Here’s an interesting new performance commission that has begun to appear in Sotheby’s consignor’s contracts:
“a performance-related commission for each lot calculated as set out below will be charged in the event that the hammer price for the lot exceeds its final high presale estimate. Sotheby’s performance related commission will be equal to the lower of (i) 2.00% of the hammer price achieved for that lot and (ii) the difference between the hammer price achieved for the lot and its final high presale estimate”.
This season, we formalized an existing practice which reflects our philosophy that when we exceed the expectations of our consignors, we should receive additional, incremental compensation which reflects that success.
What’s happening here is that Sotheby’s is trying to improve its position on commissions by making something out of the fact that in 2011 nearly 40% of Sotheby’s sold lots achieved a hammer price above the high estimate. Of course, estimates are set by an interplay between buyer’s and sellers. Auction houses would prefer estimates to be as low as possible to entice buyers. Consignors want high estimates that confirm their own expectations.
Curiously, this new fee increases the auction house’s incentive to lower estimates.