Bidding at auction can seem like a daunting prospect for a museum, especially if it’s your institution’s first time trying to acquire an object in this way. However, auctions can be a fantastic way to acquire works for your collection. In this article I have outlined some of the key things to bear in mind if you are considering placing a bid.

What should you be looking out for in the auction catalogue?
1) Lot description: Each lot will include basic information on the object including artist name, title/object description, medium, and dimensions. The catalogue will also list any important provenance information, exhibition history, and literature references if applicable.

2) Estimates: A catalogue will list two figures – a low and a high estimate – representing the range within which the auction house expects that work to sell. An important figure that will not be mentioned in the catalogue, however, is the reserve price, which is the price below which the work will not be sold. Often this reserve will be the same as the low estimate, but sometimes the reserve is lower. The reserve can never be set at a higher level than the low estimate.

3) Catalogue symbols: A symbol next to a lot can mean myriad different things, ranging from the work’s VAT status, whether the Artist’s Resale Right is payable, or if the lot is being sold without a reserve price. A glossary of auction symbols can usually be found in the back of the catalogue.
How can you bid in an auction?
1) Live Bidding
  • Paddle: If you can attend the auction, bidding live in the room can have its advantages. An auctioneer will usually give priority to bids in the room. Sotheby’s would encourage you to bid in person.
  • Bid on the phone: If you cannot or do not want to attend the auction, then an auction house employee can be on the phone with you and execute bids on your behalf.
  • Bid online: At the larger auction houses, you should be able to see and hear the auctioneer via a video link.
2) Leave an absentee bid

  • Absentee bid: You can leave your maximum bid in advance of the auction, and the auctioneer will execute your bids on your behalf.  
Additional costs to consider
When the auctioneer brings down their gavel on a lot, that’s not the end of the story. There may be other costs to bear in mind, including:
  • Buyer’s premium: In addition to the ‘hammer price’ (the price at which the auctioneer brings down their gavel) an auction house will charge a premium to the buyer. At Sotheby’s the current rates of buyer’s premium are 25% of the hammer price up to and including £300,000, 20% on the portion of the hammer price in excess of £300,000 and below £3m, and 13.9% on the portion of the hammer price above £3m. The level of buyer’s premium differs depending on the auction house, so check these rates before you bid.
  • VAT: Normally, if the work is being sold inside the UK government’s VAT margin scheme, VAT is chargeable on the buyer’s premium at a rate of 20% – although margin scheme invoices do not allow VAT-registered buyers to recover this VAT. If your institution is eligible to reclaim VAT, you can request to pay outside the margin scheme. VAT will then initially be payable on both the hammer price and the buyer’s premium, but it can be claimed back on a subsequent VAT return. For sales of books there is not VAT to pay.
  • Artist’s resale right: This is a royalty payable to the artist (if they are living) or their estate (if they have died within the past 70 years) up to a maximum of €12,500. For more information please visit the Dacs website.
  • Shipping: You may need to pay for your acquisition to be delivered to your museum, as well as paying of the cost of insurance in transit.
In practice
For an example of the fees involved, consider a UK institution that bids for an important still life by Lucien Freud, one of the top lots in a Sotheby’s Contemporary Art Evening Auction in London. The gallery puts in the winning bid of £1m and the auctioneer brings his hammer down. 
What is the final total amount that the institution actually pays? It might be likely to consist of:
  • £1,000,000 - Hammer price
  • £215,000 – Buyer’s premium
  • £243,000 – VAT on the hammer price and buyer’s premium
  • £11,000 – Artist’s resale right (€12,500 exchanged to GBP)
  • £2,000 – Shipping and insurance
  • £1,471,000 Total
Because the UK institution (if VAT registered) can, in theory, recover the VAT and paid for the work outside of the margin scheme the final total expenditure will be £1,228,000.
Payment
Finally, an auction house will usually require payment within 30 days of the date of the auction. If the seller agrees, it may be possible to extend payment terms. Any extension of payment terms must be agreed prior to the auction. 
Felix Hale is the deputy director and senior researcher, tax, heritage, and UK museums at Sotheby's