The pricing mechanics of art sold at auction houses may be well known to seasoned art buyers. But first-time buyers may be in for a surprise when they find they have to pay significantly more than the hammer price, due to the buyer’s premium.
So what is the buyer’s premium? All of the top auction houses charge buyers an additional fee, which is calculated as a percentage of the hammer price. The money that the auction house makes with this premium is intended to pay for any services that the buyer receives from purchasing the art, such as attending the auction hosted by the auction house, shipping and handling of the item, dealing with paperwork on behalf of the buyer and more. The buyer’s premium has been around for quite some time. Here, we present our analysis of the current rates of buyer’s premiums and how they have evolved over the last eight years. Current buyer’s premiums at popular auction houses in London and New York are presented below. All of these auction houses have three rates for buyer’s premiums -- 25 percent, 20 percent and 12/12.5 percent -- which decrease in step with increasing hammer prices. Where the auction houses differ is the cut-off point/threshold at which the rates change.
As can be seen, Bonhams differs from the other three houses as it limits the highest slab of 25 percent only up to the hammer price of £100,000 ($150,000 in New York), compared to the others who extend it up to £175,000 to £180,000 ($250,000- 300,000 in New York). The lowest rate of 12 percent (Phillips-12.5 percent) starts at £2 Million ($3 million in New York) at Sotheby’s and Bonhams while in the case of other two (Christie’s and Phillips) it starts at £3 million ($4 million in New York).
Though all four of the auction houses have the same three rates for buyer’s premiums, these rates operate at different price points. Thus an artwork with a hammer price of £150,000 would entail a buyer’s premium of 20 percent at Bonhams but 25 percent at the other three auction houses. At the higher end, an artwork with a hammer price of £2.5 million would incur a buyer’s premium of 12 percent at Sotheby’s and Bonhams but 20 percent at Christie’s and Phillips.
Changes in Buyer’s Premiums since 2010:
The effective buyer’s premium has been increasing since 2010. While the three rates have remained the same, the hammer price up to which the highest buyer’s premium of 25 percent is applicable has shown a sustained increase over the last seven years. At the same time, the point at which lowest slab (12 percent) kicks in keeps receding. Since more than 85 percent of the artworks sold by these auction houses (period 2016-2017) are below $150,000, more and more buyers are now covered under the 25 percent bracket. Most of the buyer’s premium for the auction houses flows from the sale of artworks above $1 million, as this segment accounts for 60 percent of their total sales revenues. Shifting the upper limit where the lowest rate kicks in is what generates greater buyer’s premiums for the auction houses.
In effect, the auction houses have been able to collect a higher buyer’s premium by shifting the thresholds without actually raising the rates.