The world of auction houses is one of intrigue, tradition, and high-stakes transactions. Popular headlines put the focus on billionaire bidders and iconic artworks, often overlooking the extensive operations that occur behind the scenes. Auction houses are complex organizations that can employ thousands of people in dozens of different roles. Each role has a part to play in the lead up to the climactic moment of the auction itself. We're about to delve into the mechanics of how auction houses buy and sell art and give you a taster of what it's like to work in this fascinating sector.
Sourcing Artworks
Auction houses serve as intermediaries between sellers and buyers, principally sourcing artworks through consignment and receiving commissions from both parties.
What is a Consignment?
Sellers bring their artworks to auction houses for assessment, with the intention of listing them for auction. Auction houses, on their part, may also actively seek out desirable pieces for consignment, aiming to enrich their auction offerings and cater to collector interests.
The Three Ds
Historically, the primary reasons that prompt individuals to consign artworks to auction are the three D's: debt, death, and divorce. These circumstances frequently compel sellers to part with their art. However, other factors such as a shift in personal taste or the need to downsize may also influence the decision to sell.
Private and Direct Sales
Most auction houses have expanded their business by facilitating private and direct sales alongside traditional auctions. This approach is not new, tracing back to the 18th century, but there has been a significant surge in such transactions over the last two decades.
The Art of Valuation
Determining the value of an artwork requires a team of people with a deep understanding of art history, connoisseurship, and art market expertise.
Auction houses employ specialists with extensive knowledge across various art fields. These connoisseurs examine the artwork, authenticate it, and appraise its possible auction value. They undertake thorough provenance research and closely inspect numerous aspects of the artwork to confirm its authenticity and historical context.
Artworks are inherently unique, with values that can vary significantly, even among pieces by the same artist. Auction house estimates are informed by multiple factors including the artwork's theme, dimensions, state of preservation, stylistic and historical importance, as well as the techniques and materials used.
“Art auctions remind us that the value of art is not just in its price, but in the stories, history, and emotions it embodies,” says Maria Sancho-Arroyo, Faculty, MA Art Business at Sotheby’s Institute of Art-New York.
Specialists factor in these considerations, along with the historical sale prices of similar works — known as 'comparables' — and evaluate the current market demand for the artist's work to determine auction estimates.
Cataloging and Marketing
Once an artwork is accepted for auction, it is meticulously cataloged, which includes taking professional-grade photographs and writing a detailed description of the piece. The primary goal is to ensure potential buyers have accurate and comprehensive information about the artwork.
A catalog, accessible either printed or online, is prepared before the auction to outline every lot available for bidding. This catalog serves as the cornerstone of the artwork's promotional strategy.
Additionally, promotional activities may comprise private showings for high-profile clients, press releases, and digital marketing campaigns, all aimed to generate interest in the artwork presented.
The Auction
Auction houses conduct sales across a wide array of categories, ranging from Contemporary Art and Old Masters' paintings to celebrity memorabilia.
Auctions occur both in live settings and online. The prominent Marquee sales — previously known as "evening sales" due to their traditional post-6pm scheduling — attract a distinguished audience of top collectors, renowned dealers, and art professionals. These events are closely monitored by the media, which often reports on multimillion-dollar transactions. “The electric atmosphere of an art auction, where fortunes can change with a single bid, is the ultimate thrill for art lovers and collectors,” says Sancho-Arroyo.
While sales are public and open, allowing anyone to witness the event, Marquee sales are the exception, requiring tickets to ensure participants involved in the sale have access.
Bidding Dynamics
In live auctions, there are four primary methods of bidding: in-person in the auction room using a paddle, over the telephone via a representative from the auction house, through online platforms, and by submitting an absentee bid. An absentee bid involves a written statement provided before the sale that specifies the maximum amount a client is prepared to bid for a particular lot.
Over the past decade, advancements in technology have enabled some auctions to be conducted exclusively online. In these sales, participation is solely through placing bids online, and there is no auctioneer presiding in person.
When the hammer comes down, the auctioneer announces the outcome, indicating whether the lot is sold or unsold, along with the final bid amount, which is referred to as the hammer price.
However, the hammer price does not represent the final amount payable by the buyer. In addition to the hammer price, the buyer must cover the buyer's premium. Depending on the location and nature of the sale, there also may be applicable taxes and other charges.
Interested in learning more about how art is valued? Register for our online course, Determining Value.
After the Hammer Falls
Payment and Commission
After a lot is sold, the auction house manages the collection of the payment from the buyer. The seller receives the hammer price less the seller's commission, which is a predetermined percentage of the hammer price. Additionally, the seller is responsible for other expenses such as insurance during the artwork's stay at the auction house, catalog illustration fees, and other relevant charges and taxes.
Art Handling
Following the purchase of an artwork, the buyer has the option to arrange for its transportation personally or to commission the auction house to organize shipping through a third-party company.
Unsold Artworks
If artworks remain unsold, the auction house will typically return them to the consignor. Should the consignor prefer not to have the artwork returned, the piece may be re-offered at a future date, ideally after a minimum of two years, or placed in a smaller auction house at a reduced price. Occasionally, sellers may consider post-auction offers for these unsold lots, usually at a price marginally below the pre-auction estimates. Within auction terminology, an unsold lot is colloquially referred to as "burned."
Building Relationships
Auction houses depend on cultivating and maintaining relationships. They provide expertise, market insights, and customized services to foster enduring ties with collectors, dealers, and institutions. These connections are crucial for sourcing artworks and identifying potential buyers.
The world of auction houses goes beyond the ceremonial fall of gavels and the display of paddle numbers. It's a sophisticated blend of art expertise, market analysis, and relationship-building. By understanding their intricate operations, one gains a deeper appreciation for the journey an artwork takes before finding a new home.
Interested in learning more about art auctions? Register for our online course, Determining Value: An Appraiser’s Perspective.