Hidden Costs of Buying Art From Auction
I’m going to talk about the hidden costs that many people are not aware of, particular for first time buyers, when buying artwork from auction. I’ve seen many new art buyers purchase a work from auction and pay significantly higher prices than they thought they would and it’s important to do some research before bidding so you do not find yourself in this situation.
Hammer Price v. Final Price
The most important thing to know is there is what we call the hammer priceand the final price. The hammer price is what the bidding goes up to, so the bidding might go up to $1,000, $10,000 to $100,000 etc. that’s the final bid.
But then on top of that there’s what we called buyer’s premium. Buyer’s premium can range usually from 20 to 30% on top of the hammer price. So if the hammer comes down at $10,000, you can end up paying $13,000 for something you thought you’re going to pay $10,000 for, because of the extra 20%-30% buyers premium that goes directly to the auction house.
So always be aware of this before you raise your hand to bid.
In addition to the buyer’s premium there may be unforeseen taxes as well. Many people think if they bid on a piece in a particular state the taxes will be subject to the state where the bidding took place; however this is not always the case.
For example, if I’m in California and I’m bidding on a piece in New York at Sotheby’s or Christie’s, I would have to pay state taxes because Sotheby’s have than office in California. So even though I’m making the purchase in another state, local state taxes would still apply, adding a significant percent to the final price.
Then the other large hidden cost is shipping. Very few auction houses do their own shipping.
Once you win a bid from an auction house they’re generally going to give you a list of different shippers that will pick up from their facility and ship to you. This is something else that you need to research ahead of time and get a good idea about how much something is going to cost you; particular if you’re buying a large piece. Artwork can be very expensive to ship because it’s generally fragile, and larger pieces generally cost more because of the weight and because of the extra shipping materials required.
For example, if you’re buying a large piece that costs you $3,000 and you aren’t expecting the buyer’s premium, you end up paying the buyer’s premium which is going to be $750 approximately, and then it cost $3,000 or $4,000 to pack and ship the item, you’re not going to be very unhappy. That’s more than double the price of what you initially thought you were going to pay..
So again, pay attention to what the outside costs are, over and above the direct hammer price of the piece.
Take into account the buyers premium (generally 20%-30%), state and federal tax nuances, and shipping costs, which are rarely covered by the auction houses.