Sotheby's and Christie's have long been a bellwether in the art market. Sotheby's announcement of the largest commission adjustment system in more than 40 years will undoubtedly play an important guiding role in the future trend of the art auction market.
Historical review of auction house commissions.
The history of commissions for auction houses dates back to 1975, when Christie's was the first to charge commissions to buyers, at a rate of 10%; Similarly, in 1979, Sotheby's also charged buyers' commissions at auction for the first time.
In the 90s, due to the world economic crisis, the auction industry encountered difficulties, the number of traded lots decreased, and the profits of auction houses plummeted, such as Sotheby's net profit from 1. in 1989$1.3 billion, down to $3.9 million in 1991. As a result, Christie's and Sotheby's conspired to start collecting commissions from sellers, launching the famous monopolistic conspiracy over commissions. In March 1995, Christie's announced that it would charge sellers a fixed rate of sliding rate commissions. In April of the same year, Sotheby's also announced a new seller commission rate, which is strikingly similar to Christie's.
Seller commission rates published by Christie's and Sotheby's in 1995.
In 2013, auction houses had to increase commissions again due to rising costs and declining profits due to intensified competition in the industry. This adjustment is mainly for the commission part of the buyer, by expanding the buyer's commission range to obtain more commission income. Sotheby's commission system, for example, requires a buyer to pay a $180,000 commission before the adjustment if the buyer buys a lot that sells for $1.5 million, and then increases to $300,000.
In 2013, Christie's and Sotheby's expanded the range of buyer's commissions.
In addition to the two major changes mentioned above, Sotheby's has raised its commissions six times in a row since 2015, most recently in 2022, and compared to the commission structure in 2013, not only has the commission rate of each tier been increased, but the value of each tier has also been raised, which means that more lots have been included in the high commission rate range.
By increasing commissions, auction houses are passing on high operating costs to consumers, thereby increasing their own revenues. With the intensification of global competition in the art market, auction houses have to increase input costs in various aspects such as publicity, labor costs, catalogue printing, and cross-border operations, coupled with the intangible costs caused by inflation and changes in the global economic situation, which will lead to the repeated compression of profit margins of auction houses.
In 2022, Sotheby's raised buyer commissions.
However, in the face of the current sluggish art market environment, Sotheby's has unexpectedly chosen to announce a reduction in commissions recently.
Sotheby's calls the fee structure the most significant change in more than 40 years, with a significant reduction in buyers' fees and a flat rate of seller commissions for all lots, regardless of category, in order to create a more dynamic market and attract more new customers.
The adjustments include:
1. Reduction and simplification of buyers' remuneration: Sotheby's reduces the remuneration paid by buyers;
2. No more operating surcharges: Sotheby's will completely waive the 1% operating surcharge, which was previously borne by the buyer;
3. Standardized commission rates: For sellers, Sotheby's simplifies all category commission rates to a flat standard rate, which is reduced or waived based on the value of the lot or collection;
4. More transparency: Sotheby's provides buyers and sellers with a price list with zero industry jargon and a convenient and simple guide to the use of the new charging model.
The new fee system will be implemented at two separate points in time: the seller's commission will take effect from April 16 for contracts signed from April 16; Buyer's commissions will be implemented from May 20. Although the new policy was announced in February, it should be noted that the 2024 Hong Kong Spring Auction will still use the old system.
The new standardised fee model will apply to Sotheby's auctions. Excludes luxury cars, real estate, liquor and spirits.
Based on the signals released by Sotheby's commission adjustment, we boldly identified the following market trends:
Wind direction 1: the arrival of a buyer's market.
Charles F., CEO of Sotheby's"Since 1979, when Sotheby's first introduced buyer's fees at auction, the market has largely shifted the burden of the transaction to buyers," Stewart said. As a result, buyers have to pay a high fee, and the calculation of the gratuity by grade is so complex that it even requires a calculator to understand. ”
This time, the commission has been reduced across the board, and buyers will be able to purchase their favorite works with less commission than in the past. For example, Modigliani's Portrait of Plitter Joudan in the "Dragon Journey: Liu Yiqian and Wang Wei Collections" sale was sold for 2HK$3.5 billion, with commission, the transaction price is nearly 2HK$7.3 billion; Under the new fee structure, the transaction price plus commission is 2HK$63.5 billion, which can make the savings of nearly HK$9.5 million.
