Change in auction price reports
October 19 2016
Picture: Christie's
Marion Maneker's invaluable Art Market Monitor alerts me to an important change in how auction houses report their prices (in a story first reported by Bloomberg). Until now, there has been a difference in how Sotheby's and others report sale prices, as well as how they operate their guarantee processes. But thanks to a ruling by New York's Department of Consumer Affairs, all auction houses will have to follow the same rules, and the result will be greater price transparency.
Some background: at Christie's and Phillips, a guarantor is able to bid on a painting they have already guaranteed, and, if they buy it, end up with what amounts to a signfication reduction in the various premiums that would be due to a regular buyer. This is because as part of their guarantor agreement with they had agreed to benefit from a slice of the commissions if the picture sold above a certain level. They still get that slice even if they buy it themselves. Therefore, a guarantor could buy a picture a reported '$10m', but not actually pay that amount.
Why does this matter? Because in any market, price transparency is key to assessing value. Imagine a stock being advertised as being worth $10 on the Dow Jones, but available for sale for $8 to certain investors. Those investors could then sell, or borrow against, a share that everyone else thinks is worth $10. That would be illegal.
In some sectors of the art market, what a picture recently sold for matters a great deal to what the next one will sell for. In the modern and contemporary sector, where we often encounter multiples or series, the price of, say, a Warhol Elvis really does depend on what the last one fetched. The market depends on the price reported being what the picture really sold for.
As I say, until now only Christie's and Phillips have operated in this manner - and not many people realised it. When I wrote about the practice in 2014 in the Financial Times many people didn't believe me. One leading arts journalist said I had made a factual error (after having spoken to Christie's press office!). But now Sotheby's has sought to level the playing field. As Bloomberg reports:
Auction houses, whose public sales are often obscured by undisclosed fees, have to report the prices of the artworks they sell in New York with more transparency.
The city’s Department of Consumer Affairs, in a recent clarification to its law on auctioneers, outlined how companies should disclose prices for works that were guaranteed by third parties. The fees paid to the guarantors who end up buying the art must be subtracted from the total price reported to the public.
The disclosure of the selling price net of fees “reflects the true price paid by the bidder and promotes greater transparency in the auction process,” the department said in the letter dated Sept. 9.
“It levels the playing field,” said Mary Hoeveler, an art adviser in New York. “It’s important that the selling prices are not distorted by backroom transactions that are not made public. It’s not accurate representation of the actual price.”
Marion Maneker suggests the change is no big deal:
All of this is fine. Sotheby's went to the regulator; got a ruling in its favor; now all of the auction houses will have to change the reporting on these very few lots that appear in the course of a year.
How did this issue get elevated to the level where Bloomberg could write a headline declaring Auction Houses Told to Improve Transparency in Reporting Prices? Does reducing the reported figure on a handful of lots really improve transparency?
I think it does matter. Price transparency is, or rather should be, absolute; we should be able to believe the prices stated for all lots, not have to guess for some of them. Even if his guarantee process represents a handful of lots (and I can think of quite a few, even in the Old Master world) then it's worth remembering that even a few transactions can have a significant effect in a limited market.
