The Art Newspaper homed in on Michael Goss’s Sotheby’s CFO’s comments in a statement explaining why the auction house was raising its buyer’s premium:

“We made this decision for two principal reasons: first, to offset margin pressure, particularly at the high end of our business where these changes are focused; and second, to continue to invest in improving our client experience in all aspects of our business.”

When Goss talks about margin pressure, he’s acknowledging the widespread practice of giving consignors “enhanced hammer deals.” In those deals, Sotheby’s gives the seller some portion of the Buyer’s Premium which would, by definition, put pressure on the auction house’s margins. The buyer’s premium is a substantial portion of Sotheby’s revenue stream. When specialists bargain that away on a regular basis, you have pervasive ‘margin pressure.’

Further confirming this is Goss’s comment about the “high end of our business” which is where the 105% of hammer deals are offered. The auction house doesn’t gain that much in the new fee structure. But even the .5% increase in lots over $3m will help offset the enhanced hammer deals.

The move is good for Sotheby’s but it remains to be seen whether adding fees to the buyer won’t make buying at auction too onerous and drive sales back to the private market, as we’ve been seeing all of 2016.

Sotheby’s raises buyer’s premium in bid to ‘offset margin pressure’ (The Art Newspaper)