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If you’ve never transacted with an auction house, it may seem intimidating, but it doesn’t have to be, and with the rise in online sales and more kinds of property sold (from sneakers to handbags) at auction, auctions are more accessible than ever.
Auction houses are open to the public and often exhibit property to be sold at auction, as well as property that’s part of a private selling exhibition. Visiting auction houses, and even watching live auctions, which are free to the public, is a great way to become acquainted with the process and auction house culture.1
Fiduciaries, whether professionals such as attorneys, accountants or wealth managers, or family members or friends appointed to act as executors or trustees, are often tasked with managing the principal’s personal property. Such property may include fine art, jewelry, watches, rare books and other decorative arts and luxury assets, which the estate may need to sell to create liquidity or as directed under the will or trust agreement. Selling property at auction is the most transparent means to satisfy the fiduciary duty to maximize value.2 If you’re a fiduciary, here are some factors to consider when tasked with selling property in the decedent’s estate.
The Right Auction House
The first consideration is which auction house to contact. There are international auction houses, regional or local auction houses and specialty auction houses that focus on a handful of niche categories. If you start at the top, with the major international auction houses, they can give you a sense of whether the property is a good fit for their expertise and sales. There’s a collaborative spirit among the houses, in which clients are often referred to other houses that are better suited to handle certain property.3
Auction houses are organized by specialty departments, for instance, Fine Art, which includes Contemporary Art, American Art and Impressionist and Modern Art, and Modern British and Irish Art, among other submarkets. The major auction houses have up to 80 different categories of expertise, which are outlined on their websites. If the collection is all within one category, say jewelry, you can contact that department directly.
If the estate contains property across multiple disciplines (as is often the case in a high-net-worth estate scenario), you should contact the auction house’s trusts and estates or fiduciary client group. This department is organized to be your single point of contact that can streamline the auction house’s services to access multiple specialist departments.
Sharing Details
Once you determine which auction house to contact and whom within the auction house to speak with, you’ll need to share the client’s property details. This can take the form of images (iPhone images are perfectly fine) and other paperwork about the property, including past bills of sale, receipts, appraisals, exhibition history and catalog references if previously sold at auction. Other helpful details include dimensions (framed and unframed if flat art), year of creation, medium and known provenance. It’s helpful to share as much known information to get the conversation started. Staff may ask to view the property in person to further assess condition and value. There’s typically no fee for a walk-through visit.
Reviewing the Property
Initially, the property will be researched based on the information provided and what’s available in the public records about the items. Research may include reviewing past auction records, exhibition catalogs and library books about the artist’s oeuvre. For certain categories of artwork, such as Old Masters or Impressionist & Modern Art, research will be conducted to assess and confirm the authenticity of pieces. Specialists may speak to droit morale holders4 or market-recognized authorities and curators on the artist. This expertise process may require physical inspection of the artwork itself. Even Contemporary Art sometimes requires authentication; for instance, works by Yayoi Kusama must have an up-to-date registration card issued by Yayoi Kusama Inc., Tokyo. In addition to authentication, the property will be assessed for condition, provenance history, regulated materials and other property-specific considerations. After consignment, further research for the catalog entry will continue to be conducted.
Proposal for Sale
Once the research is completed, the auction house will share its opinion on the property’s value in an auction estimate. Auction estimates are a range in numbers from, say, $100,000 to $150,000. Coming up with estimates is a marketing tool to signal both the importance of the artwork and entice bidders to participate in the auction. Each additional bid by so-called underbidders increases the ultimate auction price by a 20% to 30% margin.
The auction house will also share a strategy of its vision of how to sell the property to obtain the highest price, and if appropriate, to celebrate the collector’s legacy, which in turn often helps to maximize value. The sales venue could be anywhere in the United States (primarily New York or Los Angeles) or overseas (from London or Paris to Hong Kong), and the sale method may be either a live or online auction sale or via a private treaty sale.
For higher valued items and collections, the proposal will describe how the property will be marketed and other special promotions. Marketing promises may include: (1) whether there’s a paper or digital catalog, (2) the breadth of the catalog presentation (essays, multiple images or comparable works), (3) social media coverage of the work, (4) whether the work will be featured on the website, (5) touring exhibitions, (6) signage surrounding promoting the sale, (7) editorial features, (8) short video clips, and (9) other creative promotional strategies.
A compelling way to showcase the property is through a bespoke provenance designation and related storytelling (especially for estate property). This plan, which requires the consignor’s approval and collaboration, often highlights the provenance and their legacy, whether as a philanthropist, collector or pioneer in the business world.
The proposal will also outline the financial terms for consignment. This will include any applicable seller’s commission, which may range from 0% to 10% or more, depending on the auction house. Other sales-related costs, which may be borne by the auction house or consignor, include loss or damage liability (insurance), marketing, shipping, restoration, framing, storage, expertise and catalog illustration and reproduction rights.5
Legal Paperwork
There are several agreements that frequently come into play when selling at auction:
Non-disclosure agreement (NDA): If you or your client is overly concerned about confidentiality, you may consider an NDA. An NDA is an added layer of protection, although the auction house is already obligated to maintain the confidentiality of the involved clients and their property holdings.6
Custody agreement: If the specialists require further research and first-hand inspection of the work before consignment in their custody (for instance, for testing of gems), they may suggest a custody agreement. The biggest issue in a custody agreement is often the value for insurance, which is set at the low estimate, mid-estimate or some other mutually agreed number.7 A custody agreement addresses the term, property location and who bears liability for various costs and loss or damage during possession of the works.
