Before attending an auction where you wish to purchase something, it is a good practice to go along to one or two auctions as a spectator with no intention whatsoever of buying. Here you can get to know the feel of the place, how an auction works, the kind of people who attend auctions, and learn to try to differentiate between the dealers and the general public. What you are trying to do is to attune yourself to the atmosphere of the place. Become aware of the auctioneer’s method of presentation, his slang and his speed.

Check some goods out. Try and value them yourself and see if they go for what you expect. This exercise is not pointless. Apart from being a great deal of fun, particularly if you go with friends and bet on who guesses to the nearest price, a dummy run can save you lots of money when you are first starting out.

When you view the goods, you may detect a slight fault, scuff mark, some slight shop soiling or bumps or cracks. That is to be expected with anything that has been used. It may be just slight which does not affect the fact that it is still a good item and might go for a good price. Take a notepad and pencil with you, write down the lot number of the item and jot down any defects that you must take into consideration when judging how much to bid.

You can often use the catalogue as your notepad, and many people who visit auctions regularly develop a short-hand style. It is important to have as much information easy to hand when the bidding starts as you do not want to get flustered and either miss an item when it comes up for sale or forget details about the problems with the items you want to bid for and bid too much.

There are several schools of thought about how people behave at an auction. Many people believe that feigned disinterest is the best policy at an auction because too much attention will push up the price someone else is prepared to pay. They are afraid that by taking an interest in an item it will make it look like a good buy in the eyes of others.

Others believe that the opposite is true. They say that the more attention you pay to an item prior to the sale, the more you will put off the competition who will think that you are going to buy the item whatever the price. They may give in and look elsewhere for similar models or at other goods. Also, you want to inspect the potential purchase as fully as possible.

Do not be afraid of intimidating people and look like you have made up your mind. These people will not know that you have carefully set a price above which you are not prepared to go. Make sure you do your inspection well in advance of the time the item is likely to come up for sale.

Always keep your eye out for this item though and make a mental note of others who are looking at it. You will then be able to pick them out in the crowd and know who you are bidding against.

Being at an auction is all one big game. If you want to win this game, you have to know and be able to be good, if not better, than the other players.

Prior to bidding, the auctioneer may subtly suggest to the dealers in the room what the reserve price is.

For example if the reserve price is say £200 he may very well say: “well ladies and gentlemen, where shall we start today, how about £200 – no, okay then let’s start at £150 – you tell me”.

If the auctioneer considers the reserve price too high he may deduct almost 50% of the price and suggest that as a starting bid. If too low he may say: “it’s here to be sold”. When the bidding is gone above the reserve, he may suggest this and say: “the goods are on the floor now folks” or: “I’ll take a chance and put it on sale”.

When the bidding commences change tack from your earlier strategy, try and keep a low profile, and not let any opponents see who they are bidding against. Otherwise, they may be able to psyche you out. Mingle with the crowd and don’t stand apart.

Don’t throw your hand in the air and shout like a maniac to attract the attention of the auctioneer. Attracting his attention through eye contact or by a nod of the head or by a slight wave of the hand or catalogue is a much better strategy.

The vast majority of auctioneers are very good at their job and they will know if you are bidding and keep looking at you for another bid. Once you have gained the auctioneer’s attention and he knows that you are interested in a particular item, you will be able to bid by making the slightest movement.

In a crowd of people this will be very difficult for other people to detect. If another bidder cannot see who he is bidding against, then he may believe that the auctioneer is accepting false bids in order to raise the price and mistakenly stop bidding. You might benefit from this by eliminating the competition.

Value the items and set the price that you are willing to pay well before bidding commences. Do not go above this price.

Don’t get carried away with the excitement of the game. You are bound to be nervous to start with, and in any situation everyone is prone to becoming a little illogical. Convince yourself that the item is not worth buying above a certain price and stick to your limit.

Try not to join the bidding until the last possible moment, if an item is still going at a reasonable price jump in towards the end and put the competition off their guard. Consider it as a game in which you are trying to outsmart your opponent. Wait until the auctioneer is in the process of offering the item for the last time, or raising his hammer before you jump in. This will cause all sorts of disruption.

