Buying Your Next Classic Car

1. Buying Your Next Classic Car: The Auction "Do I hear $25 grand?", "I see 25, what about 30?" There are multiple bidders raising paddles while assistants jostle the room for more action at the auction. As the price increases, bidders drop out. A new bidder steps into the picture. "55!" "Do I hear 60?" A climax approaches. "Going once," the gavel man surveys the room, "twice," another a pause, "SOLD!" The hammer bounces off the table. The winner’s curse rushes over you. You just paid more than anyone watching the auction. Enjoy your 1982 DeLorean. Another satisfied customer, right? Auctions can be a great way to pick up a classic car as long as you adhere to a great deal of self-control and do your homework before entering the arena. This is part three of a three part series on buying your next classic car. This week we are focusing on auction transactions. Check out the prior articles on buying a car from a private party and a dealer here. http://www.sharpclassics.com/articles/3-buying-your-next-classic-car-dealer/ • Have a Plan Auction houses are like a casino. As long as people are playing their game, they make money. They collect from the buyers, from the sellers, and even the spectators. If you're buying, it is up to you stick to your plan and execute it if you want to get a deal on your next classic car. Why are you buying a classic car? Is it an investment, a driver, a chance to flip it for a quick profit, or nostalgia? If you’re looking for a Sunday driving car to take the family to get ice cream, you don’t need a trailer queen that is in better shape than the day it left the factory. If you’re trying to make a quick buck, your buying criteria is a lot different than the guy who plans on holding that rare Ferrari for appreciation. Don’t worry about what everyone else is doing, just focus on your objective and figure out a way to get the car that is right for you. Auction houses will issue a catalogue of cars going up on the block well in advance of the event. Almost all auction houses put their cars online too. Before you order a catalogue or start wasting your employer’s time scrolling through old cars, figure out exactly what you want to buy. It can be as specific as a 1931 Pierce-Arrow 43 coupe with a blue exterior, or as general as a late 60’s Dodge convertible. Know what you want before you get side-tracked dreaming of how that 1937 Woody would look in your garage when you really want to bid on a 1987 Ferrari. If you have never been to a car auction, go to one and watch the process. Learn how the auctioneer barks out the prices. Note how people respond to bidding. Get a general feel for the

2. room. When it is your turn to step into the ring, you will be much more comfortable with the process because you will know what to expect. After you have experienced an auction as a spectator, it is time to learn the valuation of your desired car. Know the pricing of various conditions of your car. Understand the trouble areas of your car, for example, MG's are prone to electrical problems and Pintos are prone to exploding. Read as much as you can on your classic. Make sure you talk to current owners at car shows and other meet ups. The time you spend researching now will make you a much happier owner later. All cars at auctions are sold "as-is" and "where-is." Once the hammer drops, there are no "do- overs". The seller gets his money anywhere from several hours to several days after the sale is complete (this means the buyer must have cash or financing lined up well in advance of the auction) and the buyer has to figure out a way to get his car home. Auction houses are middlemen; they do not warranty or guarantee the cars. They do not want fraud or misrepresentation for the sake of damaging their brand, so they do a cursory inspection of the car. However, they are not liable for the car's flaws. Since your car is uninsured after purchase, you will need to trailer it off the property. Often auction houses will be able to assist with transportation, but it ultimately falls on your shoulders to get your car home. As your auction approaches, make sure you check that the car(s) you are trying to buy are still for sale. Sellers can drop out of an auction any time prior to it rolling across the platform. Register as a buyer for the auction. This usually requires an admission fee as well as a credit card on file. Make sure you read over the auction’s contract. Each auction house has a slightly different process, so it behoves you to understand the policy and procedure of your auction. Most auction houses have a viewing day where you can inspect the cars going up for sale. This is your chance to get under the car, check out the engine and interior. Some auctioneers will even let you test drive the car, but most will only let you start it up and listen to the car run while parked. This inspection is a lot less complete than you would be allowed with a dealer or private party, but that is the policy of most these auction houses. Given that you could be buying car for five to seven figures, it is worth forking over a couple hundred dollars to bring a classic car inspector. These guys will know a lot more than you about your car and they will help keep you from acting like a high school kid about to go to his first strip club and marrying the first girl he sees. An Auction is Not Free In return for a great selection of cars that usually have a “must sell today” expectation, auction houses will get their cut of the sale. Fees vary by auction house, but they typically look something like this: Bidder Registration Fee : $0-500 (this is non-refundable, nor is it applied to your purchase) Buyer’s Premium : 6-10% o*Some auction houses add 2% if you are an absentee buyer if you bid via online or phone. Absentee Buyer’s Registration Fee : $100 Seller Entry Fee : $200-$1000 Seller’s commission : 6-10% Sales Tax : Varies by location (note this applies to all car sales, not just at auctions) • • • • • • What do all these fees mean to you? A car that sells at auction for $50,000 has $6,000-$11,000 in fees attached to it. You might say, "I'm the buyer, I only pay the buyer’s fees." The total fees tacked on to the sale of the car amount to 12-22% of the car’s price. That same car that crosses the block at $50,000 might have sold as low as $39,000 in a private party transaction. Sometimes,

