And the ballroom dancers went around… and around… and around again. A lesson in reading auction figures.

6 03 2013
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John Brack, ‘Backs and Fronts’ (image via http://www.aasd.com.au)

Hello, old friend. Nice to see you again.

It’s good to know some things never change. As regular as clockwork… John Brack’s Backs and Fronts is back on the auction podium for the fourth time in nine years. Wouldn’t be the first, and certainly won’t be the last rapid-fire repeat customer in the Australian art auction world. But I’ve grown particularly fond of this one over the years. Not to mention, those pirouetting figures offer a lovely analogy for the way this painting keeps spinning back and forth through the auction market.

I had a glance back over the painting’s auction record, and it reminded me of an object (or, perhaps ‘abject’) lesson to take on board when looking at reported prices. Thankfully, the Australian Art Sales Digest now publishes hammer prices (the price that the auctioneer calls out at the fall of hammer), not just prices realised (hammer price plus buyer’s premium), which thankfully makes the following exercise much easier.

When many people look at auction prices, (such as the prices for Backs and Fronts over the years laid out in the table below), they simply compare the prices in each column. So, for example, you’d be thinking… “hmm… The painting sold for $1,700,000 in 2007, then $1,800,000 in 2010. Given the whole GFC/collapse of the art market thingy, that’s not too shabby in terms of a return, really, is it? At least they didn’t lose any money.”

Sale date Hammer price Price incl. premium
25/11/1997 (Christie’s) $215,000 $239,000
10/3/2004 (Deutscher-Menzies) $392,290 $470,750
13/6/2007 (Deutscher-Menzies) $1,700,000 $2,040,000
24/6/2010 (Menzies) $1,800,000 $2,160,000
21/3/2013 (Menzies) (yet to be offered) estimate: $1,400,000-1,800,000

Above figures from Australian Art Sales Digest: www.aasd.com.au

But herein lies the problem with that approach. The question you should really be asking is: “what did it cost the buyer to acquire the painting, and what did they recoup when it was sold?” To work that out, you need to first look in the ‘price including premium column’ – that is the total amount the buyer would have had to pay to acquire the artwork. So in 2007, for example, the buyer ponied up $2,040,000 to get their mitts on Backs and Fronts. Then, you need to look at the ‘hammer price’ in 2010 – $1,800,000 – and subtract a good chunk of that amount to account for estimated selling costs (commission, insurance, illustration and cataloguing fees). Let’s make that a round (and fairly modest) 15%.

So when the person who bought the painting in 2007 sold it in 2010 the net amount heading their way would be ($1,800,000 – 15%) = $1,530,000.

Instead of what appears to be a slight rise in value from $1,700,000 to $1,800,000, we now have a fairly dramatic loss – $2,040,000 outlay becomes $1,530,000.

Not so rosy now. And that doesn’t even take into account the effects of adjusting for inflation.

So what does that tell us about the upcoming reappearance of our spinning ladies and gents at auction? Well, the low-end of the 2013 estimate is $1,400,000. That means the reserve price must be equal to, or fall below, $1,400,000. Let’s take the 15% selling costs from that figure… that gives us $1,190,000 ($1,400,000 – 15%). That is the net amount the seller will pocket if the painting sells at its reserve (conservative, because it presumes a reserve at $1,400,000 – it could be lower).

Meaning? The person who spent $2,160,000 for Backs and Fronts in 2010 (the price including premium paid that year) is now happy to sell it for $1,190,000.

(Apologies for the shouty caps that follow…)

That’s right… THEY PAID $2,160,000 AND ARE HAPPY TO SELL IT FOR $1,190,000.

Really?

Try spinning that.

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