize: Study the catalogue, mark those lots you wish to buy, enter a fair price that you are willing to pay for each lot, estimate the amount you wish to expend, and send your bids for about double this amount to an agent with full instructions as to your wants in condition, quantity, etc.

Do not send trifling bids. Do not bid on something you do not want.

And, if you make a mistake, do not try to hold someone else responsible.
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Those interested in learning about investing in stamps should read the Guide to Philatelic Investing ($5), available on Kindle and easily accessible from any computer.  

Practical Advice: Auctions, Part II: Consigning and Selling

From the perspective of the consignor, the four types of auctions described in the earlier article on buying at auction (Practical Advice: Auctions, Part I - Bidding and Buying) are useful for liquidating different types of material. A few general questions regarding terms for consignors apply to all four, however:

• What is the seller's commission? Most stamp auctions charge a 10%-15% commission of the gross realization from sellers, but some charge as much as 25%. If a consignment is large enough, many an auctioneer will reduce or even eliminate the seller's commission, because he is in competition with other auctioneers who also may wish obtain the consignment.
• What is the buyer's commission? Most stamp auctions charge a commission to the buyer as well as to the seller. While the seller doesn't pay this commission directly, it does affect how much prospective buyers are willing to bid for his lots.
• Does the auctioneer allow consignors to set minimum reserves on their lots? This is important because reserves eliminate the possibility of the consignor's lots selling for too little.

• What are the minimum consignment values and minimum lot values?

• Must the consignor pay lotting fees for unsold lots? Are there any other fees for which the consignor is responsible?

• How many catalogs are sent out and how many are sent overseas?

• What is the auctioneer's record when he has sold similar material in the past? It's always prudent to request the records of realizations from recent auctions in which the auctioneer has offered material similar to the consignor's. Many of the same bidders who have purchased this material will probably bid on yours.
  
• How soon after the auction does the consignor get paid?



• Is the auctioneer reputable? This can be determined by checking with the membership department of the philatelic society to which he belongs.

Each of the four types of auctions is appropriate for different types of consignment, and a fifth, auctions which specialize in a particular collecting area, can also be useful.

• Premier Auctions require the highest minimum consignment and lot values. Lately, they've been trending towards charging high consignor's and buyer's commissions of 15% to 20%. Unless your consignment is extremely valuable, the premier auctioneer will be inflexible in maintaining his terms. On the positive side, premier auctions tend to achieve high realizations for better material, because their clientele tends to be very affluent.



• Specialty Auctions focus on stamps of a particular collecting area. They're generally similar to premier auctions, and also tend to achieve high realizations, because their clientele specializes in the stamps which they're offering.



• "Second Tier" U.S. and Worldwide Auctions neither specialize nor do they publish expensive catalogs. Commissions tend to be more reasonable at such auctions, and minimum consignment and lot values are lower. Frequently, the auctioneer will be more flexible as to terms if the consignment is of medium value or greater, or the consignor has established a relationship with the auctioneer. Realizations are across the board, and at most such auctions, there will be both bargains and gross overbidding.



• Ebay reaches the widest possible audience, and is useful for selling inexpensive and medium-value single items, and low-grade collections or accumulations.Its main disadvantages are that it charges the seller an insertion fee whether a lot sells or not, and bidders don't tend to bid as much for individual high-value items as they would at a regular stamp auction, because they cannot physically inspect the lots. On the plus side, its total commissions (including Paypal fees) for lots that actually sell are considerably lower than those of regular stamp auctions, and payment is received much faster.


• Local Antique Auctions are the best venues for dumping worthless junk. They are often attended by bidders who know very little or nothing about the stamp market, and who will pay real money for stamps that seem impressive to them because the stamps are beautiful, old, or from "exotic" countries. I do not condone blatant dishonesty when writing descriptions for lots for sale at an antique auction, but I see nothing wrong with presenting them in an attractive manner. A common tactic for antique auction sellers is to create a stamp "mystery box," a box of common stamps, recently received covers with interesting stamps attached, unwanted supplies, old auction catalogs, and other miscellaneous rubbish all thrown together in a lot for which the only true "mystery" is why anyone would want to bid on it. Antique auctioneers tend to charge a high seller's commission (usually 20%-25%), but they usually pay within 2 weeks after the auction. Local antique auctions are a great way to play the "ignorance market," converting garbage into real money which can then be re-invested in something of value. They are hit or miss opportunities, however, as sometimes sufficiently ignorant, gullible buyers do not show up to bid. Nevertheless, the risk of consigning to them is minimal or non-existent, given the quality of the material being unloaded.

The Stamp Auction Bidders and Consignors Union (SABACU) is a Facebook group which provides a venue for discussing stamp auctions and represents the interests of stamp auction bidders and consignors in their dealings with stamp auctioneers. All stamp collectors and dealers are welcome to join.

 

Practical Advice: Auctions - Part I - Bidding and Buying

Stampselectors should view auctions both as opportunities to find bargains and as venues for selling (which will be discussed in a future article). This article will focus on bidding on and buying stamps at the four types of stamp auction: premier auctions, general U.S. and worldwide auctions, ebay and other Internet stamp auctions, and local antique auctions.

