Do Art Auction Houses Camouflage Results? – artmarketblog.com

Do Art Auction Houses Camouflage Results? – artmarketblog.com

I received an email on December 2nd from one of Australia’s leading art auction houses, Menzies Art Brands, with the subject ‘Defamation Alleged’. The email read:

DEFAMATION ALLEGED

Menzies would like to bring to your attention this story on Page 10 of The Age newspaper today:

LEADING art auctioneer Rod Menzies has described as ”scurrilous” allegations made by Robert Le Tet and Rick Anderson about his business practices, in The Age yesterday.

Mr Menzies, an entrepreneur, cleaning business tycoon and owner of Menzies Art Brands, said he ”always honoured every deal” and was ”well known for carrying out every commitment and for his integrity”.

He said he observed the ”highest ethical standards” and denied suggestions to the contrary. He said in a statement that he had instructed his lawyers to start proceedings for defamation and damages claiming $38 million.

Enquiries
sydney@menziesartbrands.com

Before we continue, this is not the first time that allegations have been made regarding Menzies’ business practices. In 2008 complaints were made by other auction houses in Australia regarding Menzies’ alleged failure to adequately disclose details regarding guarantees provided by Menzies, as well as details regarding works being sold by Menzies that Menzies either owned or had a share in. Menzies denied the charges which were dropped in March of this year by the Australian Competition and Consumer Commission.

This time around, Menzies is being accused of misleading reporting of art sales through his auction house. The accusations were aired in the Melbourne, Australia based newspaper ‘The Age’ where details of a transaction involving a painting by Brett Whiteley, one of Australia’s most famous and valuable artists, were questioned. According to The Age, the painting in question was reported by Menzies Art Brands as having been sold in Sydney on the 25th of March for A$1.44 million. Apparently, however, only two months later Mr. Menzies was offering the painting in question for sale privately through his company for A$1.25 million, which suggests that it wasn’t sold at all. It is then alleged that Mr. Menzies struck a deal with a collector, named as a Mr. Anderson, to swap the Whiteley painting, and another painting, for two paintings owned by the collector. The swap apparently took place in June of this year.

If this allegation wasn’t enough, ‘The Age’ alleges further issues regarding ownership of the Whiteley painting. Apparently a Melbourne financier launched a court case to retrieve the Whiteley painting, which he claims he owns because his company, Questco Pty Ltd. , loaned money to an art dealer to purchase the Whiteley painting – a dealer who is now having financial difficulties. The Melbourne financier apparently then asked Menzies to sell the painting through private treaty for A$1.25 million, but Menzies reneged on the deal a short time later. Menzies is being accused of then returning the painting to the dealer, not the financier, and purchasing it off the dealer for A$850,000. Mr. Menzies then put the painting up for sale in March of this year, which is where this story began. Menzies sought to retrieve the painting from Mr. Anderson whom he sold the painting to by private treaty and apparently even offered several other paintings in exchange which had also been reported as having been sold at auction. Mr. Anderson has so far declined to return the painting.

According to the article in ‘The Age’:

Mr Anderson claimed Mr Menzies has been ”ramping” up the art auction market, and he said it was in the public interest to know how the prominent auctioneer operated: ”He reported the Whiteley painting as sold and then he offered it to me for $200,000 less than what it was supposedly sold for at auction,”.

No charges have been laid against Mr. Menzies or his company and, as you can see from the email I was sent, Mr. Menzies strongly denies the allegations made against him and his company. The question of who is telling the truth will presumably come to light if the defamation case goes ahead.

The reason that I have alerted you to this case is that I have been on a bit of an art auction house crusade of late in an attempt to inform the public about what goes on behind the scenes and hopefully encourage the art auction houses to be more transparent and ethical with their dealings. With transparency being one of the biggest issues, I thought it was important to highlight this case even though none of the allegations have been confirmed as being true.  I will be doing a series on this issue as there are lots of allegations to cover.

