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How to Survive at Auction by Warren Mills of Rare Coin of New Hampshire

Republished on March 10 2018 from The Rare Coin Enthusiast

Gerry Foreward: I liked Warren's article so much that I picked up the phone and called Warren for permission to post the article in the Daily Blog. Warren agreed and even suggested that he interview me for an upcoming segment in his Rare Coin Enthusiast. So here are Warren's stories and words of wisdom concerning purchasing coins at auctions and the potential risks.

Welcome to the March Edition of The Rare Coin Enthusiast. This month I want to address the need to acquire coins from auctions. This is my 39th year in the coin business and it is a true blessing to work at your hobby. However, there are times when I encounter situations that can be very frustrating. Allow me to give you a description of such a scenario.

We connect with a customer by phone, email, or at a show. After pleasantries the question is, "Are you still buying coins?" In many instances the answer is, "Yes, but I buy most of my coins in auctions now." I follow up with, "How come, you've acquired great coins from us in the past, why now mainly auctions?" Usually it has to do with our inability to supply or find solid coins when there are tremendous amounts of marginal ones in auctions. Auctions do have some great coins, but most are marginal at best! Okay, I get it, but three recent encounters with clients made me see a need to address potential pitfalls here.

Auction houses are great at marketing their products. Once your buying patterns are established, they email you about future lots that are coming up for sale which may be of interest to you. This is fine if you know what you are doing. Many buyers only have an idea of what they like. They may have started buying coins with one or two reputable dealers, then figured out they'll cut out the middleman and buy direct. This is just enough knowledge to actually have a negative effect on the value of your purchases. Here are a few examples that we recently encountered:
The Morgan Dollar Enthusiast

He found a wonderful offering of dates and price ranges in auctions, checked out the scans, focused on the lots he liked and went to town. When I reviewed his purchases, I found that he had no ability to detect original white from over-dipped bright. His nicely toned coins had way too many marks to justify grades, but the marks were partly hidden under the toning. Proof-likes and Deep Mirror Proof-likes had too many die striation lines to technically warrant the designations. Older holder P/L's and DMPL's are particularly subject to this.

So after years of making these types of acquisitions, the client decided to send them all in for CAC review. Only a handful CAC'd and although there was disappointment, I informed the customer of why the coins didn't work out and the education benefits made it all worth it to him. The customer received a better understanding of what to buy and how to grade. We also re-established a relationship with a customer who has since acquired very nice dollars for his set from us. He still buys from auction, but allows us to review all the lots ahead of time for him so he is getting the best value for his hard earned dollars. We do charge a modest fee for this service.
The Beautifully Toned Proof Indian Cent Buyer

I love original, pretty toned Indian Cents, however focus on the keyword "original". Nice iridescently toned Indians take decades to acquire their beauty and to top it off, we're talking about proofs! However, I have an awful time finding any in the market that I am 100% sure are original! I know that is sad and a shock, but there are many dealers that doctor coins, who have spent decades perfecting techniques to fool the grading services and retail buyers. If I handle a handful a year that are 100% original, I'm lucky. I see quite a few at auctions and in dealer cases that makes me suspicious. In all cases, I err on the side of caution and pass. 

One collector recently told me that he sent in about 30 of his pretty toned Indian Cents, which were all acquired from well known companies, to CAC. Alas, only one stickered, wow that's a shock! Again, the lesson here is don't let your passion cause you to acquire coins that are a terrible value or compromise the liquidity for you or your heirs in the future. Be patient and continue the learning process with honest dealers, so tens of thousands of dollars later, you're not wondering what went wrong!
The Pretty Toned Silver Type Buyer

He recently decided to have his collection CAC'd. We sent in 73 of his 19th Century type coins, all with varying degrees of bullseye and rainbow toning from PCGS and NGC. Many were auction purchases, but a fair amount were from dealers.

When I was previewing the coins, I noticed a lot of his dimes graded Proof-67 with bad surface hits, I couldn't believe it! I told him that small Proof coins should not have marks, and any denomination that has abrasions on Proof surfaces should be graded substantially lower. Nice color can only forgive so much, especially on a Proof coin. Also, many of the coins were lightly cleaned and/or dipped and toned back. The surfaces at some point were tampered with. There were also quite a few coins that I thought had color added and were Q-tipped with dip to give it that bullseye toned appearance.

Remember, when an auction house sees your pattern of buying, they pigeonhole you to be notified on those coins. Also, when a dealer knows your pattern of buying, you will be fed, or should I say stuffed. In many instances, there will be no regard for the true technical nature of the grade. It will be, "Sell it and forget it!" Oh yeah, and about those 73 pretty toned coins we sent in to CAC for him. Only 11 of them CAC'd, a success rate of only 15%! I know for some dealers that's good, but it should be much, much better.

In all of these recent cases, there is obviously still a lot to learn. Remember, high grade coins are around, you just need to focus on the cream of the crop. Why? So you can get real value for your money. Beware of dealers running your bids up on you if you attend the auction. I always stay at the back of the room so as to not publicize my buying for customers. I want to attend just to get a feel for how the sales are. I try to watch out for shill bidding and inordinately high reserves. Also, beware of dealers calling your attention to auction lots and then kindly helping you formulate bids. These coins could be their own pieces in the auction or coins that friends of theirs consigned and then they split the profit!

Many people buy in auction because they feel that under-bidders assure them of limited downside. That is wrong! If an under-bidder doesn't really know what they are doing, they could be caught up in auction fever and guess what, that's contagious! Plus, a dealer or two may focus on a coin because they feel it is an upgrade. They chase it for that reason and you have the fever, so you go right along and feel great to get it. This is when you need to step back and examine recent auction sales to see why this is dangerous. Look at the Gardner and Newman sales, some of those coins sold for great numbers. Yet, less than a year later those coins are being auctioned again and voila, they sell for substantially less! In some instances, less than half the original sale price! Why? Well, in many instances they are tainted. The perception is that they didn't work for upgrade, so here they are again. Then they sell for substantially less. There's more to consider, but let's not write the whole book today.

So what do you do? 

First, stop being a slave to auctions. Align yourself with not just knowledgeable, but honest dealers that truly work to deliver value. Go back to school and realize you don't know what you think you know. When you open your mind and not just your wallet, the value for your money will improve. Also, you can still have the fun of bidding on auctions. Just pay a fair compensation to a dealer to review lots for you. This way the traps will be sprung on someone else. In the end, you will end up with less coins, but the quality of the coins you do buy, will be way better. And guess what, in many instances a good dealer can sell you great coins at a lot less money than what you'd have to pay in auction!