Sotheby's has reversed course on its recently overhauled premium structure, a move that comes during a difficult time for the auction house.

In what marked an industry first, just ten months ago, Sotheby's unveiled its complete fee structure, introducing a standardized seller's commission rate fixed at 10% for works valued up to US$5 million, with a cap of US$50,000. The buyer's fee, on the other hand, was reduced to a flat 20% on works estimated up to US$6 million and 10% for lots surpassing that threshold.

While naturally favored by buyers, the revamped fee structure was not so popular with sellers, who found themselves charged higher under those terms. "The idea was to encourage growth in our markets by creating transparency, simplicity, and fairness on fees that have always been intimidatingly complex," Sotheby's said in an email sent to clients last week. "Over the past 6 months we have listened to the market, evaluating the needs and preferences of both our buyers and sellers."

Starting from 17 February 2025, therefore, Sotheby's will revert to terms largely the same as those in place beforehand: "bespoke terms" for the seller's fee, with the buyer's premium ranging from 15% to 27% based on the hammer price of a work.

Sotheby's updated Buyer's Premium, effective 17 February 2025 (excluding wine & spirits, automobiles, and real estate):

Before the change earlier this year, Sotheby's buyer's premium followed a three-tier structure, which included a general 1% Overhead Premium. Take New York auctions as an example:

• 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%

(*1% Overhead Premium included)

Under the overhauled fee model, the buyer's premium was simplified into two tiers, with the 1% Overhead Premium removed:

• Hammer price up to and including US$6,000,000 | 20%
• Portion exceeds US$6,000,000 | 10%

Reverting to three-tiered, the new fee structure set to go into effect next year will maintain the lift of the Overhead Premium while slightly increasing the rates, with the thresholds for the second and third tiers significantly rising from US$4.5 million to US$8 million:

• Hammer price up to and including US$1,000,000 | 27%
• Portion exceeds US$1,000,000 up to and including US$8,000,000 | 22%
• Portion exceeds US$8,000,000 | 15%

Following this shift, buyers will bear a heightened premium for items hammered above US$1 million, and costs will notably escalate for hammer prices exceeding US$4.5 million.

As for the seller's commission, it is traditionally the most negotiable part of a deal with an auction house and is often shrouded in secrecy. Terms can vary based on the relationship; in many cases, the rate is down to zero, especially for trophy lots and marquee collections.

In a bid to reduce individual negotiations and streamline the process, Sotheby's made a bold move earlier this year with the introduction of a transparent, uniform fee structure tied to low estimates at different price points (pictured above):

• 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)
• 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 majority of lots fell into the first tier, where a fixed 10% commission was applied even for unsold works. Though capped at US$50,000, it could still scare off prospective clients.

Also implemented at the time was the Success Fee: for any lot that hammers above a high estimate, Sotheby’s receives an additional 2% commission from the seller. This will remain, with all other fees revert to bespoke terms.

The reversal follows a somewhat lackluster fall sales season for Sotheby's, which brought in only US$533.1 million at its November marquee art auctions in New York, less than half the US$1.2 billion from last year. While Sotheby's has not yet released its total sales for 2024, it is expected to make around US$6 billion, including car sales, marking a roughly 25% drop from 2023.

One reason behind this decline, besides global market uncertainties, has been attributed to Sotheby's failure to secure a selling position against major rivals due to the limited negotiating leverage under those terms.

The strategic shift comes as part of Sotheby's broader plan in the midst of a tumultuous and transformative period. In October, the auction house finalized a US$1 billion investment from Abu Dhabi's ADQ sovereign wealth fund, aimed at alleviating its financial pressure, partially arising from its ambitious expansion of physical spaces in major global cities such as New York, Hong Kong, and Paris – with the Middle East expansion underway.

Earlier this month, news broke that Sotheby's had laid off more than 100 staffers from its offices in New York, at least 6% of its 1,800-person workforce. Meanwhile, the Modern and Contemporary African Art Sale was scrubbed from their calendar, and overseas offices were shuttered. Whether this strategic reversal – along with other cost-cutting measures – will prove effective amid declining global auction sales remains to be seen.