Seller’s agreement: The seller’s agreement (also known as the “consignment agreement”) memorializes, in part, what’s been negotiated in prior conversations. It sets out a listing of the property for sale, with auction estimates and reserve prices.8 It also provides the seller’s commission, sales costs, payment terms, settlement date, sale date and insurance terms of coverage. It incorporates conditions of business for sellers through key clauses pertaining to sale venues and methods of sale, forbidding consignor bidding, withdrawals and associated fees, post-auction sales, indemnity, representations and warranties, rescission and applicable taxes.9
Celebrating the Sale
A few days before the sale date, it’s a good idea to check in with the auction house about interest in the property. If interest is strong, relax and enjoy the sale. You can watch online (on your phone app or computer) or in the room. There’s nothing more magical than watching an auction with two or more bidders with deep pockets committed to winning a lot. If pre-sale interest in the lot is quiet, you may consider lowering the reserve price to give the auctioneer a tool to entice opportunistic bidders.
After the Auction Sale
After the sale, buyers typically have five business days to remit payment, and then the auction house will pay the seller around 30 to 45 days after the closing date of the sale. Payment will be the net sale proceeds from the hammer price after deducting the seller’s commission and related sale costs. The property won’t be released to the buyer until funds are cleared. Payments are typically made and received via wire, although checks may be accepted in limited circumstances. Payment instructions are required in writing and with the consignor’s signature. Other procedural considerations include providing a W-9 form (for U.S. taxpayers) or W-8 form (non-U.S. taxpayers) and verbal verification of wire instructions.
If the property doesn’t sell at auction the first time around, you have a few options. After the auction sale, there may be a post-sale offer. This price tends to be at or below the previous low estimate. If there are no post-sale offers after a few weeks, you can take back the property. If you would prefer to continue to try to sell the property, the specialist may suggest waiting a recommended time (from a few months or several sale cycles to years) and then reoffering the work at auction, perhaps in a different format or venue and with a lower estimate price.
Checklist Reminders
If you’re tasked with selling property from a decedent’s estate at auction, here’s a checklist of 15 items to consider:
1. Think about which auction house may be a good fit for the property.
2. You can’t go wrong by starting a conversation with the top auction houses.
3. It may take several conversations to find the best auction house partner.
4. Get organized, and scan bills of sale and past appraisals to distribute easily.
5. Take well-lit photos of the property, including backs, sides and underneath for three-dimensional property.
6. Be open-minded about value. Past acquisition prices aren’t indicative of current auction estimates.
7. Standards for authentication change over time, so don’t be alarmed if something purchased from a reputable source requires updated expertise and research.
8. If you think estimates are too low, ask to see comparable lots recently sold to better understand the market.
9. Think about your risk tolerance to setting reserves and whether you would rather sell the property at a certain price or take it back. If there’s a liquidity need for taxes due, timing may be of the essence.
10. If you have liquidity concerns and the timing doesn’t line up for the proposed auction sales, inquire about financing options using the art as collateral.
11. Inquire about the marketing plan to engage collectors (and in which jurisdiction) as securing underbids is the means to achieving a top price.
12. Be open-minded about the means of sale, venues and marketing, including digital catalogs, because auction practices have dramatically changed since COVID-19.
13. Telling the story of the property with provenance and a designated name (especially for estate property) enhances the work’s value, boosting all property in a collection.
14. Auction houses take compliance regulations seriously and may ask questions and require documentation (such as trust agreements and photo IDs) akin to a bank.
15. If you’re still uncomfortable with consigning and tasked with handling a major estate collection, engage an art lawyer who’s familiar with the auction house agreements, process and players.
Endnotes
1. Some live evening sale auctions require tickets, but most live auctions are during the day, don’t require tickets and are open to the public.
2. Private treaty sales aren’t usually the first choice of fiduciaries, who are tasked with selling trust or estate assets, because private sales are opaque: There’s no clarity as to when the property is offered, the number of potential buyers contacted as well as the differential between the asking price versus net price.
3. See “A Closer Look at Art Auction Houses,” in this issue, at p. 61.
4. A droit morale is the right of the creator (or their heirs) to, among other rights, affirm or disclaim ownership.
5. There are other more complicated financial considerations for valuable and important collections, such as guarantees, irrevocable bids and scenarios in which sellers receive a portion of the buyer’s premium (also known as “give-back” or “enhanced hammer”).
6. Another way to address confidentiality is to use a code name for the consignment project with only limited staff at the auction house aware of the client’s actual name and personal details.
7. Insurance values are a single number and tend to refer to retail replacement costs, which are on the higher spectrum of valuations— higher than fair market values and auction estimates.
8. A reserve price is a confidential minimum agreed price at which the auctioneer can sell the property. The reserve isn’t typically set above the low estimate.
9. The seller’s agreement is a dense document with many boiler plate clauses, which aren’t frequently negotiable except for the most important and valuable collections.