2023 Sotheby's Hong Kong "Dragon Tour" special auction site,**
Sotheby's Hong Kong.
After the commission is reduced, the buyer's budget has increased invisibly, and he can also sprint for more ** lots. At the same time, the simplified commission ladder allows buyers to focus on bidding instead of being troubled by commission calculations and missing out on the best time to bid.
In fact, in the past few years, both domestic and foreign auction houses have realized the importance of buyer maintenance, and have continuously improved the quality of service and the quality of lots to win the favor and long-term relationship of buyers. The strategy of reducing commissions is to pass on a portion of the auction house's profits to buyers, which is unprecedented and to some extent heralds the arrival of a buyer's market, bringing new hope and excitement to the sluggish art market.
The preview of the lead lot "Portrait of Plitter Joudan" in the "Dragon Journey" sale.
Wind direction 2: The "battle for new customers" is intensifying.
In business, the most fundamental purpose of auction houses willing to give up part of the commission income is still to obtain customers. The biggest drop in each tier is undoubtedly the part of HK$7.5 million and below, which was 26% before the new policy, and now it is unified at HK$50 million and below, with 20%. This is great news for new buyers, who are able to spend 6% less commission than in the past when buying works under the million-dollar level. Christie's, on the other hand, is still implementing a 26% buyer's commission for HK$7.5 million and below, and Sotheby's is undoubtedly taking the lead in the market.
Wind 3: The art market will develop in the direction of openness and transparency.
In the past, the seller's commission has always been kept secret, and the seller's share ratio depends on how the seller communicates with the auction house. This time, Sotheby's is determined to standardize the terms of sale, reduce private negotiations, and make the charging method more concise and transparent.
charles f."The seller's fee structure is completely opaque, distracting them from what matters most," Stewart said. We believe that simplified and clear terms will benefit both buyers and sellers. ”
Now, for the first time, seller commissions are open and transparent, and the fees are unified and clearly divided, which will not only save a lot of effort and cost spent on negotiating fees and financial arrangements with sellers in quarterly auctions, but also lead the healthy development of the industry ecosystem.
Sotheby's Shanghai Space Unveiled, **Sotheby's.
Wind 4: Increasing pressure on the mainland auction market.
In terms of sellers' commissions, the fees charged by mainland auction houses are generally 10%, and those charged by regular customers are 6%, plus 3% personal income tax withheld for the state, and 1% insurance, and the comprehensive fee is generally more than 10%. In Hong Kong, there is no 3% personal income tax, only commissions and insurance. This time, Sotheby's will directly adjust the lot below HK$40 million to 10%, and the upper limit is HK$400,000. In other words, the seller only needs to pay $400,000 to Sotheby's after successfully selling a HK$40 million lot at Sotheby's. If the work of the same amount is in the mainland**, it will have to withhold 3% of the personal income tax, that is, 1.2 million yuan, in addition to the commission and insurance of the auction company.
In terms of buyers' commissions, mainland auction houses have always had a certain advantage in the domestic auction market with a commission rate of 15%. Sotheby's's lower commission will undoubtedly weaken the advantage of domestic auction houses in this area and affect collectors' decision-making in buying and selling art.
Attached: Sotheby's.
A list of auction terms.
Absentee bid
A way to get people who can't or don't want to attend the auction to bid. An absentee auction may also be referred to as a written, delegated or appointed bid, and the bidder only needs to complete and submit the absentee bidding bid form.
appraisal
A formal valuation of the fair market value and/or insured amount of a particular property. Fair market value refers to Sotheby's estimate of the likely selling price of an item at auction; The sum insured reflects what Sotheby's believes will cost you to repay the item. The appraisal department will compare your item to similar items that have recently been sold, but it is not necessary and you can obtain a pre-auction appraisal even if you do not have a formal written appraisal.
