Canceled Purchases

The Wall Street Journal ran an interesting article on auction houses and galleries dealing with collectors who change their minds after purchasing or bidding on art. We have seen a lot of buyers remorse and non payment from Asian buyers, as well as a fair amount of push back recently from the auction houses. So the topic is important as well as timely.

The WSJ article looks more at collectors in general breaking bids at auction as well as at the gallery level in wishing to return an item.  Most feel it is best to try to work out and compromise and fair solution.

The WSJ reports

Even the most avid collectors of art can have a change of heart.

Galleries and auction houses all see their share of canceled purchases and broken deals.

That doesn't mean houses of fine art are easy touches. But bidders and purchasers of artwork all sometimes suffer financial reversals or other circumstances that cause them to reconsider. And often the seller will decide either to take it on the nose or try to make alternative arrangements rather than sue.

"When you make a bid at auction, implicitly you have made a contract with the auction house to pay the full amount if you win whatever you are bidding for," says Ralph Lerner, a noted art lawyer in Manhattan. But as a practical matter, Mr. Lerner adds, "it's bad publicity to sue bidders."

So, in case you're thinking of changing your mind about that piece of art you have bought—or promised to buy—here's a look at what's in store for you.

Breaking Bids

At Dallas-based Heritage Auctioneers & Galleries Inc., people renege on their winning bids roughly 10 times a year, says President Greg Rohan. The most common reasons: someone dies between the time the bid was placed and the date of the auction; an unexpected tax lien is placed on a bidder's bank account; divorce or medical emergency. Occasionally, bidders just get too caught up in the excitement and bid too high, Mr. Rohan says.

Heritage has pursued matters through the courts, but more often it will try to work out an extended payment plan for the buyer, he says. Another possibility is to find out if one of the sale's underbidders wants to purchase the object (often at a lower price, resulting in the auction house reducing its sales commission). Or an item can be put up for sale again later.

The sale price sometimes determines the outcome. A buyer who walks away from a $25,000 purchase might be forgiven, but $10 million might lead to legal proceedings. The client's standing plays a part as well, with perhaps a surprising amount of consideration shown to both VIPs and the average joe.

"If it is an important client, there might be more of a willingness to appease that person," says Jo Backer Laird, former general counsel at Christie's and currently an art lawyer in New York.

On the other hand, she adds, "If it is an inexperienced person, you might just decide to forgive him."

Working It Out

"Most people understand that they've made a commitment to buy something," says Ron Warren, director and partner at Mary Boone Gallery in New York City. "We try to work it out." Possibilities include extended payments, or offering to trade the work for one from the buyer's collection.

Many dealers will let a buyer off the hook in the first day or two if, for example, the artwork won't fit in their house. A collector may also have decided to buy something without first checking with his or her spouse.

"I don't want them to have things they don't want," says New York dealer Renato Danese. "That's not good for the artist. And it's not good for the collector's relationship with the gallery."

Source: The Wall Street Journal