In recent months the powerhouses of the auction world, Sotheby’s and Christie’s, have raised their buyer’s premium rates – the amount of commission buyers pay above the hammer price of works sold at auction – for the first time in over five years. Christie’s announced the change to their clients on February 15th via a mass e-mail, and, as auction houses have historically followed one another, Sotheby’s announced their increase on February 28th. The rates break down like this:
As shown in the graphs above, both auction houses have kept the same percentage increments – 25%, 20% and 12%. However, as shown in the tables, both have increased the sales range for each percentage; raising the limits within each bracket anywhere from $25,000 up to $1,000,000.
Both companies reported a drop in auction commission revenue in 2012 and claim the increase in buyer’s premium was a necessary move due to the rising costs within the industry. The business model of Sotheby’s and Christie’s no longer lends itself to work with artworks expected to receive below $30,000 - $40,000 once on the auction block, and now the lower market is pushing against the larger houses. They simply cannot compete against the premiums (anywhere from 4-15%) charged by smaller houses and, more specifically, by online auctions.
Sotheby’s and Christie’s are now focusing the majority of their attention on attracting high-priced sales while avoiding the lower market altogether. By raising their buyer’s premium rates, both houses are aiming to attract high-end consumers in the market and deter those within the lower sectors. Both houses have stated raising profits as the reason for their increases, but if the change was to solely raise profits they would have increased the premium rates charged to buyers and not the amounts at which those premiums are calculated. If, instead of raising the amounts within the percentage tiers, they raised the percentages for the tiers they previously had in place, the profit per sale would increase. Rather, the decision by Christie’s and Sotheby’s to increase their premiums was not only to increase the profit made from each sale, but to adjust their selling approach within the changing art auction market.
There was speculation whether or not the auction houses Bonham’s or Phillips (previously Phillips de Pury until January of this year) would follow the decision by Sotheby’s and Christie’s to raise their rates. Bonham’s released a statement announcing they will not be raising their rates. Matthew Girling, chief executive at Bonham’s for the UK and Europe, said,
“With the USA just now coming out of a recession and Europe still struggling, we do not feel this is the right time to be adding to our buyer’s costs by increasing the buyer’s premium thresholds.”
No one seems to be mentioning that Bonham’s raised their rates in late 2011 (25% for the first $50,000, 20% for $50,001 to $1,000,000 and 12% for anything above $1,000,001) to match and stay competitive with the rates at Sotheby’s and Christie’s at that time.
As of April 25th, Phillips has adjusted its buyer’s premium schedule: 25% for the first $100,000, 20% for $100,001 to $2,000,000 and 12% for anything above $2,000,001. This adjustment widens the price thresholds at which fees are applied but represents no change in the fee percentages themselves, as is the trend.
So, the big guys have raised their rates – what about the lower market?
What is the “lower market” the huge houses are staying away from in their updated business plans?
The lower market consists of local auction houses, regional auction houses and online auctions. These are the houses within the secondary market that have a much lower minimum per-lot value than the powerhouses.
The regional houses in the DFW area are Heritage Auctions and Dallas Auction Galleries, both located in the design district of Dallas. Both of these houses have buyer’s premium rates for fine art auctions at 25% on the first $50,000, 20% of any amount between $50,000 and $1,000,000 and 12% of any amount over $1,000,000 (these are recent increases and are the previous levels both Sotheby’s and Christie’s had their rates set before the decision to increase). Auction houses such as Heritage and D.A.G are why the powerhouses are embracing their new strategies. The huge distinction historically separating local auctions, where you brought that painting you found in Aunt Mindy’s attic, from the mammoth auction houses, where collectors went to purchase and sell fine antiques and blue-chip works, is beginning to fade away – the gap is closing.
With the aid of technology and internet auctions like www.LiveAuctioneers.com, the seller’s connection to the market is instantaneous and accessible from anywhere there is an internet connection. LiveAuctioneers brings an international audience directly to the bidding action at auctions worldwide.
The introduction of LiveAuctioneers into the regional auction house means the buying audience for those houses is no longer limited to those able to attend the auction. Collectors can track their favorite artists worldwide and can virtually attend and bid at any auction supported by LiveAuctioneers. This has radically changed the business prospects of regional auction houses and has forced the ‘big guys’ to redefine their target audience.
So- How do these new realities affect sellers?
In the art market, though the gap between upper market and lower market auction houses has been and is consistently shrinking, finding the best place to sell a work of art requires auction strategy. When consigning an item for auction there are several factors to consider. When brokering pieces for our clients much analysis goes into selecting the right auction house.
The bigger houses have a perceived advantage in selling certain types of high-end items. They have a longer history of offering such work and have likely developed a larger clientele list at the upper end of the market.
However, when approaching one of the big houses, one must be aware of the fees.
Oh…the fees.
A seller at one of the bigger auction houses has to consider shipping costs, catalogue illustration fees, insurance fees (usually 1.5% of the hammer price charged retroactively and taken from sale proceeds, but somehow stated to cover the client while items were under the auction house’s care) and higher buyer’s and seller’s premiums when figuring out the best sale venue.
Auction houses operate as the secondary market within the art world. They are a great resource to take advantage of when selling or buying artwork. They aren’t out to swindle or scam people, however they are a business and are out to make a profit and one needs to be informed and aware of the auction world before deciding to approach it.
So, the take away: Do your research.
Research the art: You need to know about the artwork(s) you are looking to sell or buy in order to find the proper auction setting to place them in / buy them from. Having values in mind beforehand on what you are comfortable selling / buying for is a must. Take your items to a well-trained appraiser and have them place a value on the piece and advise you on how to approach the market. Schedule and consultation and ask the questions you need answered: Is this an original or reproduction? Does it need to be cleaned before taken to auction? Will this do better if taken to an auction or consigned to a gallery? What is a reasonable price range to be expecting for resale? These are questions you need answered before considering auction houses to consign with. Hiring an art consultant to show you the ropes and advise you as you enter the auction market is a smart first step.
Research the record: Be aware of a house’s history with a certain artist or period or style. Know what they have done well with in the past. Know what they have been unsuccessful with in the past.
Research the terms of service: Know their rates (both buyer’s and seller’s) for the sale at auction; know their rates for private sales – which are usually 10%-15% higher. Learn the fees. You will sign a contract when consigning to sell with a house, so be aware of the fine print before you sign the line at the bottom.
Research or hire: Hiring an experienced professional to broker your work and handle the sale / purchase for you is a solution for clients who don’t have the time necessary to get to know the market, or for those who don’t want to get in the market and would rather hand the reigns over to a professional. These experts are happy to work for their clients in finding the best place for their purchases or sales to be made, and utilize an insider’s seasoned perspective within the market.
Research and be hands on: Don’t be afraid to approach the auction world if it is something you are interested in and something you are able to devote time to. It can be loads of fun. Just do not dive into it without knowing what you are getting into. Go preview and watch an auction. Dallas Auction Galleries and Heritage Auctions are great places to start here in the DFW area – make a fun evening of it. Watch live auctions going on all over the world through LiveAuctioneers to get some exposure before you register for a bidding paddle with your number on it.
The auction market might be the perfect place to start your collection of art or to sell those paintings you inherited from Aunt Mindy. However, it can be a bit daunting for a novice. If we can be of service to help you, either to buy or sell, don’t hesitate to give us a call. Sensible, objective advice on the purchase or sale of artwork is what sets Signet Art apart!
M.P. Callender
