A typical auctioneer will tell you that sellers bring items to auction for reasons known as the three Ds: death, debt, and divorce. Most sellers are indeed forced sellers. Still, auctions can play a role merely as an exit, as has been seen recently with art collectors selling their whole collections to start anew or changing their strategy as to their art philanthropy to serve institutions rather than holding art itself. Auctions can be an excellent marketplace for acquiring artworks that one cannot access in the primary market and can also be suitable for attending but not participating in to develop your eye and taste for art if you’re new to collecting art.
In a previous post, we took readers on a tour of several auctions. In this post, we get into the business of actual auctions. Overall, auctions are a critical function to the commerce of art, and every collector should consider participating in an auction at least once in their collecting journey.
Primary market vs secondary market
In the introduction, we mentioned the primary market. The primary market is the art market, where the artworks are being sold for the first time. This transaction can typically be incepted directly by the artists themselves, through a gallery or at an art fair (although we have spotted art dealers at one or two).
Auctions form part of the secondary market. The secondary market is the transacting of artworks after ownership from a purchase in the primary market, any sale where the artist is not selling the artwork for the first time. Private sale transactions between art collectors directly or through an art dealer also form part of the secondary market.
Ways in which artists benefit from auctions as a marketplace
Given that auctions form part of the secondary market, you might be asking how an artist benefits from transactions in the secondary market. In many ways, artists don’t benefit directly. For this reason, in some cases, art participants don’t like or are not supportive of auctions as a way to purchase art, and they promote the primary market. But in truth, some objects are not obtainable from the primary market, such as artworks from an artist who has passed away.
Direct ways in which artists benefit from auctions as a marketplace
In some cases, a country might have legislation enabling artists to benefit from selling their works through anyone in the business of dealing in artworks. Where a country still needs such legislation, an auction house might decide to apply the principle of their own volition, or another agency might act as an advocacy group for an industry to implement artist resale rights in the absence of the legislation. Artists may benefit through a royalty scheme where the auction house has to levy a royalty fee, typically a percentage of the hammer price. Countries with such schemes include Australia, France, Germany, New Zealand, Sweden, and the UK. The fee ranges from 0.25% to 5% and may be subject to a maximum value.
Indirect ways in which artists benefit from auctions
In some indirect ways, artists also benefit from their works being sold at auction. Auctions have the potential to attract the interest of many more art collectors than the artist’s natural audience, primarily as many are held in person and online. Art collectors might see the works of an artist based in Abidjan in galleries in Senegal and Paris; however, if the artist’s works are auctioned at a global auction house in London, many more collectors might be interested in buying the pieces. The increase in reach can boost demand for the artwork and increase the hammer price achieved on the painting.
Another indirect benefit for artists is that auction records are public. The excellent industry participants make their auction results accessible on their websites (some, unfortunately, require you to register with them to access them). Auctions often publicise if their auction has set a new record for a price achieved for an artist’s artwork, creating a media spotlight for the artist. The publication of results is often seen by other industry participants like valuators and art advisers, and that can help to promote that artist’s work with other collectors, again increasing the interest in that artist’s work and potentially resetting expectations about how that artist work might perform for those focusing on the investment side of art.
Ways of participating and their considerations
Suppose you’re going to participate as a buyer. You can do so typically in-person at a live auction, online (if available), or through a proxy, be it the auction house or someone else.
Bidding at a live auction was a predominant way of participating in auctions for a long time. The advent of online meant that many more people could participate in auctions. The availability of online auctions has generally made them more inclusive, and it has also been very beneficial for the auction houses as the COVID-19 pandemic also evidenced with some categories of auctions performing very well as auctions shifted online.
In-person attendance is the most adrenaline-generating method, especially if you get into a bidding war with another in-person participant, like a recent one between Kim Kardashian and Tom Brady, or observe such a joust in the room! Participating telephonically via one of the auction house representatives can be equally thrilling.
It’s easier to get swept up in the process in person and potentially experience buyer’s remorse afterwards or feel you spent too much on an item. Participating live online means you miss out on seeing who precisely the people interested in the same works as you are too.
For those who view auctions and participate in auctions as an art and part of their long-term collection strategy, in-person attendance is preferred.
One can also submit advance or absentee bids. Still, these can limit whether one can secure the artwork, especially if the interest in the lot is competitive.
Tips if you’re preparing to attend your first auction
Suppose you’re preparing to attend your first auction as a viewer or an active participant. In that case, the following tips will help you make the most of the experience.
Read the Terms and conditions
The auction catalogue will outline the terms and conditions for the auction. Please read all of them to familiarise yourself with the fact that participating in an auction is about potentially engaging in a binding transaction. There may also be specific terms to watch out for, which are distinctive to the country where the auction occurs. For example, the artist’s royalty scheme mentioned earlier might add additional costs. Another example is that in Morocco, buyers cannot take the works of specific artists out of the country. So, if you live outside of Morocco, you might need to consider long-term storage or display options for the work you acquire.
Other key terms with which to familiarise yourself include the buyer’s premium, bid increments, bid registration, and payment terms. It is also important to be aware of the various terms which are used to describe the works as well as any authenticity warranties – there is a debate as to the extent to which auction houses have a responsibility regarding establishing and regulating authenticity.
Research
Read up on what is written about the artwork and do additional research. It helps if the seller has provided details about the artwork, a process made easier if they have been performing collection management and have provided the records to the auction. The auction catalogues often don’t indicate who the previous owner(s) of the artwork is(are), which can affect your provenance records, so contact the auction house well ahead of the auction date to know more about the provenance and whether a third party can independently validate it or not.
In some cases, auction participants have challenged an auction regarding the amount of disclosure (or lack thereof) about an auction or auction lot. And there are also restitution considerations to acknowledge in some cases. It is worth reading about the Washington Principles to understand potential restitution implications for affected artworks.
Budget (or not)
Consider a budget before you attend the auction. Of course, this depends on your income and wealth. For most people, it will help to ensure you have in mind a maximum spend for each of the artworks you are interested in. Remember to factor in the costs, such as the auction house’s commission and taxes, when setting the budget to avoid a nasty surprise when you get the invoice.
Try to keep your emotions at bay!
Auctions can evoke a range of emotions: guilt at not making one more bid, jealousy for the participant who managed to outbid you, elation when you secure at work at a price lower than what you had budgeted to spend and anxiety when you realise if you’ve spent more than you had planned to spend.
Most critically, excitement can get the better of you, especially if you get into a bidding war over an item. In these instances, spending more than you planned to pay for an artwork can be easy. It also helps to remember that the auction houses typically offer art advisory services, so if you don’t get the artwork that you were hoping for, they might be able to assist with facilitating the procuring of another work by the same artist through a dealer or client who they can contact to see if they would consider a sale.
Enjoy the auction!
You will undoubtedly have an enjoyable time attending auctions as a marketplace in your art collection journey. It is also important to highlight that while it may seem like auctions are only for multi-million-dollar artworks, those are often only the lots highlighted by the auction house or in the art sections of newspapers and online news and social media. Auctions offer a range of artworks at different price points – the key is looking beyond the marketed lots and checking out the whole auction catalogue.
Remember that if you buy an artwork, you can use Capital Art to save the invoice you receive, pages from the auction catalogue and other important information about the artwork so that if you ever need to sell the artwork, that marketing information and provenance is readily available.
In the comments, let us know how your auction experience went!
Fascinating for me to read from an artist perspective – thank you
Very informative. Great read.