Rapaport Magazine
In-Depth

Behind The Scenes

Each auction is a carefully crafted sale. So what are the advantages to the trade when selling at auction?

By Ettagale Blauer
Every jewelry auction is a well-choreographed performance, a perfect balance of sellers and buyers, with the auctioneer being the conductor of the myriad players contributing to the overall event. But, like any performance, much of the hard work takes place behind the curtains, out of sight of the audience. That is where decisions are made about which goods to take in for sale, where to place them in the sale and how to set the estimates, all with an eye to reaching a hoped-for dollar amount.
   At the same time, auctions have become public spectacles, drawing the curious and the well-heeled, the private clients and the dealers, the celebrities and the socialites. This has helped auctioneers find fresh goods from private consignors. In addition, the trade — often buyers at auction — also provides a steady supply of goods. According to Gary Schuler, director of the jewelry department at Sotheby’s, “Most dealers will tell you we are the best retailers in the world. We are turning inventory four times a year in New York.” Retail stores rarely reach that level, which is crucial to presenting fresh goods to potential buyers.
   To accomplish this, Schuler says, “What we like to see coming in are very special goods.” Those goods will reach the greatest audience, on a global scale, no matter where the sale is held. Selected highlights of upcoming auctions travel to key venues, including Geneva, New York and Hong Kong, and catalogs are available online, reaching many more potential buyers. Diamond cutter Isaac Wolf says the global reach of the auction houses is an unsurpassed marketing tool for dealers who place their rare and special goods in the sales.
   Auction houses are for select dealer goods. Schuler says, “We do have a good sense of what we can sell — we know our audience and what they have an appetite for.” He elaborates, “Our sales are curated. There is no need to fill up a sale with undesirable items. It affects the look of the catalog and the mood of the sale. We are merchandisers as much as specialists. We are not the venue for everything.”
Still, it is a very rare sale that is 100 percent sold.That honor goes to the unique estates: the Duchess of Windsor, Elizabeth Taylor or a society figure with a very high recognition factor among the public. Most jewelry sales are 75 percent to 80 percent sold by lot, still a good batting average for a one-day event.

Getting to Auction
   While the trade is a consistent seller at auction, giving them their daily bread and butter, it is the estates and private goods from collectors that offer the most desirable goods that give the auctions their flair.
   Goods come in from mom-and-pop stores in small-town America, as well as the nationally known renowned names. Retailers’ customers turn to them to sell goods, often inherited jewelry, they don’t want. In some instances, the retailers offer those goods to the auction houses. Al Molina, chairman and chief executive officer (CEO) of both Molina Fine Jewelers in Phoenix, Arizona, and Black, Starr & Frost, with stores in Newport Beach, California, and Phoenix, says that when his clients come to him with goods to sell, he has two options. “If the client needs cash, I will buy it outright. But we may be allowed to represent them in an auction.” Molina then acts as the middleman, negotiating with the auction house, and then allowing the client to decide whether the estimate suggested by the auction house is acceptable.
   Auction houses have regular relationships with retailers, who often bring them fresh goods, sometimes items that have been in private hands for generations. This is a win-win situation for all concerned. All three parties have something to gain — the auction house has a desirable offering, the retailer creates a cash flow for his client and the client benefits from the expertise of both entities. To be successful in using the auctions as an outlet, Molina says, “You have to be a student of the auctions.” From a family of jewelers, he was 8 years old when he attended his first auction.

Selling Costs

   There are costs involved with placing a piece at auction. The two main fees are known as the buyer’s premium and a seller’s premium. The buyer’s premium is the additional percentage above the hammer price that is paid to the auction house by the winning bidder. The seller’s premium is the amount paid by the consignor to the auction house based on the value of the piece. The consignor may also be charged for marketing, shipping, handling and other services.

   Auction house commissions are determined by a sliding scale based on the hammer price. Commissions vary slightly according to the currency in use. In some cases, multimillion-dollar lots may incur no seller’s commission at all. With the two houses always in competition for goods, the consignors are in the enviable position of being able to negotiate such fees.

   Fees shown below are for goods sold in New York. See each auction venue catalog for exact charges.

