I continue to be astounded by reputable auction houses that give obviously inflated estimates for lots. Obviously, one person’s inflated estimate is arguably another person’s market, but that argument falls apart for recent vintages that are still available at retail. If your estimate range starts at, near, or even above the current retail price from a major retailer and goes up to some multiple of that from there, you’re playing games.
Of course, I get it in one sense. Auction houses are in the business of getting consignments and selling wine, not helping people buy wine, and if they can inflate the prices of the auction it’s good for them and good for their consignors. But I’m still left with a couple of questions:
Who are these idiots who bid up wine of unknown provenance (okay, “removed from climate controlled storage,” but come on) well above the retail price from good retailers?
Is anyone else badly turned off by this practice? There’s one house that’s lost most of its credibility and good will in my book. (No point in naming names; they know what they’re doing, so we might as well focus on the practice.)
Perfect example in front of me now: Burgundy X “estimated” at 2200-2800/case (so, a little over $220/bt after premium). Same wine, available now under $180 at Crush and two other well-known retailers. Maybe not unethical - the house doesn’t work for me - but to me that sure says “we have a thumb on the scale to screw buyers,” and as a buyer that doesn’t exactly give me a warm and fuzzy feeling.
You should take a looksie at the “Did I get hosed?” thread, as I can imagine the discussion in this thread would likely share many characteristics of that one.
You bring up a