A few general rules apply when buying stamps at auction. Firstly, read the conditions of sale. Before bidding, it is important to know:

• the buyer's commission - this may be as little as 10%, or as high as 20% (or more); it is necessary to be aware of the buyer's commission when placing a bid because it is a part of the cost of the lot won;
• the costs of shipment, if you are not picking up lots - the shipment cost should be considered a part of the cost of the lot; note that certain auctioneers pad their invoices with very high "handling" charges in addition to the actual postage and insurance cost;
• the terms governing the return of misdescribed lots - these cover two matters of importance: a description of the kinds of lots that cannot be returned, and the duration of the return privilege. Many auctioneers specify that lots containing over a certain number of stamps, such as long sets of stamps or collections, cannot be returned. As for duration of the return privilege, most auctioneers allow bidders to return misdescribed lots within 10 days after receipt.

• the terms relating to expertization- almost all auctioneers grant an extension of the return privilege for the purpose of getting a stamp expertized. It is important to know how long this extension lasts, because experts can sometimes take up to 9 months to issue a certificate and send it back with the stamp. Some auctioneers will not grant such an extension if the auctioned stamp already bears a certificate that has been issued within the last 5 years. Others will grant an extension only if the extension is requested when bidding. Most auctioneers will refund both the cost of the stamp and the cost of expertization, up to a specified maximum amount, if the stamp receives a negative opinion from the expert. It is very important to know all of the expertization terms before placing a bid on any stamp which may require expertizing.

• additional fees, such as sales taxes or value added taxes;

Secondly, it is best to establish accounts with stamp auctioneers which allow for inspection of won lots prior to payment (if not attending the auction), and if possible, "net in 30 days" payment terms. When establishing such accounts, the auctioneer will request that you provide references, including society or organization membership information and dealer or auctioneer references. I am a firm believer in inspection prior to payment because, in my experience, even the best auction houses misdescribe lots 10% to 15% of the time, and the worst- 1/4 to 1/3 of the time. Such lots must be returned to the auctioneer via insured mail, and if a lot is grossly misdescribed, the auctioneer should be held accountable for postage and insurance costs, both ways. "Net in 30 days" payment terms is convenient because it allows the bidder time to resell the lot before he has paid for it.

Descriptions of stamps should be read carefully, noting any condition problems which are included. If condition problems are noted but trivialized, treat the trivialization sceptically, as the stamp's defect may not seem so trivial when you try to resell it. View all photos of lots, when available, as frequently photographed lots may not not be returned on the basis of problems which are visible in their photos.
Different strategic approaches apply to different types of auction.

Premier stamp auctions are conducted by the prestigious international stamp auction firms, and often feature many lots from prize-winning specialized collections formed by advanced collectors over a period of decades. Premier auctioneers always publish expensive, glossy auction catalogs, and the stamps displayed within them generally bring top dollar. Often, many of the lots are from collections consigned by just a few major consignors, with whom the auctioneer has had to make deals, including allowing reserved minimums and reduced seller's commissions, so as to bag the consignment. Such auctions usually have few outright bargains, because so many of the lots are "reserved to the hilt," but give the bidder the opportunity to purchase stamps which are rarely offered, and which may represent good investments.
General U.S. and Worldwide auctions present greater opportunities for bargains, especially in the areas of neglected foreign issues and large lots, such as collections and accumulations. As many of these auctions represent a large number of small consignors, fewer deals are made, and fewer lots have reserves. Often, the best bargains will be had by those who are willing to devote time and effort to inspecting the large lots, as most bidders are discouraged by the prospect of spending many hours rummaging through boxes.
Ebay and other Internet auctions have revolutionized the stamp market, and collectibles markets in general, in that they have brought together greater numbers of sellers and buyers than have ever been connected before. So many collectors, investors, and dealers have become adept at using Ebay that it is amazing to consider that it has only been around for about 15 years, and that before then, a collector who wished to buy or sell material usually had to go through a middleman who took a large cut for his services, such as a dealer or auctioneer, or else hope to find something at his local stamp club. Taking the classical Hobbesian perspective of free-market capitalism, I think it fair to say that ebay has waged a successful war of attrition against many of the traditional "mom and pop" operations, appropriating most of their customer base and driving those who could not adapt out of business.

When bidding on ebay lots, it is important to check the seller's feedback in order to ensure that he is reputable. The bidder should read all terms within the lot description, especially the return provisions and shipping costs. The seller should offer shipping terms which allow the option of insured mail, or registered mail if the seller is outside of the U.S.. These costs should be taken into account when bidding on a lot. Payments should be made via paypal, because it is convenient, and because it guarantees a refund in the event of a return of a misdescribed lot, or non-receipt of a lot sent via accountable (registered, insured, or certified) mail. I find that there are many bargains to be had on ebay, especially in items of "medium" value, which are too inexpensive to appear in major stamp auctions.

Local antique auctions are "hit and miss" situations, because usually when stamps are advertised for such auctions, they turn out to be "wallpaper", or junk. Much of the philatelic material that is offered at local antique auctions is either "limited edition" collections (described in an earlier article) and common worldwide stamps - either packet material or post-1940 U.S.. Occasionally, however, you may find a diamond among the mountains of coal, and will probably be able to buy it quite cheaply. The only thing of which one may be sure when attending a local antique auction is that the vast majority of bidders will be utterly ignorant of stamp values, and will therefore bid far too much or far too little.

The Stamp Auction Bidders and Consignors Union (SABACU) is a Facebook group which provides a venue for discussing stamp auctions and represents the interests of stamp auction bidders and consignors in their dealings with stamp auctioneers. All stamp collectors and dealers are welcome to join.