Selling a valuable work of art is a big responsibility that can push owners outside their comfort zones. There is so much money on the line, so many decisions to make, and so many questions about who to trust. How does one proceed?
Let’s look at the real-life example of siblings I’ll call Jason and Lily, who sold their mother’s collection in 2015 after she passed away. Their story illustrates the pleasure and pain of figuring out the best way to sell major works of art.
The night one of their works went to the auction block, they arrived at the salesroom at 6:30 p.m., exhilarated yet anxious. Jason and Lily grew up surrounded by art, their parents’ shared passion. But after their father died, and now their mother, it was time to let go of the collection. That evening was the first time either of them had attended an art auction, let alone an evening auction with more than $400 million of art for sale. They had one lot in it—lot number 12—a painting that used to hang in their parents’ living room, which they hoped would sell for at least $7 million. The rest of the collection was scheduled to be sold over the next few weeks, bringing in an estimated $3 million. A great deal was riding on the evening sale: The siblings were counting on using the sale proceeds to help pay estate taxes that were due in four months.
The lobby was packed with people waiting to get their tickets and seat assignments. While a few people were blowing air kisses to each other, most were focused on getting through the line and into the auction room. Once there, there would be plenty of time for preening. While being escorted to their seats, the siblings passed a pop-up bar near the main event: a bar without alcohol, just light refreshments and a few snacks. Auction houses want to avoid the risk of a bidder saying after a sale that they had been plied with alcohol and overbid as a result.
While settling into their seats, they scanned the audience. Older men with younger women, 20- and 30-somethings in jeans, couples in business attire. Given fashion today, it is hard to tell the billionaire from the gallery employee sent to bid on a client’s behalf. Most of the fashion on display was of the dog-whistle variety, only recognizable to those in the know. Recognizable brands, except for Prada, were too gauche for this crowd of approximately 700.
The press was cordoned off to one side, maybe 50 people in total. Another side of the room was taken up by a phone bank filled with dozens of auction house staff primed to call people around the world who had registered to bid. An elevated podium at the front of the room was also filled with auction staff, each person standing alert, waiting for the action to begin. Looking up, Lily noticed skyboxes with one-way mirrored glass: private rooms for important clients who want to be incognito, yet still in the center of the action. They would soon be communicating their bids by phone to the staff on the podium. Each skybox was catered according to the preferences of the client, with menu choices ranging from wings and beer to cheese and fine wine. Those with the means and desire to spend $20 million on a work of art sometimes have idiosyncratic tastes when it comes to snacks.
The light chatter in the room quickly ended with the sound of the auctioneer’s gavel pounding on the rostrum. There was a brief welcome, followed by rapid-fire announcements about new third-party guarantees, lots being withdrawn, and people with a financial interest in certain lots bidding that night. The first lot was announced. Two people in the room bid on it, but most of the follow-up bids came from the phone bank. Sold. Lots 2, 3, and 4 also had many phone bidders, and sold for above their high estimates. For evening auction regulars, nothing surprising here. Auction house specialists spend a lot of time fretting over the lot order to make sure the first lots have low auction estimates relative to their fair market value. This helps create bidding activity, so the show kicks off with a bang. That night, it seemed to be working.
Lot 12 was really all that mattered to Jason and Lily. While it took about three minutes to sell a lot, it seemed like an eternity before lot 12 was up for sale. Many collectors had supposedly expressed interest in the painting during the preview period. While Jason and Lily had no reason to believe this was not true, they wondered if auction house staff repeated this calming phrase to all their consignors. They had been told that two prospective buyers sent independent conservators over to inspect the painting, and that three people had registered to phone bid on it. Estimated at $6 to $8 million, the specialists were confident lot 12 would sell well that night. The last time the family thought about the value of the painting was five years ago, when it was appraised for $2.5 million. It would be a great night if it sold within the auction estimate.
Bidding opened at $5 million. Via a succession of quick hand motions from two bidders in the front of the room, bidding now stood at $6 million. But the phone bidders the specialists talked about had yet to materialize. Where were they? Would the bidders in the room continue to battle for the painting, or had the party ended nearly as soon as it began? Lily thought she saw some motion from the phone bank—was it a bid?
Almost nine weeks before the evening auction, Jason and Lily, with support from their art advisor, wrapped up negotiations to sell their mother’s art collection. It had been two months of hard work to get to the point where they could confidently select the right firm. Because most of the value was tied up in one painting, they focused on picking the right sales agent for it. Maybe one firm should be retained to sell it, while a different provider handled the remaining lower-value items? Or should they bundle all the property together to get the best financial deal?
As a first step, the family solicited sale proposals from three auction houses and one gallery. Once the auction houses understood the property that was in play, all of them were eager to meet Jason and Lily, inspect the property, and prepare proposals. The gallery, however, had little enthusiasm about selling the painting, as well as the lower-value objects. Within three weeks, auction houses had inspected the property, prepared their proposals, and were ready to meet. Two of the auction houses brought elaborate proposals with pictures, prose, and charts describing each firm’s capabilities, approaches to marketing and selling the collection, and estimates. The third proposal, from a regional auction house, was shorter and lighter on content.
It quickly became a two-horse race; the regional auction house was taken off the list because its auction estimates were too low. When Jason and Lily dispassionately compared the marketing plans from the two remaining firms, it was hard to identify any meaningful differences between them. But unlike their marketing plans, there were substantial differences in deal terms. For the valuable painting, both firms offered the choice of an enhanced hammer deal—where the auction house would rebate to the family some of the buyer’s premium paid by the successful bidder—or a guarantee deal, where the auction house guaranteed the painting would sell for at least a pre-set minimum. But for the latter, one firm was willing to guarantee it at a price that was substantially higher than the other firm. If the family preferred an enhanced hammer deal, then that firm was also willing to rebate much more of the buyer’s premium. Things were getting confusing.
With these opening gambits, the focus turned to getting the best financial deal. When one auction house was told about the superior deal from the other firm, it quickly matched it. The house with the stronger initial deal then elected to sweeten its deal by increasing the guarantee amount, which, a few days later, was matched by the other house. This back-and-forth, which is typical for the high-end auction world, played out for a few more rounds. At the end of the process, the financial deals from both firms were now not only higher, but also essentially the same. After some reflection, the family decided to go with the firm they connected with the most in the first proposal meeting. They also decided to go with the guarantee deal, so they could be assured that funds would be available to help pay estate taxes.
But the guarantee was the floor—Lily and Jason were excited to see what the painting could bring in. Where were those three phone bidders? After an uncomfortably long pause, someone sitting in the phone bank shouted “bidding.” A phone bidder was finally in the game at $6.2 million. One of the bidders in the room then upped their bid to $6.4 million. No counter response from the phone bidder. Despite coaxing from the auctioneer, no additional bids from the room, either.
With that, the auctioneer brought his hammer down: sold for $6.4 million before buyer’s fees, which was less than the guarantee amount. The auction house would have to dig into its pockets to make good on the guarantee. While the auction house specialist who negotiated the deal probably had a frown on his face, the siblings were beaming. They would receive $7 million for a painting they believed not too long ago was worth $2.5 million.
*This article appeared in Artsy Magazine on September 19, 2018. Click here to be taken to the Artsy website.
Doug Woodham is Managing Partner of Art Fiduciary Advisors, former President of Christie’s for the Americas, and author of Art Collecting Today: Market Insights for Everyone Passionate About Art.