The Hidden World of Auction House Scams: How Bidders and Sellers Are Tricked

When you think of an auction, the first image that might come to mind is a fast-paced bidding room. It’s filled with eager collectors, dealers, and investors, all fighting to acquire rare, historical, or valuable items. The atmosphere is electric, and the stakes are high. But behind the glitz and glamour, auction houses are not always the bastions of fairness they seem to be. In fact, many operate in ways that leave buyers and sellers vulnerable to exploitation and fraud.

In his book FAKES AND SCOUNDRELS**,** Gary Lynn Hendershott pulls back the curtain on the hidden world of auction house scams. With over fifty years of experience in the collectibles market, Hendershott shares his personal journey and the lessons he learned from working closely with auction houses. 

Through his candid account, readers get a glimpse into the murky practices some auction houses use to manipulate buyers, sellers, and even consignors. This article will explore these deceptive tactics and offer ways to protect yourself from falling victim to such scams.

The Bidding Game: How Auction Houses Manipulate the System

Bid manipulation is one of the most common tactics used in auction houses. You might think that bidding is a straightforward process: interested buyers raise their hands, and the item is sold to the highest bidder. But in reality, auction houses sometimes use manipulative strategies to artificially inflate the price of items.

One common method is through the use of “shill bidding.” This practice involves auction houses or dealers placing bids on an item using fictitious bidders. These fake bids create the illusion of competition and encourage real buyers to bid higher than they would have otherwise. The auction house then gets a larger cut from the higher sale price. In his book, Hendershot explains how this strategy is a form of deception that benefits the auction house while leaving the buyer with a much higher bill than they anticipated.

Auction houses can also push the prices of low-value items by creating artificial demand. For instance, an item might have a low reserve price, but the auction house ensures that it gets pushed up to an inflated value by using their own set of fake bidders. 

The buyers, unaware of this tactic, end up paying a price that far exceeds the true value of the item. This strategy not only boosts the house’s earnings but also misleads bidders into thinking they are competing for something rare or highly valuable.

Hidden Fees and Charges: The Unseen Costs of Auction Transactions

The fees associated with auction houses are another area where buyers and sellers get burned. In FAKES AND SCOUNDRELS, Hendershott goes into great detail about the multitude of charges that often go unspoken when entering an auction deal.

When selling an item through an auction house, sellers typically pay a commission ranging from 10% to 20%. While this is common practice, auction houses can also charge additional fees for photography, storage, insurance, and even shipping. These extra costs can add up quickly, leaving the seller with far less than they anticipated.

For buyers, the situation is equally grim. Auction houses often tack on a "buyer's premium," which can be as high as 25%. This fee is a percentage of the winning bid, and it’s added to the final price. In other words, if you win an auction item for $100,000, you might end up paying $125,000 when you factor in the buyer’s premium. These hidden costs are not always fully disclosed upfront, and many buyers are left feeling blindsided when they see the final invoice.

Hendershott points out that these extra fees along with the inflated prices caused by shill bidding make auctions a far less profitable way to buy or sell items than most people realize. By failing to disclose all of the hidden charges, auction houses keep their clients in the dark, maximizing their own profits at the expense of the buyer or seller.

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Shady Financial Practices: The Auction House "Free Money Float"

Perhaps one of the most alarming tactics revealed in FAKES AND SCOUNDRELS is the practice of using consigned items as a form of "free money float." According to Hendershott, auction houses can manipulate their finances by secretly using the proceeds from one consignor’s sale to fund a cash advance for another consignor.

Here’s how it works: when consignors bring their items to auction, the house may offer them a cash advance based on the estimated value of their collection. But instead of borrowing this money from a bank, the auction house uses proceeds from other consignors to fund these loans, leaving consignors unaware of the financial juggling taking place behind the scenes. This "free money" system allows auction houses to continue operating without having to dip into their own pockets.

As the auction proceeds, the house collects the sale price from the winning bidder. Instead of paying out consignors immediately, the house uses the proceeds to cover its own cash advances, interest rates, and operational costs. The system continues to perpetuate itself, creating a cycle of debt and financial manipulation that benefits the auction house while leaving consignors in the dark. 

Hendershott’s explanation of this practice is a stark reminder of the financial games that can be played in the auction world, and how little protection exists for those who may be unknowingly caught up in them.

Protecting Yourself from Auction House Scams

Given the rampant fraud, high fees, and shady financial practices, how can collectors protect themselves when buying or selling through an auction house? FAKES AND SCOUNDRELS provides essential advice to help both buyers and sellers avoid falling prey to these tactics.

First and foremost, it’s essential to know the true value of the item you are buying or selling. Relying solely on the auction house’s estimates or appraisals can be dangerous. Independent appraisers and experts can provide a second opinion and help ensure that the price you’re paying or receiving is in line with the market value.

For buyers, it’s important to remain vigilant. If you notice an auction item going for much higher than its market value, question why. Don’t get caught up in the excitement of the auction room or the pressure of competition. If something feels off, it’s okay to walk away.

For sellers, carefully vet auction houses before consigning your items. Ask questions about their fees, commissions, and policies on returns and cancellations. Always read the fine print before agreeing to a deal. It’s also a good idea to take inventory and photograph your items before sending them to auction. This way, you have proof of their condition and can prevent the auction house from misrepresenting your items.

Conclusion:

The world of auction houses is full of potential pitfalls, but it doesn’t have to be a dangerous one. By following the advice in FAKES AND SCOUNDRELS, you can protect yourself from the scams and manipulations that plague the industry. Whether you’re buying or selling, staying informed and understanding the hidden tactics employed by auction houses will help you navigate this complex and often confusing world. In the end, the auction market can still be a rewarding place to find rare treasures and make profitable deals. But, as Hendershott makes clear in his book, knowledge is power. By arming yourself with the right information and practicing due diligence, you can avoid the hidden scams and get the best value from your collectibles, whether you're buying or selling.