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Antiques, Auction Houses and Your Portfolio
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Antiques and art are recommended for a limited part of an investment portfolio for high-net-worth individuals, but new changes may have whittled away at any benefit for buyers of more modest artwork.
“It takes just as much effort to sell an object for $10,000 as for $100,000” — Anonymous
An example of an art piece that meets the new criteria for the increased buyer’s premium. Before the enhanced pricing, the buyer’s premium was 20% — now it is 25%. From Christies.com: A FABERGE-STYLE SILVER GILT AND ENAMEL KOVSH, AND A PILL BOX,20TH CENTURY, sold for $52,500 at Sale 2721 Interiors 23-24 July 2013 New York, Rockefeller Plaza
Antiques and art are recommended for a limited part of an investment portfolio, at least for high-net-worth individuals. Recently, Christie’s and Sotheby’s whittled away at any benefit this might have for buyers of more modest artwork by increasing the threshold for their buyer’s premium in their lower two tiers (Effective 11 March 2013 for Christie’s).
Before
Now
Tier 1 (25%)
<$50,000
<$75,000
Tier 2 (20%)
$50,000-$1,000,000
$75,000-1,500,000
Tier 3 (12%)
>$1,500,000
>$1,500,000
Percentage of U.S. buyer’s premium depending on item value for Christie’s. Note the figures for the lower two tiers increased. Sotheby’s increased similarity.
Whether this was to squeeze an additional premium from clients or to discourage lower and medium-end sellers and buyers from consigning to them is the $64,000 question. Javier Lumbreras from Artemundi Global Fund tackled this puzzle with data in his article entitled, “What is the True Reason Behind Christie’s and Sotheby’s Increase in Buyer’s Premiums?” It was published in ArtBanc Intelligence, in June 2013 (issue 4).
Lumbreras performed a statistical analysis on more than 9,000 lots sold at Christie's and Sotheby’s during 2012. To do this, he grouped the lots sold using the before period and then the after increase in pricing structure at both Christie’s and Sotheby’s. He used the lots in each tier and their share in value to calculate the percent of premiums the auction houses gained from the sales.
Category 1: Revenue before the buyer’s premium increase for Christie’s and Sotheby’s’ combined
Category 2: Revenues now after the buyer’s increase, Christie’s
Category 3: Revenues now after the buyer’s increase, Sotheby’s
The small percentage increase in revenues from the upswing for the buyer’s premium suggests that these auction houses are not attempting to increase revenues with this ploy, but rather trying to gather higher valued artworks to sell. In other words, they are discouraging consignment of lower priced objects that require the same or similar work on their part for less income than the higher valued items.
Lumbreras conjectures that these two major auction houses are feeling competition in the lower end market and calculate that their efforts will be better focused if they concentrate on the high end. Christie’s and Sotheby’s are obviously in a choice position to do just this. Lower end auction houses may be the beneficiaries due to increased business, but collectors/investors less so. This is because investing in lower end art as part of an overall portfolio profit strategy may be more expensive than previously.
ADDENDUM:
Since I wrote this article, Christie’s increased the threshold it charges for their buyer’s premium for a second time this year. This means both auction houses, Christie’s and Sotheby’s, increased their thresholds by 100% this year for the lower price ranges.
Read more:
The Chinese are Buying (They’re Just Not Paying!)
It's Not Easy Diversifying a Portfolio with Antiques
