eBay is so Yesterday. It’s All About Real Live Auctions

Aug.21, 2008 in Side-jobs by joel

When people hear about using auctions to make money, they normally think about using eBay to sell things to the public via auctions or fixed price. However, there are other ways of using auctions, and the one I’m going to discuss is going to live auctions to buy things for resale. Even with eBay and all the other Internet sites out there, auctions are occurring every week, month, and quarter in most parts of the United States, and there are still deals to be had when you buy the right products and resell them for their true value.

Start-up

The startup costs are practically nothing, depending on what resources you have available or can access, and what areas you want to specialize in as your niche. Therefore, instead of dollar amounts needed to start, I’ll talk about things you need to get started, and leave the estimations up to you and your situation:

A niche, or product specialty. Walking into an auction blind, thinking you can buy anything there and make money, is one of the WORST mistakes you can make. You need to have an idea of what you want to start buying for resale, and it should be something you have some knowledge in, or something you can study before buying. I started with comic books and collectibles, but as I went to more auctions, my niche grew and I tried different categories, with varying levels of success. This niche will NOT be your life, but you should start with something.
Reseller’s permit. Typically, this is free to get, you go to your State Board of Equalization and tell them you want to resell goods. This way, when you buy stuff at auction, you provide your reseller’s permit and avoid paying sales tax on the purchase. Trust me, this will add up, plus a reseller’s permit makes you more serious in the auctioneer’s eyes, and that’ll matter later. (I’ll discuss this later on.)
Access to capital, specifically liquid cash. You can start with $100, $1000, $100,000, or any number in between. I think my first auction purchase years ago was a $10 lot of coins I later resold for $175. The key here is to be able to access cash. While some auction companies take credit cards, cash is still king in the auction business, and since a lot of auctions happen on the weekends, when banks are closed and ATM’s limit you per day, you may want to have some cash ready to go.
Access to a truck and storage space. One of the reasons auctions are still popular is that payment is immediate and the goods have to be cleared out within 1-3 days of the sale. If you’ve ever sold goods online, you will know that this is not always the case with online sales. When you buy at auction, you will be expected to pay and haul it away; sometimes the same day, most times you have a 1-3 day grace period. Now, depending on what you buy, your car and house may be sufficient (let’s say you specialize in trading cards, small electronics, or rolled up lithographs.) but you may need access to a truck on occasion, and storage space to handle larger goods, like furniture, antiques, large electronics, or that large collection you got at a fantastic price.
Time. You will need to spend time before the auction, doing research and planning and having an idea of your available cash or resources. You will need to spend time at the auction, inspecting goods and placing bids for items. You will need to spend time after the auction, to come back, haul away the goods, store them somewhere and get them ready for resale. For each auction you want to attend, I’d expect to spend 4-8 hours total. As you get a few “regular auctions” under your belt, your time per week will go down, which should allow you to attend more auctions.

Watch Out!

Besides walking into an auction and bidding on something blind, without any inspection or research, these are the other pitfalls to keep in mind:

You may attend an auction and buy ZERO items! People who invest some time may feel like they have to buy something to justify the 2-3 hours they spent at the auction, and will bid on anything. It is better to observe the bids and spend $0, than to invest money you have to spend time and effort to recoup at a loss.
If multiple people are bidding on something, it’s a great deal no matter the final price. Wrong! Many people get caught up in auction fever , where the excitement and competitiveness of bidding makes people forget what a reasonable price is and they bid to win, thinking that if the other person is bidding, it’s still a value. Years ago at a police auction, I saw someone bid close to $100 for a used VCR, where they could spent less to buy a NEW one at Target! Also, you may be up against collectors, who are buying something for themselves and can pay more. You are buying for resale, so there has to be a margin when you try to resell it.
Forgetting about extra fees. Most auctions charge something called a “Buyer’s Premium”, which is typically 10-15% of your bid. The auction house collects this for the service of reselling the goods in their place. Many people don’t factor the buyer’s premium into their bidding and end up overpaying when everything is included.