Christie’s Buyer’s Premium

Hammer prices                            Premium

Up to $100,000                            25 percent
$100,001 to $2,000,000               20 percent
$2,000,001 and above                 12 percent

 

Sotheby’s Buyer’s Premium

Hammer prices                             Premium

Up to and including $200,000       25 percent
$200,001 to $3,000,000                20 percent 
In excess of $3,000,000               12 percent

 

Seller’s Premiums

   Christie’s offers a sliding scale of commission rates based on combined annual sales of property.

   Sotheby’s seller’s premiums are stated to be 6 percent but may be negotiable. 


The Trade
   The trade is a regular source of goods for auction houses, with some dealers signed up with annual contracts that state they will provide a minimum dollar amount of goods, according to Rahul Kadakia, international head of jewelry for Christie’s. Commission arrangements are widely negotiated down from the standard 6 percent of the hammer price and depend on the value of the goods as well as the volume and frequency of the consignments. Whether the consignment comes from a private client or the trade, there are additional fees to cover risk of loss and photography for the catalog.
   Diamond cutters, too, sometimes turn to the auction houses when they have extraordinary goods to sell. “We seek a balance of goods,” says Kadakia. “This is a very fluid process. We won’t take another 10-carat D flawless if we have one in the sale,” he says, “We are looking for balance among all the categories.” According to Kadakia, it is important to limit the appearance of these stones on the market so as not to decrease the sense of absolute rarity.
   Kadakia continues, “Diamond cutters ask us which shape and size they should cut, which product would be a salable diamond and would make more money. They ask if they should make two stones, for example, to make a pair. We try to think where we should place each gem — certain stones are better in certain parts of the world. This helps the buyer and seller.”
   Sometimes, if the auction houses see an opportunity, they reach out to the trade. Saul Goldberg of William Goldberg, the New York City–based diamond cutter and dealer known for its Ashoka cut, would never cut a stone to put it into the auction but the auction houses do come to them for special goods. “They are very clear about what they like. ‘Do you have a 5-carat pink?’ they will ask. Their catalogs are not put together by accident,” says Goldberg.
   The history of recent sales also guides the process of deciding what goods to take in. Kadakia says, “We know how many people were bidding and how much cash was available from under-bidders.” This suggests that the market is still hungry for certain types of goods, as seen in the constantly escalating prices of pink and blue diamonds.
   When Christie’s began 250 years ago, Kadakia points out, the sellers were estates or royal families. Dealers didn’t have access to the royal houses. That has changed over the past 40 to 50 years, as dealers began selling to other dealers through the auction houses. In the heyday of Middle East buying in the late 1980s/early 1990s, he says, “A lot of the goods that Ahmed Fitaihi and Robert Mouawad — two prominent Middle East dealers catering to the royal families of their own region — were buying goods from other dealers.”

Sotheby’s 2015 Sales Results
  • Sotheby’s achieved $561.7 million cumulatively for its jewelry auctions worldwide, a 3.8 percent increase year on year from $541.4 million.   

  • Sotheby’s in New York achieved $145.4 million in jewelry sales, up 25.2 percent year on year.

  • Sotheby’s London jewelry sales improved 20.8 percent to $19.7 million.

  • Geneva’s jewelry sales jumped 33.2 percent to  
  • Hong Kong’s jewelry sales slumped 44.6 percent to $105.6 million.

Christie’s 2015 Sales Results
  • Christie’s reported that worldwide jewelry auction sales totaled $615.6 million.

  • Christie’s Europe achieved sales of $250.6 million.

  • Hong Kong garnered sales of $215.8 million.

  • Sales in the U.S. totaled $149.1 million.

   Whether goods come from dealers or privates, for a business known for its secrecy, auction houses offer a tremendous advantage over dealer-to-dealer sales: The transactions are totally transparent. The hammer price plus buyer’s commission is known to the penny and the settlement date — 35 days from date of sale — is also known. There is no holding back payment, no chasing after money owed, no returns. In an unsettled economy, such as exists today, this is very reassuring for a seller of high-priced goods. For most consignors, this advantage far outweighs the time lag between consignment and sale, which can be anywhere from two to four months. Holding goods costs money, including finance charges on bank loans and insurance fees, but putting goods into auctions means at least a 75 percent chance the item will sell. There is no other venue that offers that assurance along with the global marketing reach and stellar customer service an auction house provides.

Article from the Rapaport Magazine - March 2016. To subscribe click here.

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