Commissions and Crisis

The questions around the auction house increase of commission to twenty-five percent on the first twenty thousand dollars of a purchase have an indefinite quality. The why is probably the easiest of all the questions to answer and it directly relates to the lack of product available for the auction houses to sell. The cut throat competition between the two major sale rooms to land quality consignments has forced them to minimize the sellers commission, in many cases to almost nothing at all. The upshot is to get money off the back end what you are losing on the front end. That makes perfect sense.

The ramifications of this action are far more complex to analyze. The simplest answer is that people will bid less. Does that matter to the auction houses? No, because they are still getting their money. Does it matter to the consignor? Of course it does. Who are the consignors after all and where do they come from? The glib answer has always been death, debt and divorce but this is an oversimplification. There are usually attorneys attached to these three “D’s” and if I were an attorney, I would look long and hard at a local auction house that might spur greater interest and higher bidding than to automatically choose one of the big two. It serves the interests of the clients and with the internet, a small scale auction house has the reach of London and New York venues.

It is clear that the auction houses are loaded down with fixed costs and this has made their situation less tenable than ever. The internet has come back to haunt them which was clearly demonstrated by a sale in Long Island this summer over eBay where the prices were high and the auction distinctly as successful as one held on the Upper East Side. The apple cart that used to determine the pecking order has been upended for the auction houses just as it was for the dealers in the 1980’s and 90’s when pickers stopped bringing their goods for sale into their shops and went straight to the top sale rooms. Now, market efficiency has determined that the goods don’t need to be moved anywhere at all. All you need is a sale in your back yard over one of the many internet auction services.

This is a crisis for the large sale rooms who pay big rents and a few big salaries. There is no straightforward answer to the many questions, either. Sotheby’s is going to get rid of the dross and not sell anything worth less than $5,000 and Christie’s raised their commission. Who is right? As far as I can see, one of the sale rooms should get smart and hire Damian Hirst.

The recent increase in the auction house commission by the two top sale rooms from twenty to twenty-five percent on the first $20,000 of a sale demonstrates, in my opinion, the knife edge that the large firms tread between profit and loss. It is clear that the competition for goods between the two sale rooms has forced them to reduce their seller commissions drastically. That is good news for the sellers, but for the auction buyer, it is made the goods more expensive than ever.

I have written all of this before but it bears repeating because the difficulty the auction houses face is not unlike what dealers have been facing in the last ten years. Basically, it is the fixed costs, the bricks and mortar, that is the dealers bane. Real estate has become extremely expensive to rent or lease and it has forced a great many dealers to go private. The auction house expenses are exponentially larger and the risk that much greater.

The brand names that the two auction houses have created may, in the end, be more difficult to sustain than ever. The mirror image that the two primary sale rooms represent in their products and in their marketing will, sooner or later, force one of the competitors to give up ground. Sotheby’s was the first to crack when they declared that they would sell nothing for less than $5,000, but Christie’s initial response of raising commission rates shows that they too, are feeling the pain.

Naturally, there is a beneficiary of this distress, in fact there are more than one. Small scale auction houses can use the internet to advertise their sales and gain a world wide audience. Since it has been primarily the professionals who back up the prices in the auction world and since it is the professionals that scour the world for product, it hardly matters where that product turns up. Dealers are also benefitting from this malaise. Consumers who want the goods have to find the goods and if sales are infrequent and expensive, dealers start to look like an attractive alternative.

The expression, plus ca change, plus c’est la meme chose, probably fits the situation too well. The robust market of the 80’s and 90’s has been displaced by a market of scarcity. The auction houses need to find the next big thing. That thing appears to be contemporary art, but that just might be betting on the wrong horse. That is a very full market and the dealers in that world protect their own with gusto. It may also be too late as that market looks like a bubble that could burst–then again, as the optimist said, it may only be half full.


A friend thinks that I am beating the wrong horse as regards the auction house commission increase. He feels that the auction houses are such a brand name that they take any opportunity they can to fatten their bottom line. This logic is unassailable, but I continue to believe that the motivation for the commission increase is fear. Simply put, there is not enough product of the really big kind that earns the kind of money that the auction houses need to pay their fixed costs. Every year, this is certainly true in English furniture, the sales are a little less spectacular.

The early, heady days of the internet had small scale auction houses either aligning with or being bought out by large scale concerns of which Sotheby’s was the most aggressive protagonist. It was a strategy designed to corral product, particularly in provincial America. One New York expert shipped out of town to run such a company complained that his best stuff was taken from him to feed the high end sales in New York. In other words, no matter what anyone says, the auction houses earn their money from product. If they don’t have it, they have to ameliorate their costs somehow.

However, the most telling part about the commission increase is that the auction houses do not seem to fear further anti-trust action. Or maybe, they fear it, but they need the raise desperately. They lost once and this most recent commission increase happened for the two large sale rooms within months. Hmmmm. Lastly and certainly not de minimus, is the role of the auction house as a representative of both the buyer and seller. Any seasoned buyer knows that the sale rooms, as represented by the fine print legalese in every catalogue, represent only the seller. Isn’t that what dealers have been vilified for since time began?

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