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I remember getting interested in the auction business well over 30 years ago, and frequently hearing the term, “book value.” As an auctioneer in the 1980’s and 1990’s, sellers and buyers at auction would frequently reference the, “book value” of certain items.

For instance, a fairly regular buyer of depression glassware who attended our auctions in the late 1980’s would regularly mention the book value of certain pieces she purchased from us. Her purchases were either “less than” book value, “equal to” book value, or “more than” book value.

In other words, I think in her mind (and lots of other minds) the book value was the true value of the item, and then the auction value was variable.

Today, it seems this type of thinking is hard to find. Rather, most auction participants believe that the auction price is the true value, and then the book value is deemed “less than” true value, “equal to” true value, or “more than” true value.

Said another way, today we can see how accurate the book values are by looking at actual sales at auction, where before many people viewed auction prices in relation to given book values.

We wrote about “What is it worth?” back in 2009.

What is book value? In general accounting, book value is referred as the net of value of tangible assets. Such as, a computer is worth ($5,000 procurement cost minus $4,000 depreciation) $1,000 book value. However, in many aspects of the auction business, book value is regarded as the value someone has proclaimed in some sort of price guide or book.

Our aforementioned 1980’s depression glassware buyer would reference a depression glassware price guide when comparing book value to auction value.

One problem with many price guides — with book values — was (and is) that the authors many times were collectors of the items they were writing about, and it was in their interest to inflate the book value, thus suggesting their own collections were worth more. In other words, a conflict of interest existed.

Another problem with many price guides is that if the information is actually, “printed” it can quickly become outdated. Markets can change quickly, and even a book which is sound on the day of printing can be wildly inaccurate even days, weeks or months later.

Today, with more and more data from auctions being available, some price guides use actual auction results to summarize and estimate value. For instance, Greg Peterson’s site MachineryPete.com offers a price guide with the following information:

    Call 1-800-381-0423 today to order Machinery Pete’s “2010 Auction Price Guide”. Cost is only $19.95 + $5 S&H. This new book from Machinery Pete contains the last 18,000+ auction sale prices he has compiled on ALL types of used farm & construction equipment sold throughout the U.S. and Canada over the last year and a half. Sale price data compiled from Pete’s network of 700+ regional auctioneers as well from his own field staff of auction reporters. Very handy to have Machinery Pete’s sale price data with you wherever you go. Keep your book in the pickup to bring with you to auctions, to show to your ag lender, to study wherever you need it.

Despite this being printed information, this price guide uses exclusively auction results to characterize value.

Just today, an article appeared noting the rise in prices of used cars. The article included the following passage:

    “And that really shot up prices,”

    Michael Todd, a sales manager at Fredericktowne Motors in Frederick, Md., said that when dealers go to mass auctions to buy used vehicles, prices are already “in excess of Kelley Blue Book excellent” — the highest “book price” recommended for vehicles in tiptop, almost new condition.

    By the time those autos are marked up for retail sale on the lot, they can cost far more than what buyers are expecting because “basically, we’ve thrown the books away,” Falcone said.

Basically, we’ve thrown the books away? In a sense, we have thrown away those books which merely proclaimed certain values. And, we’ve thrown away many books with outdated information.

What is book value? A far cry from what it used to be.

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. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.