Should There be More Art Market Regulations

The NY Times ran an article on the growing size of art sales and the need for new laws to regulate the industry in New York.  Many outsiders look at auctions and galleries and think there should be more disclosures and regulations, yet many insiders and regular buyers at auction understand the process and how the system works.

The article starts out looking at opening bids and bidding up to the reserve, where, in NY, the auctioneer may open at any level and increase the bidding so long as it is below the reserve.  The article also looks at third party guarantees which has been a process long criticized in the press about auction sales.

The article states there are very few complaints about the process, and those that do come mainly come from gallerists who are competitors.

The article also looks at gallery sales and the truth in pricing law which requires items to have price tags on them.  Many galleries in NY do not use price tags.  The article does mention enforcement by NY State is rather lax, and that many attempts to add regulations have failed.

Overall a very interesting article and worth reading.

At major auctions the first bids announced for a piece are typically fictional — numbers pulled from the air by the auctioneer to jump-start bidding.

Collectors can find themselves being bid up by someone who, in exchange for agreeing in advance to pay a set amount for a work, is promised a cut of anything that exceeds that price.

And year round, galleries ignore with impunity a 42-year-old law that says they must post their prices.

Art sales in New York, at galleries or at auction, are estimated at $8 billion a year. Yet the last significant change in the city’s auction regulations took effect more than two decades ago, when the value of transactions was less than half of what it is today.

Many in the art world insist there is no need for further scrutiny of a market that prompts few consumer complaints and is vital to the New York economy. But other veterans of the business say there is mounting concern that monitoring has not kept pace with the increasing treatment of art as a commodity.

“The art world feels like the private equity market of the ’80s and the hedge funds of the ’90s,” James R. Hedges IV, a New York collector and financier, said. “It’s got practically no oversight or regulation.”

For two decades some New York State lawmakers have been trying to curb the practice known as “chandelier bidding,” a bit of art-market theater in which auctioneers begin a sale by pretending to spot bids in the room. In reality the auctioneers are often pointing at nothing more than the light fixtures.

“The time has come to give up this fiction that there are actual real bidders,” said David Nash, a gallery owner who spent 35 years as a top executive with Sotheby’s.

But nine bills submitted in Albany over the years to ban the practice failed. So today, in a city that seeks to regulate soda consumption, chandelier bidding remains 100 percent legal. The law says auctioneers can announce such bids as long as they stop before reaching a sale item’s reserve price, the confidential minimum amount that sellers have agreed to accept.

Source: The NY Times