Artist resale right (also known as artist resale right or droit de suite).
Under the European Union's Artist's Resale Right Directive, and the United Kingdom has also introduced this regulation, artists are entitled to receive resale royalties each time their work is sold in the EU or the UK through an art market professional, under certain conditions. If the sale price of a lot (excluding the buyer's premium and VAT) exceeds €1,000, Sotheby's will collect the resale royalty from the buyer on behalf of the artist. Purchasers who purchase any Lot to which the Artist Resale Rights are subject are required to pay a resale royalty, which will be added to the amount of their invoice. Please refer to the Artist Resale Royalty Table for more information.
Status (as is).
All lots are listed in their current condition at the time of auction **, together with their existing defects and defects. Sotheby's encourages interested buyers to carefully inspect each item before bidding. The appraisal department will compare your item to similar items that have recently been sold, but it is not necessary and you can obtain a pre-auction appraisal even if you do not have a formal written appraisal.
Auctioneer
Trained professionals who conduct the entire auction will usually give an overview of the item before auctioning it. Once a bid has been initiated, other bidders may offer a higher bid. Bidders can bid in person, through ** or online. The auctioneer may also bid on behalf of the absentee and determine when the auction will end. When an artifact is successfully sold, the auctioneer announces the sale. However, if the item does not reach the reserve price or there are no bidders, the auctioneer will declare the auction unsold.
Bid (bid).
During the bidding process, the prospective buyer indicates to the auctioneer that he or she is willing to pay the amount for the purchase of the lot.
Bid increment per bit
The auctioneer's bid amount for each bid increase. In general, the auctioneer will ask for a bid amount of about 10% higher than the outcry. For example, if bids start at $5,000, subsequent bids should be $500, and so on. The actual amount will usually be rounded or determined by the auctioneer.
Bidnow
Instant BidNow is Sotheby's online bidding service that applies to all auctions except wines. Sotheby's by Instant Bidnow, on Sothebyscom Live broadcast the auction, and customers who have registered their bids in advance can place bids just like the people at the auction.
Bought-in
If no one bids on the lot, or if the bid does not reach the reserve price, there will be an unsold sale, i.e. the item remains in the possession of the original owner.
Buyer's Remuneration (buyer's premium)
The commission payable by the buyer on the sale price. See Sotheby's.
Buyer's remuneration. rates.
Seller (seller's commission)
Consignment. The commission paid to Sotheby's will be deducted from the transaction price.
Cataloguing
Actual information about the lot, such as the name of the artist or creator, a detailed description of the item, the year of production, the provenance (owner's record), major exhibitions attended, and publications in which the lot has been described, etc. These data will be published in the print and electronic auction catalogues.
Condition Report
Sotheby's experts write a written description of the condition of the artwork before the auction takes place.
Conditions of business
This important document states that Sotheby's and the consignor agree to the terms of the Lot to the Buyer. Please be sure to read these terms carefully before bidding.
Consignor
Transfer the items to Sotheby's as the owner of the property**.
Designation
In the description of each item in the catalogue, the consignor of the lot is sometimes identified by the title column. The consignor may decide whether or not to use the designation, and may choose to identify the current holder by name or title, e.g. the property of a well-known European collector.
Estimate
Each lot has a minimum and maximum estimate, which gives Sotheby's experts an estimate of the range of possible prices that can be achieved for a lot. The estimate is based on the verification of the object, as well as the record of similar objects at recent auctions. The appraisal, which is published in an electronic or printed catalogue, is not only an important preliminary reference for prospective purchasers as to the value of the lot, but is also usually the basis for setting the reserve price.
Exhibition History
List the museum or gallery exhibitions in which a particular lot has been exhibited, and the exhibition record will have a certain impact on the value of the artwork.
