Auctions, Hammer Prices, Estimates and Commissions

Lee Rosenbaum of the Wall Street Journal writes an interesting article about auction houses inflating sales prices and auction success standards by including buyer premiums. This practice by auctions, as we appraisers know is rather routine. The practice includes quoting pre sale estimates without premiums, and final sales prices with premiums. Similar to the old proverb of comparing apples to oranges. Issues arise when collectors and connoisseurs become focused on pre sale estimates and the final sales prices. As appraisers, we all know to beware of the pre sale estimates as a guide to value. On the other hand, when it comes to the analysis and perceived success of a sale, the comparison of pre sale estimates and final prices, including premiums, is typically used. Is it a correct and transparent system, I would venture to say not.

Rosenbaum takes issue with comparing the final sales figures which typically contain the buyers premium with the pre sale estimate which do not include a commission. This method of comparison and reporting inflates the sales price of the item. Rosenbaum states Actually, the situation is worse than reported. Contrary to what you might expect, press accounts, relying on the information released by the auction houses, don't normally measure a sale's success by comparing an object's hammer price -- the last amount announced by the auctioneer -- with the presale estimate of hammer price. Instead, they almost invariably compare the estimate of hammer price to a figure arrived at by adding hammer price to the commission that the auction house charges the buyer.

The auction houses foster such misleading comparisons by customarily releasing after the sale neither individual hammer prices nor the total of all the hammer prices of sold works. This approach serves their interest in reporting a successful sale by producing higher totals and reducing the number of works that appear to have sold below their estimate. Yet it doesn't serve the interest of the public in getting an accurate understanding of what really took place.

Rosenbaum states that some auction houses refuse to release to the press/public actual hammer prices falling back on the old standby excuse of standard industry practice. Rosenbaum is correct that in the current economic situation, collectors, dealers, appraisers and the public should have a clearer idea of sales and auction results and success standards and more transparency in reporting.

The article is a very good read.Although perhaps nothing that is not already know to many appraisers, but it is good to see the press advocate transparency in the reporting of auction results. So long as you know we are comparing apples to oranges, we as appraisers can make sense of the reported results.

To read the Wall Street Journal article, click HERE.