Hammer blow
London’s two biggest auction houses dealt a blow this week to small collectors and people who fancy a flutter on the rising price of some art and antiques. Last weekend both Sotheby’s and Christie’s raised the premium they charge to buyers from 20% of the hammer price to 25% on the first £10,000. And in almost all cases you can add VAT at 17.5% to the premium as well. So if you make a successful bid for something at £1000 you will actually end up paying £1293.75. And if you want to pay by credit card then add 1.5% on top of that!
The seller of course will also pay the auctioneer. For a single low priced item you can reckon on 15% of the hammer price plus VAT. If you sell something a bit pricier then that falls to 10%. But if the auctioneer decides to photograph your treasure and put a picture in the catalogue or on the website you will pay for that too. So if you are the seller of something which is knocked down for £1000 reckon on getting just £823.75. Meanwhile the auctioneer will pocket a total of £400 from buyer and seller and the Treasury will get £70 in VAT.
No wonder the hammer price is known as the amount no buyer pays and no seller receives!
These eye-watering fees make investing in art – particularly on a small scale – very difficult to justify. Suppose you buy something for £1000 at an auction house hoping to sell it for a profit. You pay the auctioneer £1293.75. To get that back as a seller your item will have to be sold at a hammer price of £1571 (in fact the closest actual bid will be £1600). In other words the value of the item will have to rise by 60% before you break even! And even if it doubles in price you will keep about a quarter of the gain and the auction house and the treasury will snaffle the rest.
As the hammer price rises, the fees fall. Above £10,000 buyer’s premium falls to 20% and above £250,000 down to 12%. Seller’s commission falls to 10% on amounts over a few thousand pounds. Other auctioneers may charge less, especially outside London. But the principal is the same. If you buy something and then resell it at auction its value will have to rise hugely before you even get your money back never mind make a profit.
A month ago I said in this column that with cash returns of more than 6% a year – in fact you can now get 6.7% on a one year cash bond from Nationwide – the risk of investing in shares was looking unattractive. With auction house fees like these investing in works of art definitely looks very risky indeed – except for the auctioneers of course.
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