How high fees make profiting at auctions virtually impossible

Since the 1970s, auction houses charge both buyer and seller – usually more than once - RichLegg/E+
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Paul Lewis is a presenter on BBC Radio 4’s Money Box

You can hardly watch afternoon television without seeing celebrities or members of the public selling things at auction. Costs are occasionally mentioned in passing in shows like Bargain Hunt – but the real horrors of auction arithmetic are not revealed.

Auction houses charge both buyer and seller – usually more than once. The result of this double-dipping is that if you buy something at auction and then resell it at auction the value has to rise by at least 50pc, and often a lot more, before you break even – never mind book a profit.

At one time, auction houses just charged sellers. If you bid £100 for an item, you paid £100. But in the 1970s, London auction houses Sotheby’s and Christie’s announced they would also charge buyers a premium of 10pc of the hammer price. Sellers paid the same commission. Burning the candle at both ends had begun.

Despite a half-hearted rebellion by dealers and a legal challenge on competition grounds, they stood firm and auction houses around the world soon began to copy them. Since then, the buyer’s premium charged by houses has risen to 26pc which, with VAT, adds nearly a third to the hammer price.

This month Sotheby’s announced it would cut its buyer’s premium from 26pc to 20pc (inc. VAT) and stop charging a 1.2pc (inc. VAT) “overhead premium”. Nor does it charge extra for bidding online, though many other auction houses do.

The internet means that people all over the world can bid in auctions anywhere but they usually pay an extra premium for doing that, even though extending bidding to the entire planet potentially raises the price realised which means the auction house earns more, too.

The best-known enabler of online bidding,, charges buyers 4.95pc+VAT which is 5.94pc for UK buyers. A competitor,, does not charge a fee to buyers making the auction house pay on a sliding scale.

Other online fees lie between those two extremes. Auction houses based outside the UK and the EU usually charge a fee for paying by card, typically 2.5pc. And that is in addition to the foreign transaction fee of 2.99pc which most banks charge for paying in any currency except pounds.

Sellers are charged less. Commission is typically 18pc including VAT. Though Sotheby’s has confirmed it will now charge 12pc (inc. VAT) from 20 May, raised to 14.4pc for items which fetch above its high estimate. It calls that extra a “success fee” though in fact it is a fee for it failing to get the high estimate right.

Some auction houses also charge a fee of around 1.8% (inc VAT) for insurance, and all of them charge the seller for illustrations in print or online catalogues especially those in a prominent position. That can range from £30 to as much as £600 including VAT. Fees for valuations and provenance (checking that you have the right to sell the object) may also be charged in some cases.

As dealers say, the hammer price is an amount the buyer does not pay and the seller does not receive.

The table below reveals the effect of charges on both buyers and sellers. It calculates the full actual cost to the buyer and then works out what sale price they would need to achieve to recover that spend.

A low-cost auction house might charge a 24pc buyer’s premium and 16.5pc selling commission with a 3.6pc online bidding fee. A winning online bid of £1000 for a rare Barbie doll would cost £1,276, plus shipping (if not collected in person) costing, say, another £75.

If the Barbie is subsequently put back into an auction charging sellers 16.5pc and a modest £25 illustration fee the successful bidder will have to bid £1,648 before the original buyer breaks even.

So the actual hammer price must rise by more than 65pc before a profit is made.

At more expensive houses, where buyer’s premium can be 33.6pc and selling commission can be 18pc, with no internet fee but 1.8pc for insurance and a modest £60 illustration fee the buyer would need a hammer price more than 83pc above their successful bid to get their money back.

There is a further charge on any work of art by a living artist or one who has died within the last 70 years sold in the UK or the EU for €1,000 (£855) or more.

This Artist’s Resale Right can add another 4pc meaning you have even more to recoup when the item is resold.

A spokesman for Sotheby’s said the “vast majority” of its clients “don’t buy at auction today in order to sell tomorrow”. It said its fees were “a reflection of the value we bring” and covered marketing, exposure to collectors, expertise and authenticity guarantees.

While that might be true, I contend that buying and selling at auction is a very hard way to make money.


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