Sotheby's vs. Mastro et. al.

[Archive]

Posted By: Corey R. Shanus

From what I understand, Harry has it right. At the major auction houses (e.g., Sothebys, Christies), there is a hidden reserve and it cannot be higher than the low-end estimate. The lower the consignor is willing to allow the reserve, the lower the auction house can put the estimate. From the auction house's perspective, the most important thing is that the item sell. That generates their buyer's premium and seller's consignment fee, which is how they make their profit. They therefore have every incentive to have as low a reserve as possible. In my view, for the items in which a defined market exists (which is usually the vast majority of items in an auction catalogue), it is in the consignor's interest to have as low a reserve/estimated value as possible. That allows more people (to use Rob M's word) to dream about winning the lot and therefore be more likely, not only to participate, but to bid higher than they otherwise might. For example, if I was selling a T206 Wagner, I would know the item is so liquid and the market so deep that it won't matter what the reserve was. I would therefore be very comfortable with a very low reserve/estimated value because in the end it won't have any bearing on the the item reaching its market level, yet generate much more interest in the lot; and the more interest, the greater the chance of the item selling at a higher price. Where this strategy could be dangerous is where the item is so esoteric and/or the market so thin that a higher reserve genuinely is needed to protect the consignor from the item selling for less than it reasonably should. Another rationale for a high reserve/estimated value is where the consignor is so enamored of his item that he is willing to sell it only at a very high price. Auction houses do not like those situations because of the high risk the item will not sell. They usually agree to take a lot with an unreasonably high reserve only if the lot is particularly prestigious, or if the consignor has unusual leverage with the auction house.