I buy some of my material at auction. When buying at auction though, I buy at dealerís prices. Meaning, Iím buying low enough to still be able to make a reasonable profit.

I buy some material from a major auction house. But here is my experience with them.

They utilize reserve prices on their auction lots. There is no problem with that. Some, but not all, auction houses use reserve prices on auction lots. To protect the seller, they agree that a certain lot will not sell unless the reserve price is met.

Here is the catch. In my opinion, the reserve prices are many times unrealistic at this particular auction house. For example, I once bid on a nice copy of Scott #3, the 1875 reprint of Scott #1. The catalog value at the time of Scott #3 was $900. My bid was too low. The reserve price was $750. With the buyerís fee, the price was $885. I wasnít looking to steal the auction lot for $100. However, I canít buy that item for $885 and turn around and sell it for $900. Give or take a few dollars, there is almost zero profit in it for me. I donít know of any dealers who enjoy making zero dollars profit.

Here is what I donít understand. At the end of their auction, this auction house allows bidders to buy unsold lots at the reserve price which is now listed. There is nothing wrong with that. But what I have noticed is that there are an awful lot of auction lots that are going unsold, sometimes as much as 60% of the total number of lots. This means the seller isnít selling their material and the auction house, I assume, isnít getting a commission on unsold lots.

This is a major auction house and they are selling lots for hundreds and thousands of dollars each. However, with that many unsold lots, I wonder what the sellers think? Theyíve been in business for many years and they are a very reputable firm as far as I know.

In my opinion though, are they doing the sellers a disservice by setting the reserves so high?

Take that Scott #3 that I bid on. I think a reasonable reserve would have been in the $500-$600 range. At $600 plus buyerís commission, I would have paid about $710. With a catalog value of $900, I think I could have made about $125 profit on the sale of that stamp.

If dealers are selling that stamp for $900, other collectors bidding in this auction are hoping to get it at a lower price so that they save a few dollars compared to retail prices. A collector may bid, say, $700. Their price with the buyerís premium is $825. I donít see collectors buying it at $750 which makes their price $885 too. A collector is going to want to save a little more than $15 for taking the time to examine the lots and place bids.