Expert Specialist
An expert who is part of an auction department and has expertise in a specific area of collection. Sotheby's experts are often the best scholars, many of whom have published books, lectured and directed international exhibitions in their field of expertise.
Fair market value
A term often used by appraisers to refer to their judgment and opinion on the likely selling price of the goods offered by the voluntary seller** to the voluntary buyer. Since the auction process is open to all bidders, the auction price is the measure of fair market value.
Auctioneer Warning (Fair Warning).
The auctioneer will sometimes give a warning that the lot is about to be hammered, alerting the bidder of the last chance to bid, and if no one bids after that, the auctioneer will strike the hammer to announce the sale of the lot.
Small mallet (g**el).
The auctioneer announces the small mallet to be used at the end of the bidding.
Guarantee
In a few cases, Sotheby's guarantees payment for the consignor's item, regardless of whether the bid price of the lot reaches the reserve price. Warranties may be provided by Sotheby's, a third party, or jointly between Sotheby's and a third party. A third party who provides full or partial margin may make a profit from the successful sale of the insured item, but may suffer a loss if the sale is unsuccessful.
Guarantee line
Guaranteed items are indicated in bold in the auction catalogue, with important information such as the authenticity of the work, the name of the artist or creator, and the provenance of the item.
Hammer price
The bid price of a lot at auction is the highest bid accepted by the auctioneer with a hammer and is the final sale**, but does not include the buyer's premium.
Knocked down
Auction house term for a mallet that falls and ends bidding, e.g. a lot sold for $1 million with a hammer.
livebid
Online bidding service for Sotheby's Wine Auction.
Lot of lots
An item or group of items in one unit** at auction.
Overhead Premium
All buyers participating in auctions and online auctions held at auction rooms around the world are required to pay an operating surcharge, which is an operating expense associated with Sotheby's facilities, item handling and other administrative costs, in the amount of 1% of the hammer price plus any applicable local taxes. This fee and Sotheby's buyer's premium calculation rate excludes local taxes and any applicable artist resale royalties.
Paddle
The number board will indicate the number of the buyer who registered for the auction. If you wish to place a bid, hold up the number plate until you are sure the auctioneer sees it. If you win the auction, Sotheby's staff will note down your bid and the number of the plate. You must bring the number pad to the payment counter to make the payment.
Pass unsold
Indicates that the item was not sold at auction because the reserve price was not reached.
Photography
Sotheby's conducts professional photography of each lot in the auction for documentation and promotional purposes. These ** will be published in its electronic and printed catalogues and are important reference data for buyers when purchasing their favourite lots.
Presale Exhibition
A few days before the auction takes place, Sotheby's will publicly display all the lots in the auction and have an expert on hand to answer any questions you may have. Previews are free and open to the public and usually close at 1 p.m. the day before the auction. Please refer to Auction Information for dates, times and locations.
Provenance
Provenance is an important part of the identification process, with the aim of tracing the origin of the item and the owner (if possible). The provenance of a lot has a significant impact on its value.
Reserve or reserve price
It is the lowest price set by the consignor and Sotheby's and is strictly confidential. The reserve price will not exceed the minimum estimate, and if the auction does not reach the reserve price at the end of the auction, the lot will not be sold.
Auction results
At the end of each auction, Sotheby's publishes the results online in real time in local currency. Generally speaking, the auction result will include the hammer price plus the buyer's remuneration.
Sale number
Each auction at Sotheby's has a unique distinct number to distinguish similar auctions before or after. The first letter of the auction number indicates the auction location: l for London, n for New York, and so on. The auction number is displayed in many places, such as the cover of each electronic catalogue and printed catalogue.
*Telephone bidding
Many buyers like to entrust Sotheby's representatives at the auction site to bid on their behalf.
Valuation
Sotheby's experts will prepare a detailed description of the item and data on its current value. The valuation is not the same as the pre-auction valuation. Valuations have many uses, including charitable donations, secured loans, estate taxes, estate arrangements, and insurance, among others.
Written by: Tina Xu, Deng Yun.