Art auction houses routinely include their commissions when reporting sale prices, significantly inflating the numbers above and beyond what people actually pay for works of art. Said differently, they're misrepresenting evidence about the current art market. In today's In the Fray column (Wall Street Journal, behind paywall), Lee Rosenbaum explains how it happens, and calls for a more transparent process.
In Making Sales Look Stronger: The auction houses have an interesting way of reporting their auction results., Rosenbaum says even though recent auctions were reported to have dismal results, "Actually, the situation is worse than reported. Contrary to what you might expect, press accounts, relying on the information released by the auction houses, don't normally measure a sale's success by comparing an object's hammer price -- the last amount announced by the auctioneer -- with the presale estimate of hammer price. Instead, they almost invariably compare the estimate of hammer price to a figure arrived at by adding hammer price to the commission that the auction house charges the buyer. The result is an apples-to-oranges comparison that makes the sale results look better than they actually are, because they've been inflated by the commission.
$1 million here, $1 million there, pretty soon you're talking about real money. Rosenbaum says commissions are 25% for sales prices up to $50K, dropping on a sliding scale to about 12% for amounts over $1 million. So when an auction brings in $100 million in sales, those fees are hefty. He continues: "Despite the fact that hammer prices of individual lots are announced as they happen during the sale, journalists who ask for them (or for a sale's hammer total) afterward may need time and persistence to get the information -- resources in short supply on a tight deadline. At a time when confidence in markets has been seriously shaken, it's more important than ever for the auction houses to provide a true reflection of how their sales are performing. They can easily provide hammer price lists and totals, along with the figures that include the buyer's fee. They should then use these figures draw the correct comparisons -- hammer price to presale estimate -- in analyzing how well their offerings have fared in the saleroom."
Since today's issue of the Wall Street also included an article reporting recent auction results, I wonder -- did this reflect a similar overstatement of actual sales prices?
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