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications

Location Matters for Art Sales- artmarketblog.com

Location Matters for Art Sales- artmarketblog.com

At a recent art auction that I attended here in Australia a couple of prints by Sybil Andrews attracted huge amounts of interest resulting in both selling for well above their estimates. This wasn’t really surprising considering the level of interest that there seems to be in the work of Sybil Andrews at the moment. What was surprising, however, was the estimates given by the auction house for each of the works. The first print auctioned was:

“Coffee Bar”
linocut in 4 colours, 1952
signed, titled and editioned 20/60
8 x 9 in, 20.3 x 22.9 cm
Estimate: AUD $5000 – $7000
Sold for AUD $9000

and the second was:

“Grader”
linocut in 3 colours, 1959
signed, titled and editioned 10/60
11 7/8 x 11 3/4 in, 30.2 x 29.8 cm
Estimate: AUD $7000 – $9000
Sold for AUD $8000

With Andrews being a Canadian artist I did a bit of research into the market for her work in Canada and found some rather interesting information. In November 2008 the same two prints were sold one after the other, just as they were in Australia, at an auction in Canada conducted by Heffel Fine Art Auction House. “Coffee Bar” sold for $17,550.00 CAD ($20,416.48 AUD) against an estimate of $10,000 ~ $15,000 CAD (11,676.89 AUD to 17,515.34 AUD) and then “Grader” sold for $8,775.00 CAD (10,249.81 AUD) against an estimate of $6,000 ~ $8,000 CAD ($7,006.36 AUD to $9,341.81 AUD). What is particularly interesting is that Heffel gave a considerably higher estimate to “Coffee Bar” than they did “Grader” where as here in Australia a slightly higher estimate was given to “Grader” over “Coffee Bar”. Why did this happen?. Well, without having asked the auction houses myself I cannot be 100% certain but I think I have a pretty good idea. Because these two works are inspired by a particular place in Canada where the artist lived it would be safe to assume that these works would have a different significance to Canadians than they would to Australians.

Considering that both prints are of the same edition size and same condition the difference in the estimates between the two prints in the Heffel auction would have to be due to another factor. Size can’t be a factor because “Grader” is larger than “Coffee Bar” which would have meant that the estimate for “Grader” would have been higher than “Coffee Bar” if size was a factor in this auction whereas the opposite was the case. Provenance couldn’t be a factor because neither print has a provenance that would be make the provenance of one print more valuable than the other. Even the year each of these prints was produced is quite close with “Coffee Bar” having been produced in 1952 and “Grader” in 1959. The difference in date may have been a contributing factor to the assigned values considering that the earlier work has a higher estimate but the effect on price would not be that great. Having ruled out the potential for the above factors to have had an effect on the price paid for these works the only real remaining factor is subject matter. There must have been something about the subject of “Coffee Bar” that had a greater significance for Canadian collectors.

The two prints sold in the Australian auction have the same credentials as the two prints sold in Canada with both having come from the same private collection and being of the same condition etc. Here in Australia, however, the estimates provided by the auction house suggest that the Australian market has different priorities and that the significance of each of these works differs to that of the Canadians. First of all, the subject matter appears to be of much less importance to Australian buyers than the Canadian buyers judging by the fact that the estimates provided for “Grader” and “Coffee Bar” are much closer together and do not seem to have been assigned due to the subject matter. In fact, the fact that the larger print has a higher estimate would suggest that the auction house thought that size of the work was of more importance than the subject matter. Date appears not to have been a factor because the later work has a lower estimate which is at odds with the higher value usually given to earlier works.

So, had the person who sold the two Sybil Andrews prints in Australia made arrangements for the works to be sold in Canada or had they marketed the sale of the works in Canada they may have been able to obtain a higher price. The potential for a higher price would be much greater for “Coffee Bar” as this work is obviously considered to be of greater value in Canada than “Grader”. In fact, the top price paid for a copy of “Coffee Bar” was reached in February 2008 in Canada where number 54 of the edition of 60 sold for $27,500 CAD ($31,771.11 AUD) which was, interestingly enough, achieved by an online auction conducted by Heffel auctions. Instead of the $9000 AUD achieved for “Coffee Bar” in Australia, the Australian seller of this work may have been able to get up to three times as much for the same work in Canada.

