Sotheby’s irrevocable bid explained – FT, Saatchi
Posted by artradar on November 12, 2008
What is an “irrevocable bid”? asks Georgina Adam in the Financial Times
‘A new symbol is perplexing dealers and collectors alike. It popped up for the first time in Sotheby’s catalogue for its Impressionist and Modern sale in New York this week, against Malevich’s “Suprematist Composition” (1916), estimated at $60m and which sold to just one bidder for that amount.
The auction house explains that under the “irrevocable bid” arrangement, it finds a person prepared to submit a bid for an undisclosed amount. If no one bids any higher, then the buyer gets the work and pays the buyer’s premium. If the work sells for more, then the “irrevocable bidder” gets a cut of what is called the “upside”, the difference between the final price and the secret price he or she agreed to bid. In the case of the Malevich, the irrevocable bidder secured the work at the price agreed in advance. In effect, the painting had been pre-sold – the only unknown was if anyone else would bid, and no one else did. The auction houses have been cutting back on financing guarantees themselves (Sotheby’s recently admitted it lost $15m in guarantees this autumn) and instead are farming them out to others in the form of “third party guarantees”. This is when an outside person carries the risk and benefits financially if the work of art sells for more than the expected price.’
Any difference between the irrevocable bid and the third party guarantee?
‘So what’s the difference between (the third party guarantee) and the “irrevocable bid”? I asked Sotheby’s. The third-party guarantor doesn’t bid, and the irrevocable bidder does, the firm said. This version was questioned by a number of dealers, who say that third-party guarantors can and do bid on works they have underwritten. “I don’t see the difference [between the third party and the irrevocable bid,” said New York dealer Richard Feigen; “This totally lacks transparency, and it’s time this market was more regulated.” ‘
The symbol might be new but not the concept
Anthony Haden-Guest in the Saatchi magazine explains ‘The notion of “irrevocable bids” was arrived at a couple of years ago when the market was still on a bender and it’s really a punt, a gambler’s option. Such a bid is made in advance of the auction and it cuts an auction house’s exposure. For instance, it removes the need for the auction house to put up a guarantee. Then if the irrevocable bidder secures the work, he or she pays the same premium as any other bidder, but if it goes above that level and somebody else buys the lot, the irrevocable bidder is rewarded by a slice of the deal. Fifty percent of the buyer’s premium, insiders say, but on this point Sotheby’s are mum.’
And is it really irrevocable?
Haden-Guest points out that there was also an irrevocable bid alongside Munch’s Vampire, another of the evening’s choice pieces, but Sotheby’s were saying this had been a typo, a printing error. ‘Pesky cynics, of course, were saying that the irrevocable had been revoked’ he writes.
And he reminds us how opaque the art markets can be.
‘In November 87 the Australian financier, Alan Bond, bought van Gogh’s Irises for $53.9 million, also at Sotheby’s, New York. This was then the most expensive painting ever sold. But two years later Sotheby’s revealed that they had loaned Bond $27 million of the purchase price, that he had failed to come up with his share of the moolah, and that they were keeping it at a secret location. It was bought by the Getty in 1990, the year of the Art Crash.
Shortly before the Malevich sale I asked Sotheby’s how they could satisfy themselves that the Irrevocable Bidder would not pull an Alan Bond? They responded: THE IB IS CONTRACTUALLY BINDING AND CANNOT BE REVOKED. So no worries clearly.’
- Image and explanation of ‘irrevocable bid’ bullet on Sotheby’s site and on Culture Grrl
- More press coverage: Munch buyer pulls out in The Art Newspaper,
- More auction news, market watch, reports from New York on this site