When is an "outlier" actually the new going rate?

A classic vehicle is worth exactly as much as someone is willing to pay for it, the adage goes. But what if that someone is willing to pay far above and beyond what anyone has paid before? How do we determine whether that price indicates a changing market or is simply an outlier?

It’s a question we ask often as we monitor the market for the Hagerty Price Guide. Of course, we don’t chuck the latest edition any time bidding gets wild. Neither, however, can we simply ignore sales that don’t fall in line with expectations.

The most obvious yet critical factors in determining whether a particular sale is an outlier or a trendsetter have to do with the nitty gritty details of the vehicle itself. Condition, equipment, originality. The Datsun 240Z that went for $310k on Bring a Trailer is a very different beast from the Z you might encounter at a local cars and coffee. That’s why we break down our price guide by condition rating (#1–4) and often call out key options.

In a steady market with many transactions, most sales for each condition rating (#1–#4) will fall in a band. We will be able to see outliers popping up over time, and they are expelled as market value comparisons because of other sales within the band.

But what about when the entire market is moving? How do you determine what’s an outlier when sales are all over the place, when a record was set yesterday that was double the record set a few months before?

Welcome to some parts of the collector vehicle world today.

Asset purchases and values are crazy right now. The average home price in January was up nearly 15 percent from a year prior. There are similar frenzies in pockets of the collector vehicle market. Buyers want what they want, and they want it now. Average sale price at Mecum’s Kissimmee auction in 2021 was the highest it’s ever been. This leads to comps that lie outside of the normal range for vehicles that have traditionally been steady.

To determine which sales are signals and which are noise, we need to apply a few more filters:

1. Are there signs of a buyer willing to pay anything?

First, look closely at the environment of the sale and who was there. For instance, has the buyer lost out on recent auctions? We see this a lot in home buying—if you have been outbid on five houses and need one today because the kids start school in four weeks, you might offer more than the market value on house number six.

Perhaps harder to suss out is a buyer simply willing to pay above market value because the difference, for whatever reason, is marginal to them. This also happens in real estate. Say you’re relocating from Manhattan to Buffalo. A wildly expensive home might seem like a bargain to you. In the collector motorcycle market, we more than occasionally see this happen as classic car owners bring their sense of what things cost into the generally more affordable bike segment.

There’s nothing wrong with any of these buyers or their motivations. They are not, however, buying based on market value research, which means these sales have little inherent connection to the market. They’re outliers.

Of course, it’s always possible more than a few bidders will be willing to pay above market value around the same time. Say—just for instance—a bunch of people suddenly stuck at home decide it’d be neat to own an old car or motorcycle to tool around with, and aren’t really worried about what they’re worth. If enough of them pay above market value for a particular vehicle in a certain condition—the rule of thumb is three—then the “outliers” become the new norm. The bidders looking to pay market value will adjust their sights.

2. Has a hierarchy of value flipped overnight?

The biggest red flag. Some features, like a 6-speed manual versus an F1-transmission in a modern Ferrari, are simply worth more, and will continue to be worth more, even as pricing shifts up or down for the model. The bands in the hierarchy might not move together in lockstep—and tastes do change over time—but the major rankings usually remain relatively stable.

The market will not decide, overnight, that an auto transmission Ferrari is worth more than the stick, or that a 300SL roadster is worth more than a Gullwing in the same condition. So, when we see a sale that upsets these norms, we suspect an outlier.

3. Not all sellers and venues are created equal

On an open market, supply and demand should equalize over time. Online and live auctions are, generally speaking, open markets. The barriers of entry are low, no one is forced to purchase anything, and parties can transact elsewhere. Also, we generally know how much things sell for. This is why we tend to pay a lot of attention to auction transactions even though they represent a relatively small percentage of the collector cars bought and sold, overall.

Private sales are a different animal. Here you often have one buyer and one seller coming to an agreement. In these situations, no one (except, perhaps, your insurance company) even has to know what you think the car is worth. No surprise, we see more variance in these sales.

That doesn’t mean the prices paid privately are necessarily illogical. If you want a 300SL and want one of the best, you aren’t going to pay your max on eBay or an unvetted auction. You’re going to contact Paul Russell. Trust, in other words, is worth a lot.

Putting the logic to the test

Now let’s take a look at how these qualifiers can be used to gauge a real sale. I mainly deal in motorcycles, so let’s look at a 1971 Honda CB750 that recently sold for $34,150. That’s 28 percent higher than the previous high-water mark (also a Bring a Trailer sale). Is your perfect CB750 now worth 25 percent more?

The market for CB750s has been moving quickly in the last year, so merely looking at a scatterplot chart won’t tell us much. Also worth noting is that this is one of the best-restored CB750s I have ever seen—clearly in that top 1 percent it takes to make a motorcycle #1 condition.

What set off my “outlier detector,” however, is that this K1 CB750 sold for sandcast CB750 money. Those early-build examples, named for the way their engines were molded, tend to be worth twice as much as later models with die-cast engines. Yet this sale is higher than what most sandcast models have gone for at auction in the last couple of years.

Now let’s look more closely at the bidders. There were only two who sailed past $20k. One of them had bought a CB750 on BaT in December but none previously. The other had bid on two CB750s before this one, and missed out on both by small margins. One of them was a sandcast, by $500.

The bidder in question also set a record for a stock first-generation Viper, which was high at the time but now is the going rate, and a Ram SRT-10. The bidder has bid on a vast number of vehicles at varying amounts, winning 11 of them. Overall, this bidder could be in the category of paying what it takes.

The third key to whether this is a verifiable comp or not is the nature of Bring a Trailer itself. Part of the platform’s secret sauce is that it has been able to combine elements of the open auction market—low barrier to entry, public prices—with the validation and trust of the private market. The latter comes courtesy of the commenters, particularly the few who are proven experts, who swarm in to validate or poke holes in vehicles for sale. The opinions of this cheering section can feed a frenzy of bidding or deflate interest in an otherwise worthy offering.

This listing provided exactly that. Among the commenters was a well-respected CB750 owner who has a bike judged by the Japanese Motorcycle Club of North America. This commenter proclaimed the seller’s bikes to be truly the best in the world.

After going through this exercise, my opinion of this sale is that it is an outlier, albeit not by a large amount. Indeed, “outlier” does not mean “wrong” or “foolhardy”—it simply means it’s not as relevant to determining the going rate as other sales. Today, it’s a bit higher than the market. Tomorrow, it might look prescient.