Gone are the days when auction house directors sit around in dark panelled Mayfair clubs fixing the buyers/sellers premium while quaffing 100-year-old brandy. No! These days all they need is a good press release announcing the hike and the others all fall into line, like peas in a pod. No organised Collusion here like in the 1990s when scandal nearly brought both Sotheby’s and Christie’s to the verge of bankruptcy, jailing A. Alfred Taubman the Chairman and Dede Brooks the CEO of Sotheby’s and only sparing Jail for Christie’s Chairman Sir Anthony Tennant because he did a deal with the NY DA’s office to give evidence against Sotheby’s. In a case as scandal-ridden as Sir Phillip Green’s BHS fiasco both auction houses survived and reanimated into 21st-century business models.
Hidden costs of art sold at auction can often be confusing and yes they want to keep it that way. When a buyer successfully bids on a lot at auction an additional buyers premium is slapped on top of the lot. This is calculated as a percentage of the hammer price. In 1975 leading auctioneers Sotheby’s and Christie’s charged a fee of 10% of the hammer price. Buyer’s premiums are calculated on a sliding scale with the highest percentage charged on the first $/£100,000 and dropping down after $/£3million; sellers premiums range from 5% to 10% depending on your arrangement with the auction house.
On 6 September Christie’s announced a rise in its buyer’s premium altering the percentage thresholds. A press release on their website stated ‘Following an internal business review, Christie’s International announces an updated Buyer’s Premium schedule that will result in a modest increase in the fee paid by the successful buyer of an item at auction. Christie’s last updated its Buyer’s Premium fees in October 2013. For all collecting categories other than Wine, the update to the fee schedule amends the price thresholds at which fees are applied (see detail below) but presents no change to the fee percentages themselves. The new buyer’s premium rate will be an amount equal to 25% of the hammer price of each lot up to and including £100,000/US$150,000; plus 20% of the hammer price from £100,001/US$150,001 up to and including £2,000,000/US$3,000,000 and 12% above £2,000,001/US$3,000,001. This change effectively widens the thresholds where the percentage fees apply but do not change the percentage rates. These changes will take effect for all auctions occurring on and after September 19, 2016. The new fee schedule follows below. Any timed online-only sale that opens for bidding prior to September 19, 2016, will continue to use the current Buyer’s Premium schedule’.
Sotheby’s announced about a month later that they would also fall into line by raising their commission. Since March, Sotheby’s stock had fallen roughly 40% from $42.40 to $25.15 per share. It dipped as low as $19.14 in February. Sotheby’s shares are now trading slightly higher on the New York Stock Exchange at $35.97 as a result. In a statement, the auction house describes the changes as “modest” and are expected to impact 5-10% of all lots. Sotheby’s last adjusted its fees in February 2015. The new pricing structure will see Sotheby’s charging 25% on the first £175,000 or $250,000 from 13 November. Christie’s, which hiked its buyer’s fees for the first time in three years last month, now charges less: 25% up to £100,000 or $150,000. Buyers at Sotheby’s will also have to pay half a percent more on lots above £2m or $3m. Mike Goss, the chief financial officer of Sotheby’s, says in a statement: “We made this decision for two principal reasons: first, to offset margin pressure, particularly at the high end of our business where these changes are focused; and second, to continue to invest in improving our client experience in all aspects of our business.”
The Middle Market is where the most noticeable changes occur. The new premium squeezes more out of $/£100,000-1m range as well as works selling in the £2m-5m range. Under the new rates, a bid of £200,000, for example, will be subject to £48,750 in buyer’s premium, an increase from £45,000. A bid of £1m will be subject to £208,750 in premium, up from £205,000 under the old rates. The premium charged on a bid of £5m goes up from £749,000 to £783,750 after the changes apply.
The used car auctioneers Bonham’s who also occasionally sell fine art among other things have also hiked their premiums as well. Under the new rates, a bid of £100,000 will now command an extra £2500 in fees (£125,000 instead of £122,500). This represents a net percentage increase in buyer’s premium from 22.5% to 25%. Global CEO of Bonhams Matthew Girling said: “This change harmonises our thresholds with those of our major rivals and is an important part of maintaining our global competitiveness.”
Russian-owned Phillips Auctioneers have yet to make the announcement.