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Originally Posted by nolemmings
I don't have any problem following the logic of his argument Peter, with or without empirical data to back it up. Again, if the BP has no influence on final price or bidder's behavior, why is that no auction house, as in none, does away with it and take its cut from the seller/consignor? Consignors really should have no rational problem with that if their bottom line is the same right?
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Industry custom and practice, Todd. Nothing to do with trying to deceive buyers. As I recall seller's premiums used to be much more in vogue. At some point someone probably had the notion that they could compete for consignments better by advertising a lower seller's premium and others followed suit. That is what this article from an art site suggests, even though of course the issue for the consignor really is the total premium not the seller's premium.
"The buyer's premium is the fee added to the hammer price at auction, but don't be fooled by the term - it's really paid by the seller. Buyers decide how much they want to pay, and take off the premium to work out the maximum hammer price they're willing to bid. If the buyer's premium increases, they compensate by reducing the hammer price they are willing to pay. If a dealer is willing to pay £20k for a picture bought directly from a collector, they're not going to pay £25k for the same picture from auction because there's a 25% premium - the dealer can't sell for a higher price just because they had to pay a buyer's premium.
The seller is paying for the auction house for its services. A higher buyer's premium means that the seller will receive less of the proceeds - so if you're selling through an auctioneer, focus as much on the buyer's premium as on the seller's premium. Over the past few decades there has been a shift from charging seller's premium to charging buyer's premium. Indeed, the average premium income at Sotheby's (buyer's premium plus seller's premium) was just 16.6% in 2011 and 16.3% in 2012, according to their annual report (p.25). Sellers sometimes even pay a negative premium - i.e. they will receive a share of the buyer's premium. Christie's doesn't publish these data because it is privately owned, but I suspect theirs is a bit higher because they sell more lower-valued lots that attract a higher premium.
The shift to buyer's premium has been driven by competition to win consignments. Buyers can't negotiate - it makes no sense to agree a deal where the buyer pays a low premium, but the underbidder would have been charged the full premium. Negotiation takes place with sellers."