Auction Prices

So Eldred’s, a well-established, honorable, and honest firm of auctioneers is facing a law suit for doing business as usual. The story, in case you haven’t heard it, goes like this.

In December 2000, a museum in New York State consigned a Chinese vase to Eldred’s. Eldred’s catalogued it as “Famille Jaune Porcelain Palace Vase,” noting that it had a “six-character Chi’en Lung mark on base.” They said it was 19th century, and estimated that it would reach $800 - $1200. Wrong! It sold for $23,000 (including premium). Was the museum delighted? If so, only temporarily. The buyer promptly consigned the vase to a Christie’s auction in Hong Kong, where, just over a year later, it sold for $1.55 million. The museum is suing Eldred’s for failing to appraise the vase accurately, and for failing to advertise and market it adequately.

Now the numbers may be exceptional, but the practice is perfectly ordinary. I know many dealers who buy things at country or regional auctions and consign them to the major, metropolitan houses and make a profit. It’s a perfectly legitimate part of the antiques business. It is part of the normal process by which an antique moves up or down the food chain, often passing through a number of dealers’ hands, until it reaches its appropriate level and, hopefully, sells retail at an appropriate price.

The dealers who buy at one level of auction in order to resell at another are very knowledgeable – they must have an expert level of knowledge of the antique in question and a clear professional knowledge of where in the marketplace it will reach its best value.

Assessing the value of an antique is an imprecise, essential, and risky business. Let me take you back to Economics 101 for a moment. In a free market system, the value of a commodity is a combination of its use-value and its exchange-value. The use of a vase is to hold flowers on the mantelpiece. To have this function performed for you, you must pay for materials, processes and labor. Paying the potter and the painter, buying the materials, and paying for the firings would, let us say, cost you $1000 today. That is the vase’s use-value, and it can be fairly accurately assessed.

Its exchange-value is another matter entirely. This is the value of its intangible assets – its age, rarity, beauty and current desirability. It’s called exchange-value, because these assets can only be valued by what people are prepared to pay for them in the market place. How much money is any one person prepared to exchange for these intangible assets? The value of an antique is largely its exchange-value. Obvious, but it needs stating. Nobody buys a $100,000 highboy because they need somewhere to store their underwear. Less obvious, and thus in even greater need of clarification, is that exchange-value is also affected by the position in the marketplace at which the exchange occurs.

Exchange-value is solely a matter of knowledge: an antique’s value depends on what we know about it. Antique dealers are in the knowledge business. And so are museums. Their function is not just to show spectacular objects like a carnival side-show, but to show the public why these objects are so important, and so highly valued (aesthetically and historically, if not financially.) Both the museum and Eldred’s had a working knowledge of this vase, but neither had a specialist knowledge. Whom do you blame most for not having this specialist knowledge? The museum or the auctioneer? Who should suffer for this lack? It’s not an easy question, but that doesn’t stop me jumping in with both feet and declaring that the museum was primarily at fault, and therefore it is the museum that should suffer.

Let me tell a story, fictional but based on fact, to support that opinion. An auction catalog entry read “English open armchair, walnut, with vasiform splat and cabriole legs. 18th century. Est: $2,000-$3000.” I looked at the chair, and knew that it was extremely rare. It was made in about 1715 when people dined at oval gate-leg tables, sometimes at three or four tables in the room. Around them, they sat on side chairs. By about 1730, long dining tables began to come into fashion, and people would set an armchair at each end, and side chairs along the sides. But armchairs were not deemed appropriate for the smaller, oval tables. Because of its rarity, an armchair made in 1715 has an exchange value of at least double, or even triple, that of a very similar chair made 20 years later.

I knew, because it’s my job to know, that that chair was worth at least $8,000, whereas the slightly later one would be fairly priced at $3,500 - $4,000. If I had bought it within estimate, I would have had the choice of pricing it at its “rarity” value, and expecting to wait quite a long time for a customer who shared my knowledge and was willing to exchange 6,000 hard earned dollars for it (I am assuming the chair’s use-vale was about $2,000.) Or, I could cut my estimate of its exchange-value by 30% and sell it much more quickly as a regular 18th century armchair for $4,000, quite probably to another dealer who was willing to wait for the higher price. Weighing margin against turnover is what antique dealers do all the time.

Auctioneers don’t. For them, turnover is paramount. They have to sell on the day. If I had been the only bidder with an adequate knowledge of that chair, I might have “stolen” it for $2,000. If another dealer knew what I did, he might have pushed me to $4,000. But if two collectors had been there, both knowing that it might be ten years before they saw another similar chair, they might have bid each other up to $10,000 or even more. That’s how auctions work – and please don’t try and tell me that an auction price is the fair market value.

The consignor of that chair could have taken it to a number of specialist dealers, learnt about it and its value, and have sold it to one of them, hopefully me, for $4,000. Or he could have paid an expert to appraise it for him. But he took the easy way out. For no more effort than calling his local auctioneer, he put his chair up for sale, being pretty sure that he would get $2,000, and hoping that he might score ten grand. His choice. The auctioneer will do everything he can reasonably be expected to do to ensure that the consignor gets the maximum value possible in that place on that day.

Now the consignor should know that he is more likely to get the two eager, knowledgeable collectors that he needs if he consigns to a specialist sale at a major auction house. It’s not very likely that two such collectors will independently walk into one of Sam’s regular Tuesday evening sales in the local VFW hall. If he doesn’t know this, or take the trouble to find out, the consequences are his responsibility, not Sam’s. And if he’s not Joe Blow, but a museum professional……

Now Eldred’s are not Sam’s, but they’re not Christie’s either, and they never pretend to be. Everyone with even the slightest knowledge of the world of antiques knows the difference between Eldred’s, and the other good general auctioneers at their level, and Christie’s and Sotheby’s. If they don’t, they are culpably ignorant, and should bear the responsibility for their ignorance. And you don’t even need to be an expert to predict that a serious piece of Chinese porcelain will fetch a higher price in Hong Kong than on Cape Cod. I think that Eldred’s did a fine job, at their level of the business, in getting $23,000 for the vase.

Their one possible error was in cataloguing it as 19th century. But they did describe the mark, which is an 18th century mark (remember here that Chinese potters routinely put 18th century marks on later pieces as an act of homage to their predecessors.) Most reputable auctioneers catalog cautiously, thinking that it is better for bidders to find that an item is better than described rather than worse. This is common knowledge. It is also common knowledge that a pre-sale estimate is as much a bait for bidders as an appraisal. Anyone who treats an auctioneer’s estimate as an appraised value should immediately exit the sale room and enter therapy.

The exchange-value of an antique is determined both by the intangible assets of the antique itself, and by the position in the multi-level market place where that exchange takes place. To pretend that an antique’s value is an absolute value that is unaffected by its position in the marketplace is to have one’s head so high in the clouds as to be in danger of decapitation by a passing 747.

This case riles me for another, more general, reason: it is yet another example of a refusal to take responsibility. Today, nobody seems willing to admit to a mistake and to accept the consequences. Instead, they pay lawyers to prove that somebody else was to blame, always somebody else. The museum made a bad decision, and it’s Eldred’s fault. It could easily have made a better decision, but it’s Eldred’s fault. And that’s the world we live in.