On 1 February (Thu), Sotheby's dropped a bombshell that is going to shake up the auction industry: for the first time ever in the notoriously opaque market, a new, black-and-white set of terms has been offered for sellers.
In an unprecedented move, their commissioned rate, which is often secret, has been standardized and clearly stated – including the percentage of remittance consignors will receive for a high-value lot.
As for buyers, the auction house has remarkably lowered their premium, which represents a 26% reduction for the vast majority of lots, according to Sotheby's.
The thorough details of its new fee structure are as follows:
Currently, Sotheby's buyers' premiums are structured in three tiers, taking New York auctions as an example (including a 1% Overhead Premium):
- Hammer price up to and including US$1,000,000 | 27%
- Portion exceeds US$1,000,000 up to and including US$4,500,000 | 21%
- Portion exceeds US$4,500,000 | 14.9%
Under the new fee model, the buyers' premium will be simplified into two tiers (1% Overhead Premium will be lifted):
- Hammer price up to and including US$6,000,000 | 20%
- Portion exceeds US$6,000,000 | 10%
The change will see buyers' premiums lowered across all price points, which is good news for both buyers and sellers.
For a work with a final price of US$1.2 million, for instance, the seller currently receives the hammer price of US$888,000, and the buyer pays US$312,000 of premium to the auction house. Under the new structure, the hammer price will rise to US$1 million, while buyer's premium will be reduced to US$200,000.
*Note: the new terms are not applicable to sales of cars, real estate, wine, and spirits.
As for the seller's commission, it is traditionally undisclosed and often negotiable based on factors such as the item's value, financial arrangements, and relationships between the parties involved.
Now, Sotheby's has introduced a uniform and fixed commission rate according to low estimates at four price points. The majority of lots will fall into the first tier:
- Low estimate of US$5 million or less | 10%, subject to a minimum of US$500 and a maximum of US$50,000 (applicable for lot that is unsold)
Due to the lack of transparency, the exact difference between the current and new structure is unknown, but the new commission paid by the seller, though capped at US$50,000, is expected to be higher.
The other three rates:
- Low estimate of more than US$5 million up to and including US$20 million | Waived
- More than US$20 million up to and including US$50 million | Waived, plus 40% of the buyer's premium remitted to the seller
- More than US$50 million | Bespoke
The three arrangements here have been industry practices; the difference lies in whether the seller can secure these benefits or the remittance, which now depends on how one deals with the auction house. With a new set of terms stated in black and white, sellers will be granted access to consistent and unambiguous pricing.
Sotheby's unprecedented disclosure of seller's fees is viewed by many as a forward move to a healthier industry, especially when murky fees and financial agreements have been contentious issues in the market.
Also, auction houses generally devote a significant amount of manpower and resources each quarter to negotiate these fees and financial arrangements with each and every seller. Now that clear guidelines are in place, they can save associated costs as well.
Another type of seller's fee being implemented is the Success Fee: for any lot that hammers above a high estimate, Sotheby’s receives an additional 2% commission from the seller. This fee is not new to the industry, but again, it is often negotiable.
Notably, all terms outlined above apply only to lots that do not have a guarantee. For guaranteed works, Sotheby’s will introduce a fixed guarantee commitment fee of 4% of the guarantee amount, chargeable to the seller.
Generally, there are two types of guarantees: an in-house guarantee, or a third-party guarantee — if no one bids for a lot, the auction house or a pre-committed party will purchase it.
The new fee structure will be implemented globally in two stages: the new terms for sellers applicable to consignments signed after 15 April 2024 and the new buyer's premiums going into effect on 20 May 2024.
Sotheby's dramatic reform of the fee structure is likely to have a profound impact on the industry's ecosystem, especially its arch-rival, Christie's. Whether Christie's and other houses will follow suit has now been the talk of the town in the industry — and the answer remains to be seen.