Government Auctions Grow Up

In the mood for a bargain? Check out the action on auction sites specializing in government surplus property. There are things here you'll never see on eBay.

By Karen Schwartz
InformationWeek

In the market for a nearly new power boat? How about 20 acres in New Mexico or a Rolex wristwatch? Or perhaps you're interested in 10 cartons of Chinese medicinal sliced orchid stems or a slightly used strip club in Baltimore. All of these items, and thousands more, are available for purchase at a growing number of Web-based auction sites specializing in government surplus, seized, abandoned, and forfeited products and property.

Government auctions of the "Going, Going, Gone" variety have been around for years, and many still flourish. But the growing use of the Internet as an auction medium, combined with general dissatisfaction at the travel, expense, and effort involved in staging and attending land-based auctions, has led to the growth of the government Web-auction model.

Government agencies of all types, from the U.S. Treasury and U.S. Marshals Service to individual counties, have come to rely on private government auction sites as an efficient way to dispose of billions of dollars of equipment and property quickly, with higher returns than they could realize by selling on their own. Numerous entrepreneurs are happy to oblige while grabbing a piece of the lucrative business--a business that yields returns 25% to 200% higher than traditional auction methods, according to Bill Angrick, CEO of Government Liquidation LLC, a subsidiary of Liquidity Services Inc. And buyers, both individual buyers and small businesses, see Internet-based government auctions as a great way to get bargain-basement prices on a variety of new and used items.

Not only is there a steady stream of products to sell via Internet auction, but entrepreneurs need very little in the way of startup costs and expertise. "Anyone with common sense and some form of capitalization can get into this," says Louis Columbus, a senior analyst at AMR Research Inc.

To succeed when competing against dozens or hundreds of similar sites, however, expertise in dealing with the government, as well as state-of-the-art technology and a unique business model, play key roles, some say.

Few Web-based government auction houses run bare-bones operations, similar to eBay, that simply bring buyers and sellers together. Those that succeed must have a more robust model of some sort, something that appeals to both buyer and seller. GovLiquidation.com, for example, handles the entire asset sale process for its government customers--everything from warehousing and logistics, customer service, and buyer transportation to funds collection, documentation handling, and enforcing unique terms and conditions. Because of its high-touch business model, the site charges a 20%-to-50% commission using a consignment model, depending on services rendered. Angrick considers his site to be a success, noting that auctions have seen as many as 46,000 bids from 1,700 individual bidders in a 48-hour period.

Bid4Assets Inc., a Silver Spring, Md., government-auction house, uses the eBay model, never taking ownership of property. Customers visit Bid4Assets.com to gather information about products and properties. But unlike eBay, the site works like a live auctioneer. "The hammer doesn't come down until the bidding stops," says CEO Richard Hayman. Bid4Assets also provides some value-added services, such as product promotion and customer service for both buyers and sellers, and works on commission.

GovernmentAuctions.org, a subsidiary of Cyweb Holdings Inc., employs yet another business model. The site acts as a clearinghouse for local, state, and federal auctions. Customers pay $39.95 per year to access the listings, which currently consist of about 1,600 live and online government auctions. Once they find items they want, they visit the individual auction sites to carry out the bid process, explains president Ian Aronovich.

Another differentiating factor for these sites is the technology, which, while it may seem simple, can be quite sophisticated. GovernmentAuctions.org, for example, developed a homegrown system based on Active Server Pages, a Microsoft SQL 2000 database, some JavaScript, and VeriSign Inc.'s SSL encryption. The site is managed partly by an outside source and partly internally. GovLiquidation.com also developed its platform in-house at a cost of $5 million to ensure complete control. The site consists of several applications used to receive, manage, sell, track, and audit its clients' inventory and users while stressing security. The system mines about 25 million records daily, Angrick says.

Caveat Emptor
Russ Fritz, a small-business man in Jacksonville, Fla., has had good luck buying from government auction sites. Fritz, president of Omega Enterprises, a vehicle remarketer, procures many of his vehicles from sites like these.

"You can get some great deals if you know what you're doing," he says. "I bought a lot of 2,000 ammunition cans for 15 cents per can and sold them for $4 per can. So for a $300 investment, plus time and shipping, I made $8,000." He was able to salvage another recent purchase, a truck with a blown motor he bought for $104, by installing another engine. "It ran fine, and I got a deal," he says.

Fritz is site-agnostic, preferring instead to follow the deals. In addition to visiting GovernmentAuctions.org, he has purchased equipment from sites like E.surplus.com, and PoliceAuctions.com, handled by Vortal Group Inc.

Although government auction sites can yield good deals, it helps to have had experience in the auction world, says Mike Bagherian, president of Tazz Construction Inc., a small business in Rockville, Md.

"You have to be somewhat of a gambler, and you have to be liquid," he says. "There are times when I sweat it a little."

But Bagherian says nerves of steel can pay off. Not only has he bought tools for his business at 70% less than he would have paid at a local hardware store, but he has even ventured out to buy items for himself. He procured his latest purchase, a late-model Mercedes with about 7,000 miles, for about 40% less than he would have paid at a dealership.

There are even times, he says, when the unexpected can occur. A recent purchase of 80 acres in Mexico yielded a call from behemoth Conoco Oil, requesting permission to drill for oil on the property. The company offered Bagherian a paltry $5,000, a price he turned down, at least for now.

In many cases, experience with the auction process can really pay off. Bagherian recently was tempted to buy a property in Jackson City, Miss., with a new warehouse for less than $100,000--a great deal, on the surface. "But I started calling around, and I found unpaid back taxes and toxic soil in the area. I also found that four other people had looked at the property and rejected it," he says. In the end, Bagherian took a pass, but checked back with the site and learned that someone had purchased it soon afterward.

Copyright © 2005 CMP Media LLC, All rights reserved.