During a recent series of posts about Fundraising Auctions, readers asked for clarification on some terms often associated with auctions and pricing practices. In addition, many of us enjoy watching Antiques Roadshow and listening to their "experts" who use various terminology for the items being appraised such as "at auction", "replacement value", and "insurance value".
Yikes this is potentially confusing.... and when each of us is left to our own interpretation, the misunderstandings may lead to disappointment, frustration, and pricing disasters for artists, makers, and sponsors.
Part of being an advocate for the arts is trying to avoid confusion. As artists we want the pricing of our work to be consistent across all contexts (if possible). Consistent pricing is a worthy objective. Erratic or inconsistent prices may confuse potential customers, collectors, or clients -- or may cause them to question their own judgement if prices seem to vary arbitrarily. This is especially true when price comparisons can be made at a moments notice by looking at the internet on their phones.
Here are the most common and generally accepted pricing terms and definitions:
The "WHOLESALE PRICE" is the cash amount that the artist expects to receive as payment. This is sometimes called the “artist price”, but I'd recommend never using the term "artist price" because it may imply different things to different people. The "wholesale price" might be calculated with a formula (such as 50% of the Retail Price or a 50/50 split with gallery, or 40/60 on consignment), but ultimately wholesale price is the payment that the artist expects to receive. If the gallery/store is purchasing your work at wholesale, then they may decide to mark up your work with a different formula all together.
Insurance value may change depending on the circumstances, so be sure to clarify precisely what is intended by both sides. If there is ever an actual a claim for damaged work the insurance company will demand proof or documentation to validate the amount of the insurance value. Documentation could be an invoice for selling similar items at a wholesale or retail price depending on the circumstances. A photocopy of a check or even a credit card invoice for a purchase can work. Another option is an appraisal.
Typically, "INSURANCE VALUE" for most artists, galleries, and exhibition sponsors equates to the wholesale price. Most insurance companies will only pay the artist the wholesale price if the work is lost, damaged or stolen during shipping or at an exhibition because this is what the artist would receive if the work had sold.
However, "Insurance value" steps up to the retail price IF the artwork is sold at retail. The invoice for purchase at retail will be the documentation an insurance provider wants to see to establish the insurance value at the retail price.
Insurance Value is a term often used on Antiques Roadshow and in that context it is equivalent to what it would cost to replace the item. In that case, it is usually a high retail price because of the difficulty in finding a replacement for a rare or unusual item.
The Professional Guidelines Committee recommends that the auction sponsor set a “reserve price” for work offered in an fundraising auction. The “reserve price” is the price below which the artwork will not be sold. This reserve would ideally be 80% of the retail price. The artists should be offered 40% of the retail price for their donations. The art organization will receive 40% of the retail price for fundraising and the collector has the possibility of receiving a 20% discount. Work sold above the retail price (as a result of generous bidding) creates additional revenue for the auction sponsor.
"MINIMUM BID" is the starting point in the bidding of a “live” or “silent” auction. The Professional Guidelines recommends that the minimum bid start at the wholesale value. In practice this is rarely done. Bidding often starts very low, so make sure to clearly specify a reserve price to avoid having your work sold at auction at an embarrassingly low price.
"At auction" is often heard on Antiques Roadshow when they are giving a value for an item. Most of the appraisers are talking about a competitive live auction scenario at an auction house specializing in that type of work. However, in practice, most winning bids at auction houses are often closer to wholesale (unless is it a rare item with a lot of competitive bidding).
Don't let Antiques Roadshow terminology or their references to rarified auctions mislead you as an artist participating in local area fundraising auctions. These are two different animals.
Antiques Roadshow has a whole page "Understanding Our Appraisals" that is worth reading. They also have a page How to Speak Auction. Keep in mind they are not talking about Fundraising Auctions, but the terms do sometimes overlap or they are confused. It is definitely worth taking time to understand the auction pricing terms in all contexts to be informed.
In the future, I would avoid use of the following terms because the definitions are vague or interpretations vary irrationally. If you are invited to a show or exhibition and see these terms in the prospectus, ask for clarification.
- Minimum Value
- Artist Price
- Fair Market Value