The amount of money you can get from the sale of a work of art can depends on many different things including the location of the sale. To maximise the potential sale price one needs to take into consideration the best location for the sale as the value of a particular work may be considerably different in different countries. If you aren’t interested in return on return on investment then the hassle of selling in another country may deter you from selling overseas but if maximising the sale price is important to you then the location of the sale should be carefully considered.

image:

Sybil Andrews
CPE 1898 – 1992 Canadian

Coffee Bar
linocut in 4 colours 1952
signed, titled and editioned 20/60
8 x 9 pouces  20.3 x 22.9cm

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com,
writes the art column for the magazine Antiques and Collectibles for
Pleasure and Profit and contributes to many other publications.

Evaluating Art Auction Results Pt. 5 – artmarketblog.com

Evaluating Art Auction Results Pt. 5 – artmarketblog.com

2. Percentage of lots sold by value continued

In part four of this series I looked at the second of two methods that auction houses use to calculate the percentage of lots sold by value. As I mentioned in part 4, the method of calculating the percentage of lost sold by value using the knockdown figure as the denominator in the equation is the most popular method but it too has it’s fair share of problems. The figure resulting from the knockdown method doesn’t really tell us that much about the success of the auction and what it does tell us is really of no use to anyone. By using the knockdown figure as an indication of the value of the works of art being auctioned as opposed to the estimate, the auction house is effectively reducing the chances of ending up with a low % sold by value figure even if every work is sold. Let me explain. If you use the estimate as an indication of the value of an artwork (estimate method) then the difference between the hammer price and the estimate could be quite significant which would result in a low % sold by value figure. Let’s say that you sold every single work in the auction but all the works sold for half their estimate. The % sold by value figure would be 50%. However, if you use the knockdown figure as an indication of the value of the works of art in the auction then because every work sold the % sold by value figure for the same auction would be 100%. Can you see the problem.

As I explained in part 4 of this series the knockdown figure is calculated by adding:

1. the hammer price of works that are sold
2. the highest bid for works that receive bids but are passed in
3. the lowest figure reached by the auctioneer before passing in a work that did not receive any bids

Because the hammer price is used as an indication of value for every work sold at the auction a 100% sold by lot rate will automatically result in a 100% sold by value rate regardless of how much the works sold for. Also, because each work of art in the auction is assigned a value regardless of whether it is sold or not the % sold by value figure is going to be considerably higher using the knockdown method for what one would consider to be a poor auction result than if calculated using the estimate method. eg:

hammer price/estimate

5000/8000
6000/9000
8000/13000
3000/5000
9000/15000
0 (unsold)/3000 (passed in)
0 (unsold)/7000 (passed in)
0 (unsold)/6000 (passed in)
0 (unsold)/8000 (passed in)
0 (unsold)/2000 (passed in)

total 31,000/estimate 76,000

Let’s say an auction has ten lots (as above), five of which are sold for a total of $31,000 against a total auction estimate of $76,000. The % sold by value figure would be 41% using the estimate method which would seem fair considering that only half the lots sold and those that did sell were sold for much less than the estimate. Now, calculating the % sold by value figure for the same auction would require that the estimate figures used in the estimate method be replaced with either the hammer price, the highest bid if the work was passed in or the lowest figure reached by the auctioneer for works that receive no bids at all. When these numbers are added in the results look like:

