The High Cost of Auctions-- Sotheby's increases buyers fee!

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Posted By: bruce Dorskind

Sotheby's increases buyers fee


Kira Bindrim

August 23. 2007 3:36PM



Auction house Sotheby’s said Thursday that it is raising the buyer’s fee charged on smaller ticket auction sale by 5% to 25%.

Effective Sept. 1, the buyer’s premium, which is paid to the auction house, will apply to sale prices up to $20,000, Sotheby’s said in a Securities and Exchange Commission filing.

The buyer’s fee will remain at 20% for sale prices between $20,000 and $500,000 and 12% for any sale above $500,000.

The move matches a similar increase by rival auction house Christie’s International. On Aug. 3, Christie’s raised its buyer’s premium to 25% for items under $20,000. The two auction houses tend to move in tandem. Sotheby’s originally bumped its buyer’s premium to 20% in December 2004 -- Christie’s followed suit one month later.

Sotheby’s also disclosed in its SEC filing that outstanding auction guarantees have reached $378.1 million, 37.5% higher than the $274.9 million reported on Aug. 7. Another $95 million are earmarked for pending offers, most of the company expects to realize during the second half of the year. Earlier this month, Sotheby’s management set an annual auction guarantee limit of $500 million.

Auction guarantees are made to ensure a minimum price on a sale. Sotheby’s is generally entitled to a share of any proceeds above the minimum price, or must pay the difference if an item sells below its minimum. Strong auction guarantees typically translate into stronger profits.

Earlier this month, Moody’s upgraded its long-term debt rating for Sotheby’s, citing the company’s strong operating performance and a 48% increase in second-quarter profits, which reached a record $107.3 million.

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Posted By: Joseph

I hope I don't live long enough to see the 100% buyers fee

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Posted By: JimB

I don't understand why the Auction companies keep shifting these illusory numbers or why bidders and consigners get so up in arms about it. Don't all sides do the math and figure out the bottom line before they bid/consign to/take consignments. Why can't it just be straightforward? No BP. Consignment fee is x %. The auction houses seem to be trying to pull a fast one on the lazy and the math-challenged. Lucking that is not me.
JimB

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Posted By: JimB

P.S. I don't know this is supposed to go into affect, but I got my copy of the latest SCP/Sotheby's catalog today and the BP for the upcoming auction is a straight 20%.
JimB

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Posted By: barrysloate

I too read some time ago about the 25% buyer's premium, but their current sports catalog does say 20%. Not sure I understand why.

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Posted By: Max Weder

It will be interesting to see how Christies responds.

Max

Edited to add: Ooops. Can't read today. I see it follows Christies move. Oh well. When was that price fixing plea?

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Posted By: MVSNYC

thats' so ridiculous...

i do have to say, however, that i received the new SCP Sotheby's catalog today, they have an amazing array of cards for auction...incredible!

MS

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Posted By: Jeff Lichtman

Is it online yet?

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Posted By: JimB

Not online yet. Bidding begins next Tuesday.
JimB

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Posted By: barrysloate

Those two large T206 lots with printing errors look very intriguing!

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Posted By: MVSNYC

barry-

shhhh.....

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Posted By: boxingcardman

With all the competition out there, we tend to forget that if you have a really great item to sell, you can not only demand a 0% commission, you can go after a piece of the BP too.

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Posted By: peter chao

Adam,

That's not realistic, what do you mean by great? You are really talking about a highly desirable card that is also rare. Maybe a T206 Plank something like that?

Peter C.

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Posted By: MVSNYC

peter- it is realistic, i have spoken to a few of top auction houses in the past inquiring about consigning "great" pieces, not planks, or super rare cards, and i was able to get a 0% commission...if it's a great piece and they want it in their auction, you have room to negotiate...

maybe some of us are just better than others at negotiating.

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Posted By: barrysloate

Michael- nothing gets missed in a sale with that much publicity.

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Posted By: MVSNYC

i know, just kidding barry...

when will your auction be up?

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Posted By: barrysloate

August 31st.

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Posted By: MVSNYC

looking forward to it...sounded like you will have some amazing stuff!

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Posted By: Alan

If I had something that amazing to consign to Barry, I wonder what consignment fee he would charge me ?

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Posted By: leon

Maybe with so many sellers getting 0% sellers fee Sotheby's felt they had to do it. I wonder if other auction houses will follow suit, and if so, will they lose business?

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Posted By: barrysloate

Everything is negotiable, depending on the quality of the consignment. But an auction house still has to make money, they can't work for nothing.

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Posted By: Tom Boblitt

the elusive zero or negative selling commission BUT........do you think a reduced BUYING commission exists? That is, a guy spends $100K an auction. Is that kind of power enough to negotiate to 10% or 15% on the buy side? Or is that just not possible............

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Posted By: barrysloate

I can't speak for others, but I couldn't give a discount on the buyer's side. In that case, I would make more money from the underbidder, and that makes no sense.

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Posted By: leon

That is the most beautiful avatar I have ever seen. You are glowing . As for your question.....I just don't think so. Like Barry says...they have to make money to stay in business. I don't know where it stops though (BP)?

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Posted By: JimB

You can't have differ BPs. That would make it an unfair auction for competing bidders. You could win with a $150 final payment (bid + BP) even though my bid plus BP is $160. Doesn't work.
JimB

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Posted By: Corey R. Shanus

In the good ol' days of the Copeland auction (at Sothebys), wasn't the buyers premium 10%?

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Posted By: MVSNYC

yes, i just checked my copeland catalog...it was only a 10% BP...that was 1991

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Posted By: Tom Boblitt

yesterday..........

