Art Auction Primer

Buying art at auction

The emergence of the internet has had a profound effect on the sales of art on the secondary market in general, and auctions in particular. Most significantly is the availability of price information. Twenty years ago, private dealers could purchase work, and quickly resell the pieces with a 100% of profit and more. Today, with auction prices readily available, collectors can easily research the current value of their work before they approach a dealer or auction house. Similarly buyers can research current values before they purchase. Thus, art dealers continue to make deals, but their margins and profits have shrunk considerably.

With the development of internet auction services such as ArtAuctioneers and ArtFact, regional auctions can expose their auctioned work nationally and even internationally. With most of these auction services, the collector can indicate what styles and artists in which they are interested, and they will be notified when one of their auction house clients are offering work they might be interested. So even if there is under 50 people in the live room, there may be ten times that bidding on selective lots.

Dealers in the past were able to pickup real bargains at smaller, poorly-attended auctions and then sell them to client collectors or at national auction houses. Much of this opportunity has diminished with the development of these online bidding networks. Not all of the auction houses have adopted these services, but the trend is clearly evident.

Another consequence of these internet auction services is that the results of their client auctions are also easily available with an internet search. This makes flipping a piece to a large auction house for large profits is much more difficult, because new potential buyers can easily find out what the piece initially sold for.

For the collector, the internet has been a real boon. By registering your collector preferences, you have access to a multitude of opportunities to collect specific artists and styles. And although the bidding is more competitive with these online auctions, the collector can acquire art usually at a lower cost than what they could from private dealers.

With increased bidding competition for desirable work, the auction houses have progressively pushed up their buyer premiums with commissions at most of the large auction houses to 25% and even higher. With the prices of investment grade art increasing around 5% a year, this means it will take three or four years to re-coop the acquisition expenses. But art investment is not a short term proposition, especially in this age of the internet.  

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