5000/5000
6000/6000
8000/8000
3000/3000
9000/9000
0/2000 (passed in)
0/5000 (passed in)
0/4000 (passed in)
0/6000 (passed in)
0/1000 (passed in)

total 31,000/knockdown 49,000

As you can see, by giving the unsold lots a value the percentage of lots sold by value would increase to 63% using the knockdown method which is considerably better than the 41% resulting from the estimate method. The benefits for the auction house of using the knockdown method as opposed to the estimate method are considerable but the knockdown method doesn’t really tell us as much about the auction as the estimate method does. The % sold by value figure calculated using the estimate method tells us whether the auction house was able to meet it’s own expectations and the expectations of the market whereas the % sold by value figure calculated using the knockdown method doesn’t really tell us much at all. Seriously !!. For an auction where all lots sell the knockdown method compares the sale price with the sale price. With an auction where not all lots sell the knockdown method compares the price people paid for the works that did sell with the price people paid for the works that did sell plus the supposed value (according to the auction house) of those that didn’t sell.

The one downside to using the knockdown method as opposed to the estimate method is that the % sold by lot figure can experience a significant increase from an exceptionally high price realised for a particular lot. If, say, a painting sold by $5 million dollars against an estimate of $1 -$2 million then the sold by value percentage for that particular lot would be 333% if calculated using the estimate method whereas it would only be 100% if calculated using the knockdown method.

In conclusion, I believe that using the:

1. the hammer price of works that are sold
2. the highest bid for works that receive bids but are passed in
3. the lowest figure reached by the auctioneer before passing in a work that did not receive any bids

as representative of the value of a work of art is misleading, deceiving and just plain silly.  I don’t believe that the highest bid received for works that are passed in is indicative of an artwork’s value.  I also have a problem with the use of the lowest figure reached by the auctioneer before passing in a work that did not receive any bids as an indicator of value because no-one knows how low the auctioneer would have had to go before a bid was made. The auctioneer is not going to go too low because the auction house doesn’t want to sell the work for too low a price. The lowest figure reached by the auctioneer before passing in a work that did not receive any bids is therefore not indicative of value if one is using the same philosophy as applied to the lots that did sell and the lots that received bids. In a nutshell the figure doesn’t really tell us the percentage of lots sold by value and it doesn’t really tell us anything about the success of the auction either.

See previous posts in this series here:

Evaluating Art Auction Results Pt. 4 – artmarketblog.com
http://artmarketblog.com/2009/03/04/evaluating-art-auction-results-pt-4-artmarketblogcom/

Evaluating Art Auction Results Pt. 3 – artmarketblog.com
http://artmarketblog.com/2009/02/27/evaluating-art-auction-results-pt-3-artmarketblogcom/

Evaluating Art Auction Results Pt. 2 – artmarketblog.com
http://artmarketblog.com/2009/02/19/evaluating-art-auction-results-pt-2-artmarketblogcom/

Evaluating Art Auction Results Pt. 1 – artmarketblog.com
http://artmarketblog.com/2009/02/12/evaluating-art-auction-results-pt-1-artmarketblogcom/

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.

Evaluating Art Auction Results Pt. 4 – artmarketblog.com

Evaluating Art Auction Results Pt. 4 – artmarketblog.com

2. Percentage of lots sold by value continued

In part three of this series I looked at the first of two different methods of calculating the percentage of lots sold by value. The first method that I looked at which is calculated by using the following formula:

(total sale value at hammer price)

divided by

(total sale estimate)

x100

is the less frequently used of the two methods and is not the method used by the top auction houses. The main problem with the above formula is that the sale estimate is being used as a representation of the value of the works of art being auctioned which we all know is problematic to say the least. Auction houses use estimates as a marketing tool with a low estimate often used to encourage bidding which would make the percentage of works sold by value calculated using the estimates highly inaccurate.

