The Age
Friday August 1, 2008
Meaghan Wilson-Anastasios - Meaghan Wilson-Anastasios is completing a PhD thesis that examines the Australian art auction system. She is an art valuer and has worked in the art auction industry.
Questionable practices in art sales are in dire need of investigation.
RECENT revelations about questionable practices in the art auction market will come as no surprise to industry insiders. It was more a matter of when people were going to begin asking questions, rather than if.
Attention is firmly fixed on market leader Menzies Art Brands and its proprietor, Rod Menzies, following the lodging of a complaint against him with the Australian Competition and Consumer Commission by rival auctioneer Tim Goodman.
At issue are Menzies' policy of offering guaranteed minimum prices to sellers without publicly declaring them, and allegedly not disclosing his interest when he sells art from his own collection through his auction houses.
The facts of the Menzies case are yet to be determined but where such practices occur, they can distort the auction record and inflate prices.
Imagine if this was real estate rather than art. If you were bidding for a house, wouldn't you like to know if the real estate agent had guaranteed to buy it from the owner if it did not reach a prearranged minimum price? Or, indeed, if the auctioneer owned the house?
But there are many more problems endemic in the art auction system. The market is essentially unregulated. When buyers enter an art auction, they would be well advised to leave everything they think they know about the way auctions operate at the door.
At every level of the art auction system, current practices and processes restrict the quality of information available to buyers. Caveat emptor is a noble sentiment, but it is difficult, if not impossible, for a buyer to make well-informed decisions under these conditions.
Recently a raft of enthusiastic, cashed-up novice buyers have entered this opaque world. Drawing on their experience in real estate and stockmarkets, they have recognised art's investment potential. Typically, they accept published prices and auction estimates as unambiguous information sources. These buyers are neither naive nor stupid. Every message emanating from the market encourages them to place as much faith in the system as they would traditional financial markets.
But auction houses represent the sellers' best interest. Their only obligation to the buyer is to avoid deliberate misrepresentation, such as not knowingly selling a forgery.
The information they disseminate, and their business practices, reflect this. For example, undeclared vendor bids up to the reserve are commonplace. This is justified by the claim that the artwork will not sell if the reserve is not met. But, as in real estate, if a painting is "passed in" a more favourable price can be negotiated after the auction. For anyone other than market insiders, it is almost impossible to differentiate between a dummy bid and a real bid. If you buy an artwork at auction against undeclared vendor bids, you are paying the seller's asking price.
Auction houses' methods of reporting prices can also be misleading. The "buyer's premium" is a service fee of 20%. It is calculated on the hammer price and is rightly excluded from catalogue estimates. But price lists published after the auction include this premium.
Why does this matter? At the major Australian art auction houses, the reserve falls at or below the low end of the estimate. If published prices include buyer's premium, it widens the gap between the reserve and the price, making it appear as if there was more competition than there actually was.
There is also scope within the market for prices to be deliberately manipulated. In an interview on the ABC's Four Corners, art dealer Robert Gould described the technique of "ramping"as being prevalent. This means that someone holding a stockpile of an artist's work puts those works in auction and bids them up, buying them back if necessary. The aim is to get auction houses to lift their estimates and stimulate a self-sustaining market. The "ramper" can then sell their stockpile at auction or stage an exhibition with the ramped auction prices.
Then there is the practice I call "buffering". This is when a dealer bids for their artist's work at auction to "protect" his or her gallery prices. Because it is seen as defending artists' interests, this practice is condoned by the industry. But the effect on the auction record is the same as ramping.
What does all this mean to buyers? If an artwork does not reach reserve, it has been overvalued. If processes and practices within the auction system ensure that work "sells" regardless, that price enters the auction record. Buyer and seller confidence is inflated artificially and the price becomes a precedent for future sales.
There is much talk about the benefits of the buoyant auction market to the art world as a whole. But the reality is that the lion's share of revenue has gone to a very small number of people and businesses. In the meantime, hyper-inflation has occurred in tiny market sectors that has initiated unsustainable price rises. The main problem is that if prices are not based on real levels of demand, market collapse is almost inevitable.
So, where to from here? The establishment of a self-regulatory body to oversee industry practices is a good first step. But there is a case for exploring options for stronger regulation. There are certainly grounds for the ACCC to investigate.
It is crucial that the industry makes a public stand against these practices, to restore buyer confidence and trust. Burning one sacrificial lamb will not suffice.
