Jacobs responded to one of my blogs with the following question:

I’ve been curious about how Sotheby’s auction works recently.  I know the BP rates changed recently but when I called Sotheby’s they said the seller’s commission has stayed pretty steady.  I’m wondering what exactly the seller’s commission is, do you know?  Is it tiered, same across categories, geographies, etc…?

I responded to him with the following email:

Thank you for your question related to Sotheby’s seller’s commission.  It is interesting that the Sotheby’s representative you spoke to stated that it has been “pretty steady”, which is has been (just not as steady as the increases in the buyer’s premium). However when you get to higher priced items, they will make compromises to get access to the property.  For them, getting a seller’s commission is gravey; they know that they will always get the full buyer’s premium.  

For a lower threshold of merchandise, certainly under a realized value of $100,000.00, you have little if any negotiating leverage. Not only do you have the cost of the commission, which can be about 20%, but the costs of photograph and insurance and buy-in charges can be significant for low value items.  A very recent development for Sotheby’s is their new strategy of not accepting lots of less than a value of $5,000.00, which raises the bar on the kind of consignment they are looking to sell.  It also shows you that they can make more money with higher priced items than taking 40% (20% seller’s commission and 20% buyer’s premium on a $5,000.00 or less lot.

You must remember that their revenue is now guaranteed by the non-negotiable aspect of the buyer’s premium which the seller has no interest or control in.  I believe there might be different seller commission structures for items like wine, cars, stamps, and other niche areas, but the buyer’s premium is pretty consistent.  Just read the terms of sale in their catalogue.

With smaller auctioneer, their rates tend to be lower and have some tiered levels of realized value.  In the case of the Sotheby’s and Christie’s duopoly, both essentially charge the same commission and fees; it is only on very high priced items that they compete by giving conflict of interest advances or guarantees  to the consignor of the merchandise.  This is again a situation where they have hedged their investment with the non-negotiable buyer’s premium.