“I used to save all my rejection slips because I told myself, one day I’m going to autograph these and auction them. And then I lost the box.”
–James Lee Burke
I love an auction.
The first auction I ever went to in person was for some old abandoned houses near Fort Knox, Kentucky. I was going to buy a couple, fix them up, rent them out, and start my path to real estate millions.
There were a LOT of people at the auction. They came out of the woodwork. The area I lived in didn’t have a large population, and most of them were at work in Fort Knox during the auction. I had no idea where the rest of these people had come from.
There were a couple of properties that I really wanted. Unfortunately, I wasn’t the only one who wanted them, and pretty soon we got into a bidding war. Monkey Brain, my limbic system, kicked in. This was no longer about what made economic sense, or, even, what I could afford to pay. It became much more primal. It was mano y mano. Monkey Brain needed to prove that he was the alpha.
I won both auctions, and in doing so, I’d become a poster child for the definition of pyrrhic victory.
Unfortunately, I’d not gotten preapproval or financing for these properties beforehand. This was back in the days when I was just out of the Army and waiting to go to law school. I had time on my hands, but not a lot of money. The earnest money deposit took a significant amount of my readily available liquid assets.
…and since I didn’t have a job…financing was problematic. The 30 days to close elapsed, and POOF! Down the drain went my deposit.
Why do I like auctions now and why did I fail so miserably at my first one?
Why I love buying at an auction (except for eBay)
Nowadays, I limit my auction attendance to a couple of categories: furniture and household goods (if we need them) and investment real estate. There are a few primary reasons why I prefer this method of purchasing for larger items:
- I know what I need and how much I’m willing to spend. When making these purchases, I have established beforehand how much money I’m willing to put into purchasing something. If I only bring $X to the table, then I can only spend $X. I also know pretty much exactly what I’m looking for to purchase. It’s the same reason I don’t go to a car auction to buy a different car. I don’t know the first thing about cars except that you put a key in (most of) them, and they go. Take it in every 5,000 miles for an oil change, do what the mechanics say, and voila! Magic. I’m probably an easy mark for unscrupulous mechanics. I’ll never stop finding irony in the fact that one of my positions in the Army was to be responsible for the maintenance and logistics for 14 tanks. It’s a wonder any of them ran. Therefore, I don’t go to auctions to purchase items that I don’t have strong confidence in my ability to inspect and appraise the quality of what I’m buying.
- The items will be on sale, figuratively and literally. People put items up for auction, in most cases, because they just want to get rid of them. Estate sales are a perfect example of this. The executor doesn’t want to deal with the hassle of getting the highest price for each and every item that was in someone’s house, so he or she will hire an estate auctioneer to get rid of it all in one fell swoop. They’re not concerned about getting top dollar; they’re more concerned about convenience.
- There isn’t much competition. Unlike eBay, where you could be bidding against hundreds or thousands of people, most auctions aren’t going to be heavily attended. Most of the people who do show up are going to be tire kickers, not really interested in actually buying anything, but, rather, interested in the spectacle. Chances are that you’re going to truly be competing against one or two people for almost anything. Even in well-attended auctions like the Tarrant County Tax Sale, I only saw two or three people involved in active bidding.
- Most of the people bidding are looking for an absolute steal. I’ve been that person many times. I used to go to the University of Virginia surplus auctions when I was in graduate school in order to get beer money. I had a list of items which I knew I could sell on eBay for a profit and my highest amount that I was willing to pay for each. There were many items, like pallets of printers, that I had no idea what the value was, since any, all, or none of them could be in working condition. Since the auction was an absolute auction, I’d bid $1. If I won, great. If someone else wanted to bid $2, then so be it. If you know what you want and have a solid foundation for why you’re willing to pay what you’re willing to pay for it, you can quickly shake out the low ballers.
But, as I related in my quick story above, auctions aren’t just about numbers. They’re about emotions and psychology. It’s the auctioneer’s job to get the crowd riled up and excited about the process that they’re going to participate in so that they get emotional and competitive. Auctioneers secretly want fights in their auctions. They don’t want the fisticuff type of fight. They want a fight through numbers. When you get into a fight, the auctioneer wins.
That’s why procrastination is so important in auctions.