Point! Click! Sold!

Sept. 28, 2010

The construction business is tough, especially on equipment: It takes a beating at all points on the construction cycle. Sometimes it's in the best interest of contractors to make equipment productive as long as possible before replacing it for newer makes or models. However, many contractors are in the market today for used, reliable equipment and want the best deal possible. The question is often a simple matter of dollars and cents: What's the best way to buy or sell used equipment for the greatest possible return?

The construction business is tough, especially on equipment: It takes a beating at all points on the construction cycle. Sometimes it's in the best interest of contractors to make equipment productive as long as possible before replacing it for newer makes or models. However, many contractors are in the market today for used, reliable equipment and want the best deal possible. The question is often a simple matter of dollars and cents: What's the best way to buy or sell used equipment for the greatest possible return? What channel is going to generate the most value on both sides of the dollar?

Billions of dollars worth of used heavy equipment are sold every year in the United States, much of it at auction. And, while live auctions have traditionally dominated the industry, many construction professionals are looking elsewhere for a more profitable way to acquire or dispose of used equipment. Today, contractors are increasingly finding Internet auctions to be an effective and convenient venue for buying and selling used equipment.

What to look for in an online auction

Buying or selling equipment via the Internet can be a daunting proposition for some. Even with depreciation, used heavy equipment is not cheap. For both buyers and sellers, trust is often the biggest factor. Buyers want assurance that equipment they're bidding on actually exists and is in the condition in which it's listed. Sellers want to know they will receive payment and that their equipment will generate a good price.

Unlike traditional auctions, online auctions do not give sellers the opportunity to physically show equipment. Thus, buyers are not able to "kick the tires" and personally inspect equipment. To alleviate any concern about condition, look for a company that offers an equipment guarantee. Quality online auction companies work with independent inspectors who thoroughly inspect and photograph the equipment being auctioned. Some will even perform fluid analysis in a laboratory for equipment older than one year. Detailed, guaranteed inspection reports give buyers the ability to bid with confidence.

Inspection reports are good for sellers too. They typically generate better prices on equipment, especially when the reports are backed by a guarantee from the auction company. Ideally, the company would offer both services. For sellers, inspection reports establish trust with the buyer and function as an integral part of the sales process.

Sellers should expect an online auction company to not only take on traditional seller responsibilities, like fielding calls and questions from prospective buyers, but to actively market the equipment prior to the auction. Confirm that the company monitors traffic on its website and that they employ targeted tactics, including print and online advertising, e-mails, phone calls, direct mail, etc. These tactics increase the number of visitors to items, which drives up the number of bids and the selling price.

Ultimately, with any auction, money must exchange hands and equipment must be delivered. The most secure transactions protect the buyer and seller by utilizing the online auction company as an intermediary between both parties. Sellers should look for a company that can verify and guarantee payment, and buyers should be sure the company will stand behind the equipment they have purchased.

How the online process works

Although the exact process varies from company to company, there are many overlapping steps. However, there are important components to each part of the process, so be sure to verify that the selected online auction company offers the right services before consigning or buying.

Step 1: Choose the company and auction type. Whether you are buying or selling equipment, the first thing to do is your homework. Research online auction companies, how they do business and what they have to offer. Select a company whose website clearly explains its processes and policies, including detailed information on equipment being offered. Buyers should verify that equipment is listed with a comprehensive analysis of key systems and components. Online auction companies that utilize trained inspectors ensure that all equipment is rated to consistent technical standards and that the information is reliable. The online auction company should guarantee equipment condition.

Sellers should contact the auction company before consigning equipment. Look for a local or regional representative who can meet with you in person, or contact the company's customer service department via phone or e-mail. Contact information should be available at the company's website. Sellers should find out what fees or commissions they will be charged and what type of auction will bring the best results for their equipment. Due to lower overhead costs, online auction companies often have lower commission rates.

Online auction companies that offer sellers more options to auction their equipment (type of auction, duration, how prices are set) usually realize higher prices. For example, a seller might choose a timed auction with a set opening price, or an auction with a longer duration and a "win it now" or reserve price. A reserve price allows a seller to retain his or her equipment if the bidding doesn't reach a prespecified amount. A "win it now" price is an amount at which a bidder can end an auction immediately by purchasing the equipment at that price.

If you are replacing a piece of equipment in your fleet with a newer item, be sure to check on tax-free exchanges. Equipment sold for capital gain may be eligible for tax deferral as outlined in Internal Revenue Service Code 1031. This code allows equipment owners to defer federal income taxes on the sale of a piece of equipment when they buy a similar piece of equipment within a specific time period through a qualified intermediary. Ask a sales representative if they can help coordinate this paperwork.

After settling on a company, sign up as a registered user. Registering an account often ensures that buyers and sellers receive pre-auction updates and other important information. Often companies will track your viewing, bidding and selling history to keep a record of transactions and recommend equipment that might interest you.

Step 2: Consignment. Before an item can be auctioned, sellers need to complete a consignment agreement with the company. A consignment agreement — which gives the company the legal right to sell the equipment and mandates the seller to release it when sold — can be completed and signed either with a representative, or by downloading documentation from the company's website.

Step 3: Inspection. Once the equipment is consigned, it can be inspected. Online auction companies should have the item(s) inspected at the seller's location. Any make-ready improvements should be done at the seller's discretion. Improvements can increase the equipment's resale value, but should not be required. Upon completion of the inspection, a detailed report with photos will be posted on the company's website for online viewing by prospective buyers.

Step 4: Preview, Marketing, and Early Bidding. Online auction companies should give prospective buyers a time to preview research and compare equipment prior to auction. The length of time depends upon the type of auction. The best companies will use this time to monitor traffic to certain items, actively marketing them to interested buyers, depending upon many variables, including previous bidding / buying history, buyer location and others. Some companies even allow prospective buyers to place bids during the preview period, which will then be automatically generated on the buyer's behalf during the auction. This is a good option for buyers who know they won't be online at the time of the auction.

Step 5: The Auction and Bidding. On auction day, equipment will be "on the block" for a set period of time. The amount of time depends on the type of auction the seller selects. Auction periods can range from a few minutes to several days. During this time, prospective buyers from all corners of the world vie for equipment, with the highest bidder winning. Most online companies have multiple auctions running simultaneously, with multiple makes, models and product types visible on the screen.

When the auction begins, bidders may be able to take advantage of working with an online auction company salesperson to win an item. Some online auction companies use "hot lists," comprised of all the items being auctioned, to work with bidders and informing them of their options. If a bidder isn't actively participating in the auction while their item is on the block, salespeople can even inform them when they've been outbid on a particular item. Some companies also allow auctions to be extended in the event of "sniping" — when someone enters a new high bid at the last second. This practice ensures that all buyers get an equal chance to win an item.

Step 6: Payment and Transport. Once an auction ends — either by time expiration, a met reserve price or a met "win it now" price — the highest bidder wins. The online auction company should send an invoice to the buyer and a sales receipt to the seller so each knows the transaction occurred. The auction company should then direct funds from the buyer into a secure account. Once payment is confirmed, the auction company notifies the seller to release the equipment. The buyer arranges transportation of the equipment from the seller's location and verifies that the equipment has been received in the condition in which it was listed. Finally, when the buyer receives the equipment and verifies its condition, payment is released to the seller. The company should mitigate any dispute regarding equipment condition. n

Author Information
Mike Groves is vice president of Territory Sales, IronPlanet™ Pleasanton, California Point! Click! Sold!