Sotheby's and Irrevocable bids

I was talking with fellow appraiser Judith Martin about a letter to the editor in Maine Antique Digest on Sotheby's and the rather new concept of irrevocable bids. I decided to do a little extra research and here is what I discovered.

The irrevocable bid is a guaranteed bid placed by a potential buyer on a Sotheby's auction lot. If the item does not reach the level of the secret irrevocable bid, then the lot is sold at the amount of the irrevocable bid. Should there be no other bides, the lot sells will then sell at the irrevocable secret bid amount. This is different than an absentee bid, where if bidding stops below the maximum of the absentee bid, the lot sells at the last bid price. The irrevocable bidder pays the same buyers premium as any other purchaser.

Here is an interesting aspect of the an irrevocable bid. If the lot sells for above the irrevocable bid, the person who made the irrevocable bid gets a percentage of the amount over the secret irrevocable bid and the final selling price. It has not been revealed what the amount is, there has been speculation it is is 50% of the buyers premium.

The irrevocable bid is meant to reduce the exposure and risk to the auctions house, should there be an irrevocable bid, there is less of a need for guarantees. Some consider the irrevocable bid as a third party guarantee, and it is similar in concept. It protects the auction house and there is a share in profits over a decided upon selling amount.

As a form of transparency (if you can call it that), should a lot having an irrevocable bid, it will be noted in the catalog. The effect of the irrevocable bid is the item in actuality has been pre sold at some amount above the reserve, with options for other bidder to out bid the secret irrevocable bid. The issue here is will the irrevocable bid scare of other interested bidders, who will now have dual thresholds to deal with. First if there is a reserve, and second to out bid the secret irrevocable bid.

This is all very interesting and debatable from an ethical and transparency point of view. The idea of third party interest, transparency, dual thresholds all are bothersome to purchasers. Especially when they are paying premiums of ranging from 12% to 25% depending upon the final sale amount.