However, make sure that the auctioneer can see you before you do this. The auctioneer will usually take only two or sometimes three bids at a time and may not look around for anyone else until there is only one person left or someone has dropped out so don’t feel as if you are being ignored.

An auctioneer will generally expect a private individual to pay more for an item than a trader who he is familiar with. An auctioneer can expect to be in control of the price and is therefore advisable to look as much like a trader as you possibly can. The trick is to act in a professional manner, appearing to know what you are doing, and be recognised when you visit time after time.

Deposits

If your bid has been successful, then you may have to go to the roster immediately and pay the deposit of say, 25% of the purchase price. This percentage varies from auction to auction and sometimes can be a fixed amount, like for example £5 or £10. At another auctions, all payments are dealt with in full at the end of the sale. At some auctions, you may be allowed to return the next day and pay for the item in full without having to pay a deposit.

If deposits are required before you start bidding, make sure you have checked with the office as to the exact money they will require and that you have the cash on you. Auctions do not take kindly to someone who wins the bid and then hasn’t got the deposit. You are wasting their time and if done repeatedly they may ban you from the auction house.

Accounts

Most reputable auctions run accounts for regular customers. This method of payment will save you an awful lot of time, trouble, worry and hassle. The sooner you open an account with an auction house the better. The requirements for opening accounts vary from place to place. Some auctions ask that you have been in operation for a year and that you are VAT registered. If you are thinking about going into business, you are therefore advised to set up your business as professionally and as soon as possible.

Cash

Auction houses now fall under the new anti-money laundering laws – Basically, they have a duty under threat of prosecution to know where your cash has come from – they are duty bound to report anything suspicious and will not accept large payments in cash.

You are normally expected to pay for any item by the end of the next working day after winning a bid; otherwise you could become liable to pay a storage fee. Make sure that before you bid you have the money ready to pay for it – or that you can get it out of a bank quickly. Some building society accounts have a limit on how much a customer can withdraw in cash in any given period of time. If you are buying at the cheaper end of the market you are not going to worry unduly about carrying a few hundred pounds. However, when you get into the larger price range to carry thousands of pounds it would not be sensible to carry around that kind of money with you.

Cheque

You can pay by cheque but you may have to wait until the cheque clears before you can collect your purchases (above any cheque card limit). In the meantime, you may incur storage charges. Plus, when you have bought an item, it becomes your responsibility immediately and the auction house will usually wash their hands of it. If an item suffers from vandalism while in their possession, it is you who have to pay for any damages.

Bank Draft

You can usually pay for items at auction by Bank Draft or Building Society Draft. However, you should check with the auction house first. Upon receipt of the draft, you will be able to take away the items. In the past this method was accepted as being perfectly secure but more and more bank drafts are being stolen or forged. For this reason, the auction house may ask you to wait while they phone the branch to ask for verification.

TRANSPORTING YOUR GOODS

The question of how to transport your purchases home depends largely on how far from your home base the auction is held, the type and size of the item you have purchased and the intrinsic value of the item in question.

Small, lightweight items present no problems and can easily be placed in the boot of a car or even carried home on public transport. However, many people who attend auctions on a regular basis find that they often face the problem of how to get more bulky items home. After all you do not want to pay storage fees and run the risk of damage after you have paid for your goods.

Also if you are a trader you want to get your goods back to base and sell them on at a profit as quickly as possible. Even as a private buyer you want to get whatever you have purchased home and into use as quickly as possible.

For that reason you tend to see a lot of large estate cars and light-weight vans parked outside auction houses. An estate car such as the old Volvo 240 is highly popular among auction goers as not only has it a prodigious capacity, it is easy to load and very comfortable for long trips to and from auction houses. Vans are popular too as although they are less comfortable than an estate car for long journeys they have larger capacity, particularly for bulky items, and being without windows and highly anonymous are more secure. Add to this the fact that you can pick up a second-hand estate car or van at auction and you can see what a winning formula you have.

As you edge towards the professional trading side of the business you will begin to find that a larger transport set-up is required. Loading, unloading and storage may become a major issue and the size of the lots – say 50 second-hand computers or 100 office desks – precludes the use of an estate car or small van. Insurance too is an important issue and your merchandise must be adequately covered while it is in storage or transport. Usually the best way around this problem is to find and build a relationship with a small haulage company. Indeed many auction houses can recommend such companies that they use on a regular basis themselves.

Motor auctions are another issue. Buying a single vehicle is usually not a problem as you can arrange to get someone to give you a lift to the auction, then you can drive the vehicle home yourself. In the worst case you can always tow it home using your own car. However, insurance is a very serious issue indeed as it is an offence to drive a motor vehicle without proper insurance cover.

If you are a professional motor trader then you probably have a garage policy that will cover this adequately. As an occasional auction buyer this may not be the case and you will have to make arrangements with your regular insurance to provide cover for as long as necessary. If you take a motor vehicle out onto the public highway then it must be roadworthy – the police take a very dim view indeed people driving dangerous and unroadworthy vehicles on the Queen’s highway. Far better to use a car transporter or a specially designed trailer.

Finally, the issue of value comes into question. If you buy a particularly expensive item – such as a piece of fine art or even a vintage car then you are well-advised to seek the assistance of a specialist transport firm to get your goods home. Ask the auction house for their advice if you need to, they will be more than pleased to help and many of the larger auction houses have arranged special deals with reputable haulage companies on behalf of their clients.

TAXING TIMES

(Tax laws change regularly always consult your accountant – THIS SECTION IS PUBLISHED FOR GUIDANCE ONLY AND NOTHING HERE CAN BE CONSIDERED AS TAX ADVICE OR BE RELIED UPON IN ANY FORM WHATSOEVER)

If you are buying and selling items that you have purchased at auction on an occasional basis, then you will probably fall outside the tax trap as you are governed under the tax rules relating to chattels. Chattels are tangible movable property and include for example, coins, furniture, jewellery, works of art and motor vehicles (except those used in a business).

If you invest in valuable objects, for example at auction, and later sell them on there is no liability to income tax. Then again, there is also no relief for the costs of ownership such as insurance and maintenance. You may also legitimately be able to avoid capital gains tax as the capital gains tax of a chattel depends on the nature of the chattel, and sometimes on its value.

Motor vehicles and other chattels that have a predictable life of 50 years or less are known as wasting assets. They are totally exempt from capital gains tax unless they have been used in a business and capital allowances have been, or indeed could have been, claimed on them. Plant and machinery are always regarded as having a predictable life of 50 years or less. For this reason privately-owned items – ranging from greyhounds to yachts and even antique clocks (classed as machinery) are exempt from capital gains tax on disposal because they wasting assets.

A gift of a chattel is treated as a disposal at open market value at the date of the gift. It is therefore essential that some evidence of the transaction is available – such as correspondence, for example, that will help arrive at an estimated value.

If the value of the gift is under £6,000 then no tax charge will arise. If the value of the gift exceeds the £ 6,000 level it may even be possible to use the annual £6,300 IHT annual exemption. If this is not possible it may still be possible to class the gift as a potentially exempt transfer and if the donor survives the gift by seven years then no IHT charge will arise.

The big problem with selling chattels and valuables arises if you try to do it too often. In that case it is treated as trading – particularly if it can be shown that your motive that is profit rather than for example, collecting, or there is no ‘pride in ownership’.

If you are in the business of buying and selling at auction then you are a trader and liable for income tax and, of course, the dreaded Value Added Tax. However, this whole area of tax, and the ways of legitimately avoiding a tax liability is well beyond the scope of this guide.

VAT: There are certain vat implications to consider if you are running a business. There is also often VAT to be paid on the hammer price of items purchased at auction and this should be clearly outlined in the auctioneer’s information. If in doubt ensure you clarify this with the auctioneer BEFORE bidding.

Here the best advice we can offer is get professional advice from an accountant.

HM Revenue & Customs