3. these fees can be negotiated if the car has a reserve and the auction house wants to get the deal done, but don't count on a fee-free transaction. Auction Day On the day of the auction, bring your driver’s license, your current auto insurance card, and be prepared to pay for your car either with a wire transfer, cashier checks or the auction’s financing arm. Make sure you check out the auction's website for specific details on what to bring to the auction. Often you can register before the event to save yourself time and unnecessary stress. Once you have met the bidder's criteria, you will receive your bidder's paddle. When the auction starts, the auction house will crank through cars very fast. As soon as they can get a car on the block, the bidding starts. Each auction takes about two minutes. Auctioneers make money on gross sales, so they will try to sell as many cars as possible during the auction. In the event that a car doesn’t sell the first time, just wait a couple of hours and you will probably see it up on the block again. Maybe the buyer who wanted that 1972 AMC Gremlin was getting a hot dog or hitting the head the first time the car went up. Now he is back and ready to bid. Some of the cars on the block have a reserve. This means that the seller will only sell the car for a minimum amount. If you think you are going to pick up that 1948 Tucker for a thousand bucks, because no one else wants it, think again. That seller might have a $1.5 million reserve on it, so unless the bidding reaches one and a half million, that car is not selling. Let’s say you brought your inheritance and you’re ready to play. You bid $1.4 million and the bidding pauses there. I guarantee you that the auction house is putting lots of pressure on the seller to cancel the reserve and sell the car to you. Is the auction house doing this because they like you? Nope, they are doing it to sell cars and collect their sales fee of about $200,000. If you are the top bidder on a car and it has not met the reserve, try to talk down the buyer’s premium. The auction house might drop it in the heat of battle just to close the deal. In the event that a car does not sell under the gavel, several auctions have after-auction lots where buyers can look at the cars that have not sold and try to buy them there. If you find the right downhearted and disenfranchised seller, you might find a great deal. Only bid on the car(s) you came to buy. Sure, that Yenko Camaro might look good crusing down the Pacific Coast Highway, but your wife will not appreciate it when you tell her that you are remortgaging the house to pay for it. Auction houses feed off your desires. The bidding wars, the shiny paintjobs, the emotions are what pays the bills for the auctioneers. Stick to your plan and only bid on the cars you came to buy. No one likes a hangover, and an auction hangover is one that could last months or years depending how bad you tied one on. As a side note, may auction houses sell alcohol at their events; nothing like liquid fuel to grow sales. There are many different auction houses out there. I have listed the main one below. Sometimes auctions are for a specific type of car such as English cars, cars over $1 million dollars, vintage (pre-WW2 cars), so look over the catalogue before you waste a Saturday at an auction for big- block muscle cars when you want a Datsun Z. List of Auction Houses Name Site Comments Sharp Classic http://www.sharpclassics.com A nice range of lower to expensive cars Barrett- Jackson http://www.barrett- jackson.com One of the larger auction houses for classic cars. Expect a huge selection for

4. varied price points. This place is world famous and auctions off all kinds of art. Expect to find more expensive cars at their auction. Bonhams & Butterfields http://www.bonhams.com Lots of dealers use this site to advertise their cars through auctions. Don’t be afraid to contact the dealer directly. If you offer his price, he may stop the auction early and sell the car to you. EBay http://www.ebay.com Gooding & Company This auction house focuses on rare (i.e. expensive) cars. http://www.goodingco.com One of the two most famous auction houses for cars. They usually have "affordable" cars for the everyman on at least one of their auction days. Mecum also offers a free look at past auction results (if you submit your email). As well as "The Bid Goes On" for cars that are still for sale and didn’t sell at auction. Mecum Auctioneers http://www.mecumauction.com Expect to see some cool, and expensive, cars here. However, the selection tends to small compared to other auctions. RM Auctions http://www.rmauctions.com Russo and Steele A nice price range of cars and a decent number of cars cross the block at this one. http://www.russoandsteele.com They generally have cars for the everyday collector. Due to limited marketing exposure, there is a chance you could get a great deal here. Silver Auctions http://www.silverauctions.com Worldwide Group Auctioneers A good selection of mid-range cars. There will be some million dollar cars that cross the block too. http://www.wwgauctions.com Not a lot of information on their site about cars to be auctioned. You need to pay and register to access the inventory. Vicari Auctions http://www.vicariauction.com Ready to get serious about your car search? Start here. BOTTOM LINE: Auctions are for the knowledgeable buyers. If you do your homework and you can walk out a winner.