Art auctions are one of the primary ways that art moves between collectors. But, as you may be unfamiliar with how auction houses operate, we have compiled a list that details some of the most important things that you should know when it comes to buying art at auction.
What you need to know:
Do your own research
You should familiarize yourself intimately with the artwork you are interested in purchasing. The auction house will supply you with a limited list of information regarding the artwork, including price and condition appraisals, titles, date of production, signed/unsigned, materials, framed/unframed.
You should use this as a jumping-off point to find every morsel of information possible about the artwork.
- The auction houses are obligated to inform you all that they know about their lots, so feel free to make extensive inquires as to the previous ownership, condition reports (check condition in person if you can) and how they came to their estimated value.
- Utilize the vast amount of information available online. If you are interested in an original artwork, see if you can find previous prices and judge whether the current estimation is reasonable. Originals can have a limited history so different artworks from the same artist (or very similar artists) can be used as a comparison.
- If it is an edition, check if the artwork is still available on the primary market. If not, like original works, check whether the current estimation is reasonable and compare it to previous prices. Many art editions are still available on the primary market, and even if they are sold out, many are available in the secondary market at a fraction of an house’s estimation. Make sure to check thoroughly before bidding on a lot.
Know your price limit
Don’t let the estimated prices displayed deter you or get you too excited. You will come to realise that prices achieved at auction will frequently fall outside the estimated price range that the auction house has estimated. This includes prices falling both above and below the estimated range.
Accordingly, you should take the estimations as a loose guide only. If you believe that a particular piece is over-valued, you may still be able to place a bid outside the estimation range and have it accepted by the seller. However, bear in mind that some auction house may reject bids outside what they deem appropriate.
Conversely, if an estimation suggests that an artwork is within your budget, do not be discouraged when the realized hammer price is far more than the estimated price. Typically, auction house ‘experts’ are working with an imperfect set of information to determine their estimated values and, thus, frequently mis-estimate.
Beware of the Buyers’ Premium
In addition to researching the artwork you are interested in; you should also put in some work to understand the specific auction house that is selling the artwork. What you are primarily interested in here is what fees they charge.
Like all businesses, auction houses have to make money, and one way they do this is by charging a ‘Buyers’ Premium’ on the sale of all auction items.
The Buyers’ Premium is a fee paid by the winning bidder. The fee is calculated as a percentage of the hammer/sale price. The rate typically ranges from 15 to 25% of the hammer price.
When determining how much you are willing to pay for an artwork, you will need to consider the Buyers’ Premium. A 15% – 25% fee on top of your bid is a significant sum. It is the primary reason I recommend you avoid building your art collection from work acquired at auction as it severely undermines the potential return on investment.
In addition to the Buyers’ Premium, you should also take note of credit card or payment processing fees that they may charge.
Lastly, the cost of selling your art collection through an auction house can also be very steep. consequently, I would also recommend that you become aware of what you need to know before selling art at auction.
Final thoughts
It is very easy to be caught up in the excitement of an auction. It is advisable that you are clear about the price that you are willing to pay, and make sure you take into account auction house’s fees, and shipping cost if applicable.
If you are purchasing an artwork from an overseas auction house, make sure you check your local custom rules to avoid additional on-shore fees , as well as currency exchange rates at the time. If an artwork is of considerable value, you may also want to think about insuring the work while it is in transit .