The Debut of Sotheby’s New Fee Structure: Reduced Fee for Buyers (Cue the Dinosaur!)

What goes around comes around?

I may be one of the few active cultural journalists who covered in real time the late-’70s introduction in the US of the buyer’s premium (then a flat 10% for all winning bids) at art auctions. European auction houses were already charging a fee to buyers as well as sellers, but in the US, the commission cost had been entirely borne by the sellers who had engaged the auction houses’ services to handle their consignments. In introducing the buyers premium to its New York headquarters, Sotheby’s argued that it provided services to buyers, not just to sellers, and should therefore be compensated by both sides.

US dealers were strongly opposed to this change in fee structure for obvious reasons: By shifting some of the costs from sellers to buyers, it made auction houses more competitive in attracting consignments that might otherwise have gone to dealers. As the late Rita Reif, then the NY Times’ ace art-market reporter, wrote in September 1982 article on the legal battle over the buyers premium in Great Britain:

One reason the buyer’s fee sparked such controversy was that the auction houses, by charging buyers a percentage of the selling price, could reduce what they charged the sellers. Formerly, sellers bore the total cost of 12 to 30 percent of the selling price, whatever the auction house considered necessary to make a profit. Now the fee to sellers ranges from 2 to 10 percent. With the seller’s risk reduced, the auction route may seem more appealing to some owners than through the galleries of art and antiques dealers….

Christie’s introduced a 10 percent fee to buyers in the United States when it opened its galleries at Park Avenue and 59th Street in May 1977. Sotheby’s followed suit in January 1979.

The auction houses justified their charging a buyers premium on the grounds that they performed services for buyers as well as for sellers.

Now Sotheby’s has unveiled its plan to institute a new fee structure for buyers and sellers at auction, hyped as “the clearest, fairest terms in the industry.” The new buyers premium rates are: 20% on purchases of a hammer value up to $6 million and 10% of the portion of the hammer price above $6 million. An object that sells for $10 million, for example, carries a 20% premium on the first $6 million and a 10% premium on the remaining $4 million. (Buyer’s premium rates continue to be subject to local currency exchange rates where applicable.)

“The reduction in the buyer’s premium incentivizes more bidding from buyers. And more bidding results in higher hammer prices for sellers,” Sotheby’s maintains, in its above-linked “new fee structure” rollout.

The fee structure for sellers is more complicated, although Sotheby’s touts it as “consistent and unambiguous pricing.” It does seem unambiguously geared to attracting consignments—the crucial first step in assembling a successful sale

Here’s how Sotheby’s describes its the new commission structure:

Sotheby’s now has a uniform seller’s commission rate of 10% on the first $500,000 of the hammer price per lot, across all categories. We do not charge a seller’s commission on the portion of the hammer price above $500,000 per lot. This eliminates the complexity associated with varying rates and, instead, grants every client access to consistent and unambiguous pricing.

Recognizing the need for different terms on high-value consignments, Sotheby’s has waived the seller’s commission for consignments valued above $5 million low estimate. The idea is to prioritize transparency and simplicity for our clients, and to fully focus on realizing the highest value based on our unparalleled expertise, vast reach to clients around the world, and global selling strategies.

Lastly, for consignments with a total low estimate in excess of $20 million and up to and including $50 million, sellers receive 40% of Sotheby’s Buyer’s Premium in addition to the hammer price.

And here’s another proviso:

All terms outlined above apply to lots that do not have a guarantee, which account for the bulk of Sotheby’s auction business. For guaranteed works, Sotheby’s has a fixed guarantee commitment fee: 4% of the guarantee amount, chargeable to the seller [emphases added].

If all this seems to you “consistent and unambiguous,” you have more accounting acumen than many can lay claim to.

Still, I suppose that things have been somewhat simplified, as Charles Stewart, Sotheby’s CEO, asserts on the “new fee structure” website:

In Stewart’s analysis:

Since 1979, when Sotheby’s first introduced Buyer’s Premium in our salerooms, the market has largely shifted the transaction burden onto buyers. The result has been high costs for buyers and tiered commission structures that require a calculator to even understand (emphasis added) as well as an entirely opaque fee structure for sellers which distracts from what is most important to them. We are confident our simplified and clarified terms will benefit both buyers and sellers going forward.”

That said, I wouldn’t ditch the calculator quite yet.

But wait! There’s another kicker. Sotheby’s has invented a new fee, as revealed (with no fanfare) on its website:

Sotheby’s has a success fee [?!?] of 2% on all lots where the hammer price exceeds the high estimate.

That said, Sotheby’s has eliminated another “new fee,” which had caused me to do a double-take when it was quietly introduced in 2020—the 1% “overhead premium,” intended to help defray “the overhead costs relating to our facilities, property handling and other administrative expenses, and reflects the increasing costs associated with delivering great service and experiences in a highly competitive marketplace.”

In a May 23 follow-up post on Sotheby’s website, Will Fenstermaker, a senior editor at Sotheby’s New York, listed The First Sales With Our New BP [Buyer’s Premium], starting with “Master Paintings” in New York. I’ll leave it to you to analyze the results of that sale, which are “inclusive of Sotheby’s Buyer’s Premium and Overhead Premium, and exclusive of any applicable taxes and costs, unless otherwise noted.” (Estimates are for hammer prices only, not the final price, to which those charges are added.)

If there is no “Lot Sold” price at the end of a painting’s entry, it means that it failed to sell because the bidding fell short of the reserve.

I had wrongly suspected that this move by Sotheby’s might have been its way of pressing its advantage after Christie’s experienced a reputational hit from the shocking hack attack. But in response to my emailed query, Derek Parsons, Sotheby’s vice president for communications, discredited that interpretation:

I want to make clear that the changes to Sotheby’s fee structure were announced on February 1 and have no connection whatsoever to this recent incident. The new fee structure went into effect on May 20, but has been planned for months.

That said, Sotheby’s clearly indicated in a recent press release that it believes the new fee structure will give it a competitive advantage: In its announcement of the planned July 17 sale of an 11-foot-tall, 20-foot-long fossil, which it claims is “the finest Stegosaurus specimen to come to market,” it noted that Sotheby’s “new simplified commission structure” makes it “easier to calculate fees and more accessible to buy in Sotheby’s auctions than at any other international auction house. 

The big question (as yet unanswered) is whether the fee adjustments at Sotheby’s will cause Christie’s to revise its own pricing structure. There used to be a “leapfrog effect” (described by me here), whereby one house would respond in kind to changes made by the other.

Right now, Christie’s buyers premium in New York (effective Apr. 17, 2023) remains at 26% of the hammer price of each lot up to and including £800,000/US$1,000,000; plus 21% of the hammer price from £800,001/US$1,000,001 up to and including £4,500,000/US$6,000,000 and 15% from £4,500,001/US$6,000,001 and above.

And in late-breaking news: Zachary Small of the NY Times reported yesterday online (but not in yesterday’s or today’s hardcopy) that “Christie’s said Thursday that it had alerted the Federal Bureau of Investigation and the British police about the cyberattack that hobbled its website earlier this month, and began telling clients what types of personal data had been compromised. The company said in an email to clients that neither their financial data nor any information about their recent sales activity had been exposed in the hack. But it said that some personal data from clients’ identification documents had been compromised….In its email to clients, Christie’s urged people to check their accounts for any unusual activity and wrote that it would be offering them ‘complimentary identity theft protection and monitoring services.'”

In response to my query, a Christie’s spokesperson confirmed Small’s account, adding that the complimentary identity theft protection and monitoring services would be of one-year duration.