In a small final paragraph in Carol Vogel’s New York Times column today, it was disclosed that Christie’s now holds the world record…for a buyer’s premium, set take effect at 25% on September 1st on lots selling for less than $20,000.00.  Aren’t we supposed to applaud when a world record is attained at a Sotheby’s or Christie’s sale (like all the attendees do at one of their showroom sales)?

This is the second price increase Christie’s has imposed on the market in the last year.  How fitting to do it in the dead of summer, to better prepare for the fall auction season.  However, beneath this increase is some very savvy thinking and business modeling.  In a way it exposes a different approach than Sotheby’s to the middle market tier, but Sotheby’s will get the message quickly.  Sotheby’s several months ago stated it was going to abandon auctioning lots with values less than $5,000.00 because of low profitability.  Christie’s reaction is to gauge the buyer with this higher buyer’s premium to make it more profitable.  In theory, by raising it to 25%, the additional $1,000.00 premium on a $20,000.00 lot should help absorb the overhead on lesser valued items; maybe.

But the real importance of this new world record is it introduces a new rate that will allow both to incrementally keep raising the dollar threshold of the premium and or the rate by value of lot.  All this shows their reliance on the non-negotiable buyer’s premium as their “golden goose” which they milk with their practices of deception and conflict of interests. These are heady days for the duopoly.  But what of the seller/consigner, how do they benefit from this; maybe they don’t?

It automatically now forces every buyer to pay more, but the seller gets nothing in return for the additional revenue they are generating for the auctioneer.  Of course auctioneers use the deceptive tactics of never disclosing the buyer’s premium amount on the seller’s after sale results statement.  They sure will disclose all the fees they will charge you to have the privilege of them selling your merchandise.  The point is the seller is in the dark about what is really his to give to the auctioneer.

However, there is a real fine line now being drawn in the sand about how high a buyer’s premium can go (and I think 30% is the limit) before seller’s realize that they might not be getting the best price, and consigning to a dealer might be a more profitable alterative.  Let’s examine 2 scenarios: a seller consigning to an auction vs. a dealer, and the seller gets $10,000.00 from each.

Auction: $10,000.00 requires an item to sell for $12,500.00 (20% commission of $2,500-I won’t include all their fees like photography, insurance, transportation, etc.). You also need to have a buyer pay $15,625.00 (25% buyer’s premium of $3,125 over the $12,500.00 hammer price).

Dealer: A dealer can mark the item any price and negotiate down to any value above $10,000.00.  But marking it $15,000.00 and taking a $5,000.00 profit on not having to invest one’s own capital is not so bad either. By the same token, he could offer it for $18,750.00 and give a 20% discount to a buyer and still make $5,000.00.  In my company’s case I could also rent it out and split the rental income with my consignor.

The point is that as long as auctions keep on raising their rates, viable options will start appearing.  And whether it’s selling directly to a dealer or consigning to him, we see opportunities for competition in the under $20,000.00 market, to the benefit of the seller.

So let’s keep on going for more records at auction.  The market is waiting for the gauging to begin.