Other than the estimate for each work as calculated by the auction house there is really only one other indicator of the value of a work of art and that is the highest price someone is willing to pay for the work. When you think about it, using the highest price someone is willing to pay for a work of art as an indicator of value does make sense because, in reality, the true value of a work of art is really only what someone is willing to pay for it at the time it is sold. For this reason, all the major art auction houses use the highest price that someone is willing to pay for a work of art as being representative of the value of that work of art. But what about lots that don’t sell?. Well, the value that the auction house uses for unsold lots is the highest bid for those that do attract bids and the final (lowest) figure reached by the auctioneer for lots that are passed in without receiving any bids. The value that the auction houses use in place of the denominator (total sale estimate) in the formula referenced above is called the knockdown figure and includes:

1. the hammer price of works that are sold
2. the highest bid for works that receive bids but are passed in
3. the lowest figure reached by the auctioneer before passing in a work that did not receive any bids

The formula used by the major auction houses to calculate the percentage of works sold by value is:

(total sale value at hammer price)

divided by

(knockdown figure)

x100

As an example of the way the sold by value percentage is calculated I will use an auction of five works with the following results:

1. Sold for $100,000
2. Sold for $150,000
3. Passed in $100,000 with three bids
4. Passed in at $50,000 with no bids
5. Sold for $200,000

The total sale value at hammer price of the three works that sold is (numerator). The knockdown is the hammer price of the three works that sold plus the highest bid of lot 3 and the price that lot 4 was passed in which comes to a total of $600,000 (denominator). When you use these two figures in the formula you get $450,000 divided by $600,000 x100 which equals 75 – the percentage of lots sold by value. If every single lot in a sale were to sell then the percentage of lots sold by value would be 100%.

Although the auction houses choose to use this particular method of calculating the percentage of works sold by value there are just as many problems with this method as the first method I looked at.  More on this in my next post.

To be continued………..

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.

Evaluating Art Auction Results Pt. 3 – artmarketblog.com

Evaluating Art Auction Results Pt. 3 – artmarketblog.com

2. Percentage of lots sold by value

In part 2 of this series of posts on the real value of the statistics that are used to determine the success of a sale, I conducted an in depth analysis of the percentage of lots sold by number statistic. The other percentage figure often used by auction houses is the percentage of lots sold by value which, unlike percentage of lost sold by number, is rather complicated. There is also very little information relating to the way the percentage sold by value figure is calculated which made this post rather time consuming to put together. Other than the lack of information, one of the main problems with the sold by value figure is that there are variations in the way auction houses and other art market professionals calculate the figure. There is also an issue with determining exactly what the “value” in percentage sold by value refers to. This post will start to address these and other problems associated with the percentage sold by value figure as well as determining what the figure actually tells us and whether it is of any use.

As a result of my research I found that there are two formulas for calculating the sold by value percentage that are the most commonly used. The first formula I will analyse is probably the one that makes the most sense but is in fact NOT the “correct” formula and is NOT the formula used by most of the top art auction houses. If someone were to ask me to calculate the percentage sold by value for a particular auction, and I didn’t know how it was calculated, I would presume that I was being asked to compare the total estimated value of the works with the total value of the works sold. Because the value of the works of art in an auction is a matter of opinion, the auction house’s estimates should be used An example of the way this formula would work is:

(total sale value at hammer price) divided by (total sale estimate) x100

If the total sale estimate was $500,000 and the total sale value at hammer price was $400,000 then you would calculate 400,000/500,000 x100 which would equal 80% sold by value. If it was the other way round and the total sale value was 500,000 and the total sale estimate was 400,000 then the percentage sold by value would be 125%. At this point I will mention that if there are is an estimate range then the average of the high and low estimates should be used as the total sale estimate in the formula. One of the only references I could find to this particular percentage sold by value formula, other than the one I have written above, was on an auction results website which stated that:

% Sold by Value is based on total sales value at hammer price, including the premium, as a percentage of the average of the sum of the high estimates and low estimates for the sale. % Sold by Value can be greater than 100%

Although the formula in the reference above is essentially the same as the one I have been writing about it does have one minor differences that creates an even greater margin for error and a greater chance of confusion. The formula in the reference above includes the hammer price in the sale total which I did not include in my example because the buyers premium is not included in the estimates and therefore should not be included in the sale total. Including the buyers premium in the sale total increases the percentage of lots sold by value because the estimate does not include the buyers premium and therefore results in incorrect figures.

to be continued…….

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.