Q: I don't understand auction presale estimates, reserves, and opening bids very well. I see these dollar amounts at both online and traditional auctions. Are they what the art is supposed to sell for? What's the difference between these values and what the art is actually worth? Why do some art pieces sell for much more than estimates or opening bids while others don't get final bids anywhere near these amounts? Please explain.

A: In the traditional auction world, auction houses use presale estimates, reserves, and opening bid amounts to decide whether or not to take art on consignment. When they accept art, those values then help them determine which sales to put it in and how high or low to start the bidding. Auction houses need these figures because, from an economic standpoint, they only want art that they can sell at or above certain minimum dollar amounts. They lose money when art either sells for less than predetermined minimums or fails to sell at all. (Online person-to-person auctions like eBay or Yahoo are different as you'll see later.)

The accuracy of presale estimates, reserves, and opening bids depends on the abilities of auction house employees to locate and interpret data about the art they are selling. The dollar amounts they come up with are basically educated guesses about what they think that art is worth. Presale values are based primarily on how much similar works of art have sold for at recent auctions. They're also based on factors like the art's condition, how important it is, what the subject matters are, the economic health of the marketplace, the current popularity of the artists with collectors, and so on.

For bidders, presale values serve as rough guidelines of what auction houses think art will sell for. They are primarily for people who don't have the time, reference libraries, or skills to research dollar values on their own (recommended procedure, however, is that auction buyers always research art independently before bidding). Presale estimates, reserves, and opening bids are not to be taken as gospel, either in terms of what art is actually worth or what it will end up selling for. Once a sale begins, just about anything can happen.

At traditional auctions, presale estimates are sometimes way off in one direction or another because final selling prices get influenced by variables such as rumors, gossip, bidding wars, good or bad publicity, bidder psychology, and even the weather. In other cases, a painting's owner might insist on an unrealistically high reserve, a very low reserve might be set because a critical piece of data was missed by an auction house but spotted by collectors, a condition problem might turn out to be worse than the auction house originally thought, and so on.

Another reason why presale estimates can be way off is that they're deliberately manipulated by the auction houses themselves, usually to the low side, in order to pack sales rooms and attract future consignors. The lower the estimates, the more likely potential buyers are to attend sales in hopes of snaring bargains. Likewise, consignors prefer doing business with auction houses that appear to be selling merchandise at prices much higher than those that were initially "expected."

From public relations and marketing standpoints, deliberate low estimates and the resulting "high" selling prices occasionally attract huge amounts of media attention. A perfect example of this was the Jacqueline Kennedy Onassis sale held a few years ago at Sotheby's. The auction house purposely estimated the merchandise as though it had no particular ownership history or significance-- the classic example being the imitation pearl necklace, estimated at only $100-$200, even though it had been worn by Jackie at historically important events like Kennedy's inauguration. This would be like cataloguing the baseball bat that Babe Ruth used to hit his 714th home with as "baseball bat, circa 1920's" with an accompanying estimate of $100-$200.

Sotheby's knew darn well that hammer prices would far exceed the estimates. The relatively uninformed mass media, however, was totally taken in by the deception. They bit the bait big time and reported with banner headlines how crazed fans were bidding fortunes for worthless pieces of junk when, in fact, they were buying important historical artifacts at fair market values. Sotheby's name was seen and heard on radio, television and in the print media around the world in a public relations coup of monster proportions. The attention would not have been nearly as great nor the story nearly as sensational had Sotheby's instead set realistic estimates that reflected the true historic significance of the merchandise.

Rather than portray the sale as an unbelievable feeding frenzy, more informed reporters might have asked Sotheby's questions like:

"What made you think that the Kennedy Onassis items would sell so cheaply?"

"Are you considering firing your entire staff of so-called experts and replacing them with people who know how to set realistic presale estimates?"

"Since when does Sotheby's auction items like fake pearls with $100-$200 estimates at major sales? Perhaps you'll let me consign a similar strand that I bought for my wife at Ross Dress for Less. We need a new Mercedes."

In sharp contrast to traditional auctions, opening bids and reserves at online person-to-person auctions like eBay and Yahoo may or may not have any relationship whatsoever to the actual values of the art. Sellers are allowed to set whatever reserves or opening bids they feel like setting. In other words, if Mr. Jones owns a painting that he won't sell for any less than $50,000, he can set a $50,000 opening bid or reserve regardless of whether that painting is worth $50 or $5,000,000.