Either way, with 25% BP, they are COSTING the seller because bidders will factor that more and more into bidding. So it APPEARS that you don't have a sell-side premium but it's costing you in terms of what your item brings ultimately.

How long before the other Auction houses walk in lock step? Kinda like the old gas stations.......one raises, they all raise.........

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Posted By: boxingcardman

Maybe a better model for the industry would be a BP-only model. Offer no commission consignments and charge the buyers for the services via the BP. I think one or two of the houses already do this and I have to say, it is an attractive model to me simply because I get what's bid, period.

Edited to add: I just saw Goodwin's banner and it says 0% commission.

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Posted By: barrysloate

Adam- as a consignor which would you rather have:

A 0% fee with an auction house that charges 25% BP

A 5% fee with an auction house that charges 15% BP?

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Posted By: Max Weder

In the case of 0% consignor fee, 25% buyer's, the consignor gets $10,000; the auction house gets $2500 on a final price all in of $12,500.

In the case of a 5% consignor fee, 15% buyer's fee, the consignor gets $10,326 and the auction house gets $2,174 on a final price all in of $12,500.

Unless of course my math is wrong.

e&o.e

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Posted By: Jim VB

Gee Barry, you left out the current, most popular option which is 20% from the seller AND 20% from the buyer!

I find it interesting that this industry is one of the few, if not only, business models which has evolved where the buyer pays an additional fee.

When you buy a house, the real estate agents fee comes from the sellers proceeds.

When you buy a car, the salesman's commission comes from the dealer, not the car buyer.

Furniture? Men's suits? Same thing.

All those business models have evolved such that the revenue/fee comes from the person receiving the money, not the person paying out. Only in the collectibles/art world does it work differently. Of course, Ebay reverts to the traditional model and has become the largest auctioneer in the world in just a coiuple of years.

I should get an MBA student to research this.

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Posted By: barrysloate

The auction business seems to work a little differently than real estate and some of the others. Real estate now has competition from "no fee" apartment listings and sellers who demand that realtors cut their 6% fee in half. I think it is difficult for them.

The auction business will probably soon face the same competition. It all depends upon the quality of the consignment- some are ordinary, others are world class. The auction house decides how badly they want them.

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Posted By: boxingcardman

The auction houses presently demand 20/20. Maybe on an average lot with a repeat consignor you can get them down to 10/20. Taking 10/20 as the figure, if the card sells for $10,000, I get $9,000 and the house gets $3,000 ($10,000 + 20% + 10%). 5/20 isn't realistic as an example, but let's say I got that on a $10,000 sale. By my calculations I net $9,500 and the auctioneer gets $2,500. If the commission is 0% and the BP is 25% I get $10,000 and the auctioneer gets $2,500. The real issue isn't how much is taken (the numbers are the same), it is how it is allocated. Under a no commission, higher BP scenario, the buyer eats the other $500.

Now you may reply that a higher BP generates lower bids by raising the total the buyer has to spend. The impact depends on how you structure the auction. If the auction uses the 10% advance structure, I don't think a 5% bump in BP has much effect on decisionmaking. If the bid is $11,000, the extra 5% BP is $550 (at 20% BP an 11k bid = $2,200; at 25% BP an 11k bid = $2,750). Are you telling me that a person who can pay $13,200 for a card won't bid the next increment on it because the price would go to $13,750? That is not what I've seen people do. And at lower values, the numbers are even less likely to deter. I don't know of too many collectors who would lose a $1,000 card over fifty bucks (I know I'd simply not go out to dinner one night).

Besides, all this is academic. For a sufficiently valuable item, the numbers don't matter because the consignor will simply negotiate the aggregate rate down by taking a chunk of the BP or consigning the card to the next auctioneer who will meet his price.

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Posted By: barrysloate

One thing I agree with is a tiny increase in BP- for example, when they first jumped from 15% to 17.5%- was irrelevant in terms of how people bid, because there was no intermediate increment they could go to. So while the bidding was unchanged the auction house found a great way to add 2.5% to the coffer. That is no small amount in a $5-10 million sale.

But in the end the greater total cut the house gets, the less the consignor gets. And is there anybody left who still manages to get 20/20? If so, I need to get with the system.

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Posted By: MVSNYC

it is definitely a huge turn-off to see auction houses raising their BP's to ridiculous amounts (as we pointed out eariler in the thread, Sotheby's used to be 10%, now is up to 25%)...

BUT, with all of that said, no matter what the BP is, when i'm bidding in an auction, i take the BP into consideration when bidding...pretty simple math, grab a calculator and figure out what the most is that you are willing to pay for a particular lot (INCLUDING the "juice")...and then bid accordingly.

if i want to pay a total of $1250 for a lot in Sotheby's, then i simply bid it upto $1000 (or thereabout)...

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Posted By: Jason L

It is weird, isn't it (maybe even, dare I say, perverse!) that the percentage take that the auctioneers are getting has gone up so much (2x to 2.5x) since 1991, while the following things have happened:

1) Ebay emerges to make buying and selling a very accessible activity, increasing liquidity probably hundreds-fold

2) Prices of the underlying assets have skyrocketed

What a bizarre business, this auction thing.
I mean, at the most base level analysis, there's far more of the product available, more often, and the stuff is far more valuable than it ever used to be.
Aside from the glossy catalogs, (which are indeed, quite nice), where do these companies get off taking a larger slice of the pie than they used to?
The only value-add that I see is in the practice of alteration prior to auction....ohhh....wait a minute!
Ha!
nevermind!




PS - Barry, you are excluded from the above company