LONDON—The introduction of an extra charge at Sotheby’s and Christie’s, which will add millions of dollars to the auctioneers’ coffers over the next 12 months, has met with widespread protest and even talk of litigation in the U.K.
Following Christie’s announcement of a change to its premium earlier last month, Sotheby’s Aug. 23 filing with the U.S. Securities and Exchange Commission (S.E.C.), announced an identical increase to its buyer’s premium. Both houses’ new pricing structure went into effect on Sept. 1. (Sotheby’s also reported the current level of its outstanding auction guarantees [see p. 1].)
Sotheby’s said that in U.S. salerooms the buyer’s premium—a levy charged to the buyer in addition to the hammer price of a work—henceforth will be 25 percent of the sale price on the first $20,000; 20 percent of the hammer price on any amount above $20,000, up to and including $500,000; and 12 percent of any remaining amount over $500,000.
The main change affects the first $20,000, on which the rate was raised by 5 percent to 25 percent. Buyers formerly had paid 20 percent on the first $500,000. (Similarly, in the U.K. the buyer’s premium at both houses was raised from 20 percent to 25 percent on the first £10,000 bid at auction.)
In the past, sellers always gave a commission to the auctioneers. But increasingly, as the salerooms cut sellers’ rates in competition for exceptional works on offer, the buyer’s premium has become a more important source of revenue.
When first introduced by Sotheby’s and Christie’s in London in 1975, the buyer’s premium stood at 10 percent on all lots. Other auctioneers then followed suit, and since 1993 the premium has gradually increased.
Even seasoned professionals—who calculate beforehand how much each bid actually will bring—admit to being staggered at the difference in price. (A winning bid of £1 million, or $2 million, will cost an extra £160,000 ($324,000.) Critics of the premium believe that the buyer receives little in terms of services or protection in return for the payment. In a recent suit brought by Canadian heiress Taylor Thomson against Christie’s concerning some very expensive urns, even the judge seemed at a loss to know what the payment of the premium was for (ANL, 6/8/04, pp. 6-7).
Buyers Raise Specter of Conflicting Interests
Auction buyers also ask how, if the salerooms are acting as agents for the seller to obtain the highest possible price, they can simultaneously represent the buyer without a conflict of interests. The auctioneers deny that such a conflict exists. “The auction houses’ roles are made clear to both sellers and buyers,” says Sotheby’s.
David Mason, chairman of the MacConnal-Mason Gallery, describes the level of charges, whereby the salerooms can take as much as 45 per- cent from both the buyer and seller, as “inappropriate” and “obscene.” Leslie Waddington, of Waddington Galleries, London, calls the fees “very greedy, and far in excess of any dealers’ charges.”
Legal action, however, remains but a remote possibility. It is more likely to happen in the U.S., says one dealer, where the market is less under-regulated. Since 1975 all attempts by British trade organizations to pursue legal action and refer the matter to the Office of Fair Trading have failed. A private member’s bill, in which the premium was described as “a rip-off,” went before the House of Commons in 2002, but it, too, floundered.
Nonetheless some lawyers, such as Milton Silverman, an arts specialist lawyer at Streathers, feel there is the potential for litigation should a case arise in which the right of an aggrieved buyer at auction becomes the central issue.
Between them, Sotheby’s and Christie’s currently sell close to 200,000 lots a year. With the new premium rate, if £500 (£1,000) is added to each lot (i.e., that extra five percent up to £10,000), it would amount to an extra £10 million ($20 million) for the auctioneers.