Selecting the right auction Continued
Besides the selling commission, the seller can also expect other charges from the auction. The seller can be charged for insurance, storage, art and photography charges, advertising, and some auctions charge even a fee if the piece does not sell. This last fee, called a buy-in fee discourages sellers from putting high reserves on their work. It is not a happy seller who walks away from an auction without a sale, and with a significant fee to boot.
One of the largest obstacles in making money in art is the high transaction costs. The transaction cost for purchasing stock can be under 1% whereas the transaction costs for art may be 25% or more. Auction commissions can be 20% or more. On very expensive acquisitions, this can be reduced, but it will always be significant compared to the transaction costs of other assets.
All auction house consignment agreements include verbiage that protects the auction house against any legal actions initiated by both the buyers and the sellers. For art sellers, the right of rescission is often overlooked and in some ways the most important. The right of rescission allows the auction to rescind any sale into the future. When an auction exercises that right, the buyer is returned his money and the seller is returned his art. Rescission rights offer some protection to buyers and also provides the auction protection against any legal action initiated against them by either the seller or the buyer. Some rescission provisions include time limits as short as a few days while others may extend for five years or indefinitely. Rescission places the seller under a cloud of uncertainty. Although rescission rights are included in most consignment agreements, they are subject to negotiation.
The timing of the auction can also effect price. Auctions in the fall yield better prices than auction in the spring and summer. Plus specialized auctions that feature the kind of work you are offering will also yield better prices. For instance, a piece by Albert Bierstadt will sell better in an auction of Hudson Valley painters than a general auction.
Shipping is another issue that the seller needs to consider. Crating and shipping a piece 2000 miles will be more costly than shipping a few hundred miles. And if the work does not sell, you must bear the return shipping and crating charges.
Once you have selected an auction, the next major decision is setting the reserve price. The reserve price is the lowest amount the seller will accept for the painting. The auction house will set the expected range of price for the work. For instance, that range may be between $20,000 – 30,000. So the reserve price will be some amount less than $20,000. Each seller's situation is different. In an estate settlement situation, the seller will probably really motivated to sell, and therefore set a very low or even no reserve for the work. Conversely, a professional dealer who sells regularly may not wish to dispose of a piece without receiving a strong bid for the work. In this case, the reserve is going to be much closer to the minimum estimated price. Since the auction house wants to sell every piece in an auction, they will always recommend low reserves.
For individuals who may never sell another piece at auction, the experience can be very exciting, especially with high estimates for the piece. That excitement can be increased by the choice and location of an auction. An auction in Topeka is not the same as an auction in New York. Although your primary objective is to net as much from the sale as possible, maximizing the experience may also factor in your choice of auction.