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News Article
Are live, online bidding services pushing buyer’s premiums higher?
By Eric C. Rodenberg

The growth of an industry often entails pushing the limits.

But, as the popular song once advised, “you have to know when to hold ’em, and know when to fold ’em."

That’s where today’s auctioneer appears to be, within a fragile – and often – capricious market.

The large auction houses – most notably Sotheby’s and Christie’s – remain supremely confident their buyers will swallow a higher buyer’s premium while bidding.

Other auctioneers are not so confident. They claim – while testing the limits – their businesses are being challenged by influences outside their control.

On March 11, Christie’s auction house in New York announced it was raising its buyer’s premium to 25 percent for the first $75,000 of the hammer price, 20 percent for $75,000 to $1.5 million, and 12 percent on anything exceeding $1.5 million.

Sotheby’s, a competitor, announced that beginning March 15, a new buyer’s premium of 25 percent for the first $100,000 of the hammer price, 20 percent for $100,000 to $2 million, and 12 percent of all sales exceeding $2 million will be billed.

Both companies noted their increases have been the first raise in buyer’s premium rates in five years.

Sotheby’s CEO William Sheridan said the company has “moved farther ahead to what we think of as round numbers,” reported Art + Auction.

The move by Sotheby’s and Christie’s express a new confidence that buyers will swallow the higher commission and still show up.

But, now the next tier of auction houses – most of whom depend on outsourced, live Internet auctions as an integral part of their business – are not comfortable with these “greater round numbers.”

Many claim they’re being pushed to raise premiums by online bidding providers Artfact and LiveAuctioneers.

On March 22, Auctioneer David Rago sent a message to his “bidders and buyers” saying the New Jersey auction house was raising its live online auction fees to 28 percent.

“Since 2010, we have been charging online bidders a 1 percent increase in buyer’s premium, using it to offset the flat fee charged by the online bidding service with which we work,” Rago wrote in his e-mail. “As of last month, the bidding service changed its business model. It is now charging us a percentage of the dollar value of all the property sold online, plus a flat fee. As a result, the effective buyer’s premium for bidding online will increase from 26 percent to 28 percent with our April auction. This will cover part of the charge levied on us.”

Rago immediately received several e-mails and telephone calls from disenchanted customers.

Later the same day, Rago sent another message assuring his customers that the auction house wasn’t raising its overall buyer’s premium – only for those who chose to use the LiveAuctioneers bidding platform.

“Maybe we made more of this than we should have,” said Miriam Tucker, a partner with Rago Arts and Auction Center. “I can see where people who read the message quickly may have thought we were raising our rates across the board. That’s not true. We sent the message out in the interest of full disclosure and transparency.”

The move by LiveAuctioneers to levy a 3 percent fee on all transactions surprised many of their auctioneer-clients.

And they’re not happy.

At Rago’s, Tucker is quick to point out that bidders from the LiveAuctioneers platform can have their 28 percent buyer’s premium reduced by 3 percent if they pay within 15 days by check, cash, money order or by wire. However, the auction house will still pay LiveAuctioneers the 3 percent. Rago Auctions will “eat” the difference, Tucker said.

“We are not happy … we are between a rock and a hard place,” Tucker said. “LiveAuctioneers is definitely going to make a lot of money. We’re not happy; the buyer is not happy; it’s a very unsatisfactory solution. In a perfect world, there should be a balance between the buyer and seller. Right now, this is counter-intuitive.”

The top tier of auction houses – such as Christie’s and Sotheby’s – are immune from such a push by Internet service providers. They have their own platforms.

For those on the “second tier” – like Rago – it is a dog-eat-dog market. Many of these auctioneers do not have the autonomy to raise their fees without losing customers. Plus, many of these national and regionally focused auction houses claim they need a global market to survive. Most of these auctioneers concur that strong bidding from China, Russia and other overseas markets have kept their businesses afloat during, at least, the past five years.

LiveAuctioneers’ competitor Artfact has always charged 3 percent of the hammer price, said Artfact CEO Rob Weisberg.

“I think you have to look at the whole picture,” Weisberg said. “The online bidders are doing two things – they’re buying items and they are active underbidders, driving up the prices. Auctioneers now have bidders from all over the world – Singapore, Hong Kong, London and Paris – and it’s my guess that they are driving up prices on the floor. I personally believe that our services benefit the auctioneers greatly.”

It is, however, the unexpected price hike by LiveAuctioneers that have auctioneers upset.

Ron Pook, founder and long-time patriarch of Pook & Pook in Pennsylvania, said the company’s buyer’s premium of 18.5 percent, and 21.5 percent for LiveAuctioneers will remain unchanged. He maintains, though, the new LiveAuctioneers fees will cost his company “hundreds of thousands of dollars.”

“This is a big intrusion into my business,” Pook said. “They (LiveAuctioneers) seem to have decided to do this unilaterally on their part. There was no discussion. We weren’t brought in, or even considered. I think they’re crossing the line. You get to a tipping point here – at this level – and it does not fit well. There should be changes in the industry.”

Auctioneers say that, when confronted by the fee increase, LiveAuctioneers staff has advised them to “pass the increase along to their customers.”

“(LiveAuctioneers) tells us that 3 percent doesn’t cost anything – pass it on to the bidders,” said one Texas auctioneer. “But to remain competitive, we just can’t do that. Personally, I don’t feel comfortable with anything beyond a 15 percent premium.”

In the past, LiveAuctioneers has charged fees based on “tiers” of service provided. Then they went to a more complicated formula where the auctioneer could “buy down” the buyer’s premium by paying a higher upfront listing fee. Now they are charging a flat fee of $650 plus the 3 percent.

“As I recall from my discussions with LiveAuctioneers, the price structure has changed more times than my 9-year-old changes her clothes in a day,” said Amelia Jeffers, president of Garth’s Auction in Ohio. “I think attempting to increase your margin on the backs of online bidders is not a client-friendly approach.”

LiveAuctioneers CEO Julian R. Ellison did not comment. “Be advised that no comment will be forthcoming from LiveAuctioneers, nor will there ever be, on this subject or any other editorial topic proposed by AntiqueWeek,” said LiveAuctioneers Customer Service.

Auctioneer Ron Rhoads said he got caught in a crossfire created by LiveAuctioneers. He scheduled his Easter Saturday auction for March 30, months in advance. For the auction, Rhoads and Rhoads advertised a 15 percent overall buyer’s premium and an 18 percent LiveAuctioneers premium. The auction was scheduled and advertised before he learned about the 3 percent hike.

“I would presume we are dangling,” he said. “We prepare for these auctions months in advance. They should have given us a six-month, or at least, a three-month notice.”

3/29/2013
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