NEW YORK—John Flanagan, Republican state senator from New York, recently introduced legislation aimed at eradicating “chandelier bidding” at auction houses.
Chandelier bids are nonexistent bids that auctioneers call out—usually with their gaze fixed at a point in the auction room that is difficult for the audience to pin down—in order to create the appearance of greater demand or to extend bidding momentum for a work on offer.
Says Senator Flanagan: “Consumers can get hurt when everything isn’t out in the open, when they’re competing against imaginary bidders at an auction.” Recently he proposed legislation, an amendment to the state’s General Business Law, to prohibit “acceptance of sham or chandelier bids by auctioneers without disclosure” to actual bidders.
The bill, filed on June 14, states that “whenever an auctioneer or auction house accepts a bid that is made for the account of the auctioneer or auction house, the auctioneer or auction house shall announce acceptance of such bid with the term ‘auction house bid.’”
Still No Vote in Sight
No vote is scheduled yet on the bill, which is companion to a similar one—sponsored by Democratic Westchester Assemblyman Richard Brodsky—that the State Assembly passed in early June. Says Brodsky, who has promoted these changes in every session of the legislature since the early 1990s: “Chandelier bids are misleading because they create the impression that a competitive auction is taking place, motivating people to become involved. And, despite what the auction houses all say, most people don’t believe that these dummy bids exist and are taking place right in front of them.”
He adds that chandelier bidding is but one of a number of auction house practices that are in need of reform. “There are chandelier bids, loans,
guarantees. You see that the house is not a neutral market maker but has a financial interest in the outcome, which they are trying to manipulate.” Brodsky has no additional plans for further legislation at this point.
Auction houses refer to chandelier bids as “bids made on behalf of the consignor.” Their existence is stated in signs, in the sales catalogues and sometimes announced by the auctioneer. However, no one identifies these bids as not representing an actual bidder during a sale, and real bidders may be led to believe there is real competition for a given lot, prompting them to spend more than they might have otherwise, according to auction observers.
“The auctioneer has to start the bidding somewhere,” says Debra Force, owner of Debra Force Fine Art, and a former director of Christie’s American paintings department. “People don’t start bidding right away, and you need to build up momentum.” She told ARTnewsletter that many bidders wait until “just when they think the hammer will drop before they jump in.”
Under a New York City Department of Consumer Affairs law, effective since 1987, an auctioneer may bid up the price of a lot to the reserve price—the unstated amount below which the consignor will not sell the lot—on behalf of the seller.
However, the auction house is required to disclose this practice both on signs posted at the entrance or inside the auction room and in the sale catalogue. (Sotheby’s Conditions of Sale statement, for instance, says, “The auctioneer is entitled to make consecutive bids or make bids in response to other bids on behalf of the ‘seller’ up to the reserve placed on the lot, although the auctioneer will not indicate during the auction that he is making such bids on [behalf] of the ‘seller.’”)
If the reserve price for a lot is not met, the auctioneer may withdraw the object from sale, announcing that the lot has been “passed,” “withdrawn,” “returned to owner” or “bought in.” After bidding has reached the lot’s reserve price, the law states, “the auctioneer may not bid on behalf of the consignor,” and neither the consignor nor the auction house may bid on it.
In practice, the chandelier bids hide the undisclosed reserve. “Nonexistent bids and secret reserves have long been a part of the system and, really, no harm is done,” says Ralph Lerner, a partner at Sidley Austin, New York, and a leading expert on art law. He adds that the cure is worse than the disease.
Auctioneers claim that the Brodsky and Flanagan bills are a solution in search of a problem. “We have clients who are not at all shy about revealing what they like and don’t like, and this isn’t one we hear about,” said Andrew Foster, chief operating officer at Christie’s. This claim is echoed by a spokesman for San Francisco’s Bonhams & Butterfields, who points out that “our auctions are so transparent, we don’t think our bidders would ever have issues with chandelier bidding in our Madison Avenue saleroom.”
Others see passage of Senator Flanagan’s bill as a potential for great harm. “Basically the legislation is asking auction houses to disclose the reserve, which I think would severely damage the auction market,” says Gilbert Edelson, administrative vice president of the Art Dealers Association of America.
Diana Phillips, Sotheby’s worldwide head of corporate affairs, said in a statement to ARTnewsletter, “We believe this legislation would be very damaging to the New York auction market, and would drive a substantial amount of business to London.”
The reserve is always below the auction house’s stated low estimate of the object’s value and ranges from half the low estimate to 90 percent of the low estimate. (In rare instances the low estimate is the reserve, but it is never above the low estimate.)
Auction experts worry that if the reserve price were made clear to bidders, they would know what the seller would settle for and show reluctance to raise bids much higher than that.
“We need to encourage competitiveness,” Chicago auctioneer Leslie Hindman urges. “The public doesn’t need to know what the reserve is, so long as the low estimate is stated.”