Auction Results and Hammer Prices, Redux

It turns out I'm not the only person who cares about the weird way in which auction house estimates are compared to hammer prices (ex commission) during an auction, but are compared to the total price paid (including commission) after an auction. But while I think that reporting hammer prices is idiotic, Lee Rosenbaum takes the other side of the argument: she complains that looking at the total price paid "makes the sale results look better than they actually are, because they've been inflated by the commission".

For me, the total price paid is the total price paid, and is the only really concrete number in the whole hullaballoo. A high estimate is a completely pointless and useless number; a low estimate is only useful in that it signals to potential buyers the point at which (in hammer-price terms) they're guaranteed to walk away with the painting if they win the auction. Below that point there's always a risk that the work won't have reached its reserve, and will end up being bought in.

Rosenbaum says that "the correct comparisons", in judging the success or failure of an auction, involve comparing hammer prices to pre-sale estimates. I don't think it's nearly as simple as that. I think that the correct comparisons should always involve the total price paid, since that's the sum of money actually being spent on the art in question. As Rosenbaum says:

Because commission-inflated results are the guideposts for determining record prices, it is theoretically possible to set a new auction record this winter for an artist who fetched the same hammer price last spring.

This just goes to prove how silly hammer prices are as a guide to how much a painting is being sold for. If I pay $1 million for a painting, it doesn't matter to me overmuch how much of that money goes to the auction house and how much to the seller. In fact, I don't know what the final breakdown is, since the auction houses won't reveal how much, if any, commission has been charged to any given seller.

The total sale price can and should be used in lots of useful comparisons -- such as how much the same picture sold for at previous auctions, or how much last year's auction raised in total compared to this year's. The comparison to pre-sale estimates is always a bit silly anyway, since estimates are much more about salesmanship than they are about some kind of objective market value.

Maybe the simplest solution to this whole problem would be for auction houses to stop claiming that the estimates refer to the hammer price and not the total sale price. They could continue to implement a rule that the reserve hammer price can never be as high as the low estimate, but otherwise tell anybody who asks that the estimate is simply a rough guide to how much they think the painting is worth, and that the only real way of telling for sure is to go to the auction and see what it sells for.

After all, Rosenbaum's entire article is based on the single assumption that the pre-sale estimates are the auction houses' "published predictions of the range in which an object's hammer price is expected to fall". If the auction houses stop making that claim, then there's really nothing for Rosenbaum to complain about.

(Via Maneker)