On Auction Houses’ Estimates and Reserves

There’s something I’ve always wondered about auction-house estimates: are they

estimating the hammer price, or are they estimating the final sale price, including

commission? The auction house press releases, and newspaper reports in the wake

of the auction, always talk about the latter: they’ll compare the price including

commission to the pre-auction estimate. But last night at Sotheby’s, a Van Gogh

with an estimate of $28 million to $35 million was passed, unsold, after bidding

stalled at $25 million.

Now the auction house’s commission is 20% of the first $500,000, plus

12% of the rest. Which on a $25 million hammer price would mean a total of $3.04

million. Add that to the $25 million hammer price, and you get $28.04 million

– which is above the low estimate. And you surely can’t have

a reserve price above the low estimate. Or can you?

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