Buying Art at Auction
Nov 5, 2020
Stories of art auctions have become routine accounts of wealth. Every few months, an auction breaks some record with a painting going for tens of millions of dollars. These headlines give the impression that art auctions are only for the super rich. But that impression is wrong.
Art auctions can actually be a great way to buy art. Well ran auctions provide a plethora of resources for bidders to peruse before and during the proceedings, and you can sometimes get great art for low prices, depending on the room.
Another misconception is the idea that auctions have to take place in crowded rooms. Due to social distancing concerns, many people think art auctions are off the table, but auction houses have realized what eBay learned long ago: auctions work well in online environments.
Below are guidelines for how art auctions work and how to navigate them successfully.
At an auction, people looking to buy artwork (bidders) sit in a room or hang out in a virtual portal, kind of like a Zoom meeting — sometimes literally a Zoom meeting.
A work of art will be presented as well as the opening bid. Bidders will then raise their hand (in a virtual setting there will be some other way to “raise your hand”) to indicate a bid. Sometimes bidders raise fancy paddles to make a bid. Frequently, there will also be bids made over the phone to the auction house.
Once someone makes a bid that no one else is willing to top, the auctioneer will bang their gavel and award the purchase to the highest bidder as long as the reserve price is met.
Know the Terminology
Before you grab a paddle and start a bidding war, it’s important to get some of the lingo down first:
- Auction House: This is an establishment that sets up auctions with experience and expertise at their disposal. They publish information about all the work for sale ahead of time.
- Consignor: This is the person who currently owns a piece of art being sold at an auction by an auction house.
- Private Seller: These are people who both own a work of art and run the auction. Users selling things on eBay or other similar platforms are the most common form of a private seller.
With that out of the way, there are some other key terms and ideas to wrap your head around before diving into strategy.
This is the amount that the auction house guesses the work will sell for. Some people use this as a guide to see if the room is bidding too much, others don’t pay much attention.
If the auction is being run by a house with resources, they are likely lowering the estimate to encourage people to come. Nothing gets collectors in the door like promises of a bargain.
If the auction is being run by a private seller, typical of many online art auctions, the estimated price is usually on the high side. For the most part, private sellers think their work is worth more than it is.
This is the lowest amount the current owner is willing to sell for. If the room doesn’t go above this threshold, the work will not be sold.
To make sure a work passes the reserve price, auction houses will sometimes bid against someone to get them above that amount, called a chandelier bid.
This is the price that begins the auction, usually below the range in the presale estimate. The first bid has to top this amount.
Opening bids are almost always below the reserve price. This is meant to entice as many bidders in the room or virtual space to get in on the action. Once the heat of a bidding war gets started, the price will usually end up well above the reserve price.
This is the amount that the art ends up selling for — in other words, the last bid before the hammer falls.
Art Auction Strategy
As with other forms of art buying, always go into an auction with as much information as you can handle. As mentioned before, auction houses will publish material on what they are putting on the block, and even private sellers will let you know what you’re buying.
Auctions will also host previews where bidders can view the works going up for sale. This close look will give you a sense of the items as they are in person.
Go into an auction armed with information, like how much a piece is likely worth, what its history is, and if it’s something you are seriously interested in or can pass on.
With that information, it’s time to create a budget. To do this, keep in mind:
- What you want to bid on
- What is your priority
- What your maximum bid is for each artwork
When a piece you really want goes above our maximum bid, you sometimes discover you’re willing to pay more than planned and you bid above budget. If that happens and you win, you should adjust your bidding on any following artworks accordingly to keep inside your budget.
Similarly, when priority pieces sell to someone else, do not raise your maximum bid for later works. You could end up paying prices substantially higher than the value of the piece.
Almost every auction has costs above and beyond what you bid. These come in two main kinds:
- Buyer’s premium: This is a percentage you pay to the auction house on top of your winning bid. These can be a few percentage points or as much as 25%.
- Taxes (including VAT): Taxes are all over the board depending on where you live. While some auctions are less “official,” you will technically owe tax, especially on larger purchases.
On top of these, sometimes you will be charged a percentage in royalties to the artist or artist’s estate.
Added up, these costs can be significant. Educate yourself on what the hidden costs will be and factor them into any bid you make.
Should You Buy Art at Auctions?
For some art collectors, the thrill of the auction alone is worth it. For others, it’s too nerve wracking.
Generally, auctions can be a good place to buy art. They are not a magic place where you pay pennies on the dollar, but you can find yourself in a room that can’t see the value that you do — and you can get a great deal.
With social distancing concerns, auctions have become a way to buy art without any risk of exposure, as you can bid from your living room wearing your favorite pajamas.
The best way to find out if they are a good option for you is to take the plunge and participate in one!