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We wrote in 2010 that (we thought) most auction houses in the United States post pre-auction estimates that are purposely low. The reason was that then they could exceed those expectations and look good to the seller and other prospective clients.
“Famed artist Billy Woble’s painting estimated at $3,000,000 – $5,000,000 sells at auction for $7,500,000,” instead of “Famed artist Billy Woble’s $15,000,000 painting falls short at auction, selling for only $7,500,000.” Despite the selling price being the same, clearly our first headline is better for the auction industry as a whole.
Our article from 2010 can be read in full here: https://mikebrandlyauctioneer.wordpress.com/2010/09/03/are-pre-auction-estimates-purposely-low/. Of course, to properly understate property values prior to auction requires a proficient ability to accurately estimate value — and that’s not always easy.
Our question today is, “What happens when the auction price comes in waaaaaay below the advertised pre-auction estimate?” Say a Billy Woble painting estimated at $3,000,000 – $5,000,000 comes in at $22,000? How could a million-dollar painting sell for only $22,000? The answer is the marketing of the auction was woefully inadequate — or more likely it wasn’t ever a million-dollar painting.
Further, what does this type of “train wreck” do for the seller’s perception of the auction? How does this encourage other prospective sellers to think auction? What does this do for the auction industry as a whole? The answer to all those questions is — it doesn’t help.
Lastly, a good reminder for sellers and/or auctioneers who are purposely posting waaaaaay higher than value pre-auction estimates … you aren’t fooling anyone into thinking a $22,000 painting is worth millions of dollars; this has hardly ever been the case, but with the Internet, buyers are more informed than ever.
We would offer to auctioneers that if a property is unique where comparables are scarce, leaving out the pre-auction estimate is probably the best strategy. With today’s technology, a less than ideal headline can last forever.
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, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.