The virtual handshake:

Online auctions, sales on the rise

By Jeremy Harrell
Daily Reporter Staff

As the industry integrates computers and the Internet into its day-to-day operations, one of the most fundamental aspects of construction has found a home on the Web.

Several companies in recent years launched sites for contractors to buy, sell and bid on used construction equipment, and it's a method of doing business that proponents said saves time, energy and, most important, money.

"We offer a greater selection than a local dealer, and you can shop from the comforts of your own desk," said Greg Woods, president of the auction site BigEquip, Houston. "A nearby dealer is so fragile with the makes and models he has on site."

Sites such as BigEquip, IronOx, IronPlanet and TradeYard have staked claim to an enticing economical premise: They deliver quality equipment quickly at a low cost.

But using the Internet eliminates the face-to-face, tangible relationship between buyer and seller that underlies a standard contract to purchase. Online company officials acknowledged that buying a $70,000 excavator from an equipment site is different than buying a $20 autographed photo on eBay.

Buyers like to kick the excavator's tires, start its engine and flip its levers to make sure what they're buying is worth the substantial pile of cash they're about to fork over.

Sellers, too, have a reason to be skeptical. They want to make sure their buyers are reputable and backed by financial guarantees.

At work

To compensate, online equipment merchants go to great lengths to assure all parties that their equipment is worth the perceived risk, said Ben Hanna, marketing vice president of IronPlanet in Pleasanton, Calif.

"It isn't necessarily for everyone; it takes time to get people to trust the system," he said. "We realized early on that if equipment was going to sell on the Internet, we needed to have an objective, third party checking the pieces out."

IronPlanet employs an independent vendor to provide technical inspections of every piece of equipment listed on the Web site. Before clicking on the "Buy" button for a dozer, users can look at a report that details the condition of everything from the engine's cylinder head gasket to the chassis's equalizer bar - and see pictures of those same parts.

"When contractors see how complete the inspection reports are, they often say, 'That's what I would look for,'" Hanna said. Of the 133 pieces IronPlanet has sold or auctioned in its nine-month history, only one has been returned, he said.

BigEquip also provides an inspection service, but it's not automatic. Instead, buyers have five days from the purchase date to hire an inspection service or check out the equipment themselves. To reduce the element of chance, BigEquip encourages sellers to have their products inspected before posting the items on the Internet, Woods said.

Aside from quality assurance, online merchants must provide secure financial arrangements to convince buyers and sellers of their legitimacy. Most sites offer an escrow service with lending rates comparable to contractors' banks, and credit confirmation typically takes a few hours, Woods and Hanna said.

"By doing inspections and credit checks - those are the kinds of things that help buyers and sellers be confident about the transactions they make online," Hanna said. "We screen offers to make sure they're qualified."

Online auction sites function as intermediaries between the buyer and seller, and they charge sales commissions. But most sites' commission rates range between 5 percent and 10 percent, half of what many normal brokers charge, Woods and Hanna said.

Buyers and sellers are often left to their own devices to arrange for the equipment's transportation, although many sites offer moving services and can quote several prices within a few hours.

What do you know?

Contractors are savvy about the used equipment market, and online sites cater to contractors' knowledge by providing as much information as they can about every piece, Woods said. A load of data available at a mouse click instills confidence in a contractor's mind about a transaction's security, he said.

Buyers, especially, can come away from a transaction with the knowledge they scored a better deal than at a live auction, Woods said.

"We offer much more than you get through an auction - there you get the equipment as-is and you're dealing with much less information," he said. "Plus, if you go to a live auction, you have to wait around all day for the piece you want, and then you may not even get it. Meanwhile, the whole day's shot, plus the time and cost of getting to the auction. There's a lot of savings all the way around."

Scott Henry, branch manager of United Rentals in Milwaukee, said the company's Web site has been gaining popularity since it went live eight months ago. Like Woods, Henry said the volume of information available for every piece of equipment takes a lot of the guessing out of used equipment purchasing.

"Contractors know exactly what model of equipment they need, so we have the specs for every piece," he said. "That has worked more to our advantage, and to the buyers' advantage."

More work ahead

Despite the number of Web equipment sites, sales have been somewhat modest for many companies. Woods said BigEquip sells between six and 12 pieces every month, and Hanna said IronPlanet's 2000 sales figures equaled a midsized dealer's annual volume.

Still, both agreed the future looks bright as contractors grow accustomed to doing business over the Internet. Business will increase as buyers and sellers accept the idea that moving equipment over the Web won't replace the dealer next door, they said.

"We won't be taking machines from the local market; we're not trying to compete with those markets," Hanna said. "We're bringing together buyers and sellers who would not normally encounter each other. In general, contractors who buy or sell online greatly expand their effective market for used equipment and can take advantage of fluctuations in equipment prices in different regions."

Online auctions present buyers and sellers with the same range of advantages as a normal auction, but without the cost of travel. If few contractors bid on a piece, the winning price may end up being below market value, Hanna said.

"If for some reason we don't bring a lot of people to a sale, you can walk away with a steal," he said. Sellers incur little risk when they place a piece of equipment on the virtual block because they can establish a minimum price and ensure a sale at an acceptable rate, Woods said.

"With a standard broker, it's on consignment, and the broker picks it up and you lose it for a month until the sale is finalized," he said. "Here, you can put it up for sale and lose no money. Also, for the seller, you can put up a piece and still use it. You have nothing to lose."

Madison writer Jeremy Harrell can be reached at 608-260-8570 or by email.