Getting Ready

If this interests you, the first step is to identify the auctions in your area. I start with the local newspaper’s classified ads section on a Sunday, and there is usually an auctions section near the Merchandise. Pay attention for a few weeks in a row, and you should notice a pattern. (Of course, do a Google search for auctions plus your city name, or add in the types of items you want to buy, like furniture or electronics) These are the three main types of local auctions:

Weekly auctions. These people clean out estates, garage sales, and closed businesses every weekend, then auction off the items during the week, clear out the goods by the end of the week, and repeat the process. These can be an excellent source of products, especially if you get to know these auctioneers.
Monthly/quarterly auctions. Some auctioneers hold auctions either every month or every quarter, when they have enough goods from local collectors that they have received to be sold. Almost all of these auctions have a website, so get on their mailing lists and let them notify you when they are about to have another sale.
Government auctions. Whether it’s the local police, state government, or federal DEA, most government agencies have to auction off goods they no longer can hold, and that can range from bicycles to flat screen TV’s to Randy Cunningham’s $5,000 toilet seat. These happen every 3-6 months, and every agency sets their own place and time. Do a Google search for government auctions, police auctions, and similar terms.

The best thing you can do is use the Web as much as possible before you walk through the door. Almost every auction company has a website, so try to download the auction catalog in advance. Some sites just put up pictures, so try to decipher whatever you can from those pictures. With that information, go to eBay, Craigslist, Amazon, whatever, and figure out a range of prices for what those items sell for. Take that range with you to the auction so you know what to spend.

What to Do at the Auction

The next best thing you can do is attend the auction preview. By law, the auction company has to allow people to preview the goods. In some cases, it’s the 1 hour before the auction starts. Other companies have the preview the day before or the morning of the event. Go to that preview, pick up the items, look for scratches, dents, malfunctioning equipment, missing items in the lot, and the overall condition of the item. Ask to plug in any electronics and test all the major functions (on/off, volume, play, stop, etc.) as the previews are supposed to have auction staff present.

The hidden gem in many local auctions are the box lots, where the companies just throw a lot of stuff into boxes and sell them a box (or group) at a time. The quick way to value these is to identify the most valuable item in the box and bid like you are only buying that item. I saw a box with a shrinkwrapped I/Omega Zip drive go for $10. I assure you, the drive alone was worth more than that. Some people skip the box lots, and that is up to you. Ever since I found a Bose Wave Radio for $75 and flipped it for $411, I try not to skip the box lots anymore. If you get to the auction after the preview is over, you can still go through the Box lots as people are bidding, but it’s pretty crazy then, and you may miss something or get caught up and overbid. While there is gold in these lots, most of it is stuff you will have to sell for salvage or donate to someone else.

Register for the auction as soon as you can, so you can spend time identifying stuff and not filling out paperwork. Bring your ID, a pen or pencil, reseller’s permit, and cash, as some auctions require a cash or credit deposit before you get your auction number. Hopefully, with your number, you’ll get a list of items for sale. Keep this paper!

Tip : Bring some Post-It notes, and put your auction number on the note. Use that note to reserve a chair in the main bidding area. Once you do that, you can take advantage of the preview and guarantee a good seat when the bidding starts.

Once the bidding starts, write down all the final bids on your list of items, whether you win the item or not. Obviously, keep a separate tally for items you won, so you know how much of your budget you have left. You only have to do this for item categories you are interested in, so you can see later if this is an auction where people typically overbid or underbid.

As the bidding goes on, you should notice how certain people bid, whether they are up front or wait for the “going, going” call to throw up a last minute bid. Typically, about 5-10% of the audience places 80-90% of the bids. You’ll see a few wholesalers who buy anything that’s cheap, specialists who only bid on 1 or 2 niches, newcomers who bid on anything, and observers who wait for that certain lot. Don’t be afraid to make friends in the audience, especially if someone bought a huge lot and you want a part of it. I’ve gotten a lot of business cards for lots I bought where someone wanted a particular piece. Be warned, though, these people only want the best stuff in the lot, typically, and want to leave you w/the garbage. Never make a deal on the spot. Take their card, tell them you’ll see what you can do.

In another article, we’ll talk about the resale part, where you can sell on eBay, Amazon, Craigslist, or your own website. Auctions can be fun, and when done right, can provide a steady income.