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ON TELEVISION, I WATCH the Barrett-Jackson auctions of expensive cars. When two bidders want the same car, they drive up the price until one decides enough is enough and drops out.
Why is this car so important to the bidders? In many cases, it’s a well-known car that’s highly valued by car collectors, so it’s treated like an investment with lasting value. Other times, it could be a model that the bidders had admired as teenagers, and said to themselves, “Someday, I’m going to own that car.” Now that they’re financially well off, they have the funds to satisfy that childhood promise.
In other words, the price that a car commands at auction is determined by “what the market will bear.” If we’re in the midst of a financial boom and there’s excess cash floating around, a car might go for 20% more than a year earlier. A new buyer simply wants it, and he or she is feeling flush.
I understand how new items are priced: cost of materials + labor + profit = selling price. But what about a piece of art? The cost of materials could be $10 and a struggling artist might charge just $50 for the work. What happens after the artist dies and an art critic talks him up. Someone else might buy the piece for $500—or far, far more. Nothing has changed, except the opinion of the artwork.
A construction firm builds a house, incurs the cost of building materials and labor, and offers it for sale for $200,000. The buyer lives in that house for 20 years before deciding to sell. At the time of the sale, there’s a housing shortage, so several bidders compete. The house sells for $600,000. Every potential buyer has an idea of the home’s worth. There’s no logical price. Instead, the selling price is whatever the most motivated buyer will pay.
We all have our price thresholds. We’ll pay a higher price for the things we consider most important. If enough people share our desire to have that same thing, supply and demand come into play. The lower the supply, the higher the price.
If we’re swayed by the crowd and want what everyone else is buying, we’ll likely pay a high price. The Cabbage Patch Kids were appealing homely dolls, brilliantly marketed with birth certificates and adoption papers. In the mid-1980s, every little girl in America wanted a Cabbage Patch doll. That demand, coupled with supply problems, triggered a buying frenzy among parents.
Christmas is a time when many such “must haves” occur. For parents who didn’t want their daughter to be left out, while all her peers got a Cabbage Patch Kid, this was more than a doll. It was a token of their love—and a symbol of their family’s social status.
The price of something is whatever the market will bear, which means the price is subjective. Deciding on our life’s priorities will help steer us toward the things with the greatest value for us. Otherwise, “A fool and his money are soon parted.”
On the spur of the moment, my husband and I went to an auction with my dad. As we were leaving, my dad remarked, “It amazes me what some people would rather have than money.”
Yes, funny what folks will buy. Like a Rembrandt picture that just sits on a wall… but it is a Rembrandt! ha!
Of course a big balance bank account just sits also.
My wife’s wealthy cousin is very big in restoring vehicles as a hobby and attends many of the Barrett-Jackson auctions. They even came to his home and did a story about him. At one of the auctions they were raising money for cancer victims and he kept bidding on a vehicle (I don’t remember the type) but he ended up paying $400K for it and then turned around and donated the car back. The reason he did this is because he lost a daughter to cancer. Because of his generosity, we watch Barrett-Jackson now and then to see if he is there and what he might be bidding on.
Although I have attended auctions from fundraisers to real-estate, I have never purchased anything at an auction. That kind of buying just isn’t in my DNA. The elation of a successful bidder totally escapes me. Though I have donated items for fundraiser auctions, I don’t recall ever engaging in the battle to “win”.
I’d love to own either of my first two totally awesome cars. Jay Leno actually owns a 1970 Mark Donahue Javelin that looks exactly like mine. But the realization that I don’t have the skill to maintain it myself, and the fact that I don’t know how to value such a car, keeps me from buying.
However, I am thinking about buying a new Camaro. Perhaps the relationship between material, labor, and profit makes more sense to me.
I’ve found some great deals at auctions also. But I’ve also gotten carried away and paid too much. You have to have a dropout limit and stick to it. You also have to check items over very carefully. I’ve found some good things that other people overlooked. However sometimes I didn’t do a good check and now have a few things I shouldn’t have bid on.
My first wife and I would go to used furniture auctions occasionally. They would offer stuff from defunct hotels for example. Of course we sometimes bought things we didn’t really need, but we also got some fantastic, durable bargains. A massive wooden handpainted Chinese screen I picked up for maybe $75 has served as a decorative room divider in four homes now. I launched my business from a massive desk I got at an auction.