Auction Reserves, Opening Bids, Presale Estimates
Q: I don't really understand how art auctions work, like presale estimates, reserve prices, and opening bids. I see or hear about these dollar amounts at both online and traditional auctions. Are they what the art is supposed to sell for? Are they what the art is worth? If there's a difference between presale estimates, opening bids and what the art is actually worth, what is it? Why does some art sell for much more than estimates or opening bids while other art only gets high bids that are well below these amounts? And what about art that gets no bids at all? Please explain.
A: First, the definitions. A presale estimate is the price range within or around which an auction house believes a work of art will sell for. The reserve price is the minimum dollar amount that either the auction house or the consignor is willing to sell the art for. If the high bid is lower than the reserve price, the art will not sell. The opening bid amount is generally set below the low presale estimate and reserve price, often low enough to attract bidders with the prospect of getting bargains.
In today's auction world, auction houses rely largely on an artist's recent and past auction sales history in combination with their current track record of retail gallery sales and overall popularity in the marketplace to determine whether or not to accept their art at auction either for the first time or to continue accepting it on consignment for future auctions. Auction houses need to review as much past sales data as possible, from an economic standpoint, because they only want to offer only art they believe they can sell at or above certain minimum dollar amounts. They do not want to waste time or even lose money publicizing art that either sells for less than minimum presale estimates or fails to sell at all. Too many non-sales not only reflect poorly on the auction house, but also on the current health of the art market as a whole. (Online auctions like eBay are different as you'll see later.)
When auction houses accept art by artists with established auction histories, they usually base presale estimates, reserves and opening bid amounts on recent past auction sales results. When they accept art by artists whose art has never appeared at auction, but who are currently selling well at galleries and getting attention in the media, they usually set presale estimates, reserves and opening bid amounts somewhat below retail, sometimes significantly below, in order to attract bidders and maximize the chances the art will sell.
The accuracy of presale estimates, reserves, and opening bids depends on the abilities of auction house employees to locate and interpret past sales 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 auctions in the recent past, but can at times be based in part on retail gallery selling prices as well. Also taken into consideration are factors like a work of art's condition, how significant of an example it is compared to other art by the artist, how desirable the subject matter is, the overall economic health of the marketplace, the current popularity of the artist with collectors and critics, and so on.
For bidders, presale estimates serve as rough guidelines of what auction houses think art will sell for. They are primarily for people who don't have the time, access to price references, or skills necessary 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 bricks and mortar auctions, presale estimates sometimes turn out to be 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, unrealistic expectations of consignors, and even the weather. For example, a painting's owner might insist on a presale estimate that's so high, the art won't get bid on at all. Or the presale estimate might be set way too low because the auction house overlooked certain critical information about the art that's spotted by collectors. Or a condition problem with the art might turn out to be much worse than the auction house originally thought, and so on.
Another reason 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, stimulate bidding, attract publicity, or end up selling the art for prices substantially higher than those estimates. The lower the estimates, the more likely potential buyers are to attend sales in hopes of snagging bargains. Likewise, people who consign art prefer doing business with auction houses that appear to be selling merchandise at prices significantly higher prices than 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 some years ago at Sotheby's. The auction house purposely estimated certain items as though they had no particular ownership history or significance, a classic example being Kennedy Onassis' triple-strand imitation pearl necklace, estimated to sell only in the low hundreds of dollars even though she had worn it at historically important events as documented in famous photographs, like a classic image of her wearing it while holding daughter Caroline as a baby. It ended up selling for over $200K. Another notable example was Andy Warhol's cookie jar collection offered at his estate auction, the various jars estimated to sell on average from $50-$100 each, a number of which ended up selling in the mid to upper thousands of dollars. They were estimated as ordinary collectible cookie jars when in fact they were Andy Warhol's personal cookie jars-- huge difference.
The auction houses knew that hammer prices would likely far exceed the estimates in these cases. The relatively uninformed mass media, however, was amazed by these "astonishing" sales results. They bit the bait big time and reported with banner headlines how crazed fans were bidding fortunes for worthless pieces of junk jewelry or cookie jars when, in fact, they were actually paying fair prices for documented historical artifacts that once belonged to very famous people. The auction houses' names name got splattered all over the media around the world in public relations coups of monster proportions. The attention would not have been nearly as great nor the stories nearly as sensational had the auctions instead set realistic estimates that reflected the true historic importance of the merchandise.
Now a word about online auctions. In sharp contrast to established bricks & mortar auctions that usually make every effort to reasonably represent the values of whatever they sell, opening bids and reserves at online auctions like eBay may or may not have any relationship whatsoever to the actual values of the items being sold. Private sellers can 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 price regardless of whether that painting is worth $5,000,000 or 50¢.
For online auction sellers, the financial consequences of setting ridiculous reserves or opening bids are minimal. They typically only lose a few dollars (the listing fee) if an item fails to sell. For buyers on the other hand, the financial consequences can be far greater if they rely on presale estimates, reserves and opening bids alone. At online auctions, these dollar amounts should never be used as indications of what items are actually worth, unless the sellers are recognized established auction houses, as opposed to private individuals. Private sellers are often anywhere from overly optimistic to completely deluded about how much their "treasures" are worth. Any bidder who doesn't adequately research an item for sale at an online auction before they bid (or at any other auction, for that matter) ahead of time or who is not absolutely positively sure of what they're bidding on should definitely not bid.
(art by Barry McGee)
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