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When The Hammer Falls: Buying Art At Auctions

When The Hammer Falls

When The Hammer Falls

In Asia-Pacific, increasingly more people are excited by the thought of buying art, and more people than ever before are actually buying art at auctions. There is also a great deal of auction-related publicity in the media as we now read about the staggering prices of artwork sold at auctions. In response to all this hype, it is essential to take a simple, conservative and sensible approach before getting involved and buying art at auctions.

The following is a beginner’s guide to paddling your way through an auction as we highlight the terms and steps involved as well as what to look out for.

What is an auction?

The simplest definition of an auction is that it is a process of buying and selling goods or services to the highest bidder. The word is derived from the Latin word augēre, which means to “increase” or “augment”. Auctions have a long history, having been recorded as early as 500 BC. In Babylon, auctions of women for marriage were held annually, wherein the auctioneer1 would start with the woman considered to be the most beautiful, and progressed to the least. During the Roman Empire, following the military victory, slaves captured during war were auctioned and the proceeds of the sale went toward the war effort.  Times have changed since then, with countless items that can be sold. From paintings, sculptures, ceramics, jewellery, watches, wine, property, livestock to second-hand goods. The development of the Internet had also led to a rise in the use of auctions; auctioneers now can solicit bids2 via the Internet.

In Asia-Pacific, the bigger auctions houses include Christie’s, Sotheby’s, Bonhams, Poly International, China Guardian, Borobudur, Larasati and 33 Auctions. The first two have a worldwide share of 42% of the world auction market and have sales of over US$12 billion (Source: TEFAF Art Market Report 2016). They have sales offices in Asia-Pacific cities such as Hong Kong, Singapore, Bangkok, Sydney and Auckland. Poly International hold their auctions in Beijing and China Guardian in Beijing and Hong Kong. Borobudur, Larasati and 33 Auctions hold auctions in Jakarta and Singapore. Bonhams Australia holds regular sales of Australian and Aboriginal art, jewellery and Asian arts. For the updated auction schedules, do remember to check the respective auction house websites.

Why do people buy at auctions? 

An experienced auction buyer will tell you this: auctions can be great places to buy art. People can find bargains if they are skilled in researching and setting their limits before bidding. Auction houses sell a significant amount of good quality art, fresh from estates and private collections. They also have a wide network of corporations, businesses, museums, private collectors who possess important pieces of artwork, which add to the fascinating array of pieces, sometimes rarely seen in the market but included in their public sales.

Buyers also have a longer time to deliberate over what they see before they decide to buy, as the auction houses usually announce their sales months ahead. The pieces are featured on their websites, catalogues and viewing exhibitions. Collectors can take these opportunities to do their research, broaden their knowledge and possibly expand their art-buying horizons.

How to buy art at auctions?

For first-time buyers at auctions, it is best to stick with established auction houses. They are experienced, organised and equipped with specialists who have done the appropriate research on the authenticity, provenance3 and detailed information on the artwork and artist. The pieces are also generally good quality work from reliable sources.

It is advisable to try to preview and attend as many auction house previews as you can, prior to actually bidding for a piece. An auction sale entails the excitement of how the auctioneers offer the merchandise one piece at a time and how buyers respond either by raising their paddles or just purely nodding their heads. The rapid pace is exhilarating especially when it leads up to the ‘star pieces’ of the sale.

Buyers should do as much research on the art and artists that they are interested in. One must read up on the history of the artist/s, the work they have produced and prices that they have been sold for in the past. Information can be derived from websites, art history books, and catalogues from previous exhibitions and auctions.

The next step is to attend the auction house preview and spend plenty of time studying the artwork. Auction houses schedule previews in different cities so the buyers can have an opportunity to view the pieces in person. This is an experience which online websites are not able to offer. When you view an artwork you are interested in, check on the condition, the style and process that the artist had in creating the piece. You will feel the impact of the work as you view this yourself and even observe what others say about it.

Buyers can also request for condition reports4 and the history of provenance (ownership) from the auction house.  If the piece has been owned by someone famous or well-respected, the value may be higher and would make it more in demand. An example of this would be an abstract painting by Gerhard Richter entitled ‘Abstraktes Bid’ bought by the famous musician Eric Clapton back in 2001 for US$3.2 million. The same piece was sold during an auction at Sotheby’s, London in 2012 for over US$ 34.2 million (over 10 times the price he originally paid for it) (Source: The Independent, 30 September 2016).

After viewing and doing one’s research, a buyer must decide on a maximum price they are prepared to spend on an item. Having this number in mind during the actual bidding will help buyers stick to their budget.

Remember that a buyer’s premium5 (as seen in the table below) and tax will be added to the hammer (final) price6.

Buyer’s Premium - Auction Sales in Hong Kong

Christie's
Hammer Price  < HK$ 1.2 million  HK$ 1.2 million < HK$ 20 million  > HK$ 20 million
% of Buyer's premium  25%  20%  12%
Sotheby's
Hammer Price  ≤ HK$ 1.6 million  HK$ 1.6 million ≤ HK$ 22.5 million  > HK$ 22.5 million
% of Buyer's premium  25%  20% on amount in excess  12% of amount in excess
Bonhams
Hammer Price  < HK$ 1.2 million  HK$ 1.2 million < HK$ 20 million  > HK$ 20 million
% of Buyer's premium  25%  20%  12%

 

Definition of Terms
Pre-Sale Estimate – low and high estimates made by the specialists on the range which the lot might sell at an auction
Reserve Price – undisclosed minimum price agreed between the consignor7 and the auction house that the lot would be sold for

1 Auctioneer – a trained professional who presides over the auction
2 Bid – the amount a prospective buyer signals the auctioneer he/she would pay to buy the lot during bidding
3 Provenance – chain of ownership in the past to the present
4 Condition Report – a written description of the condition of a work prepared by specialists
5 Buyer’s Premium – the amount above the hammer price that is paid as part of the total purchase price
6 Hammer Price – the winning bid for a lot at auction that does not include the buyer’s premium
7 Consignor – owner of a lot who is transferring property to the auction house to act as an agent on his/her behalf for sale

When The Hammer Falls’ is part of a 2-part series article on Buying Art at Auctions. Read Part 2: ‘4 Steps to Buying at Auctions’ to find out the terms to look out for and the steps involved during the process of buying at auctions.gsdgsd

'When The Hammer Falls' is written by Regina Baxter, Regional Fine Arts Specialist & Business Development Underwriter, Personal Risk Services.

© 2016 Chubb. All rights reserved.

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Disclaimer - The content of the above article is not intended to constitute professional advice. Although all content is believed to be accurate, Chubb Insurance Australia Limited (Chubb) makes no warranty or guarantee about the accuracy, completeness, or adequacy of the content of this article. Users relying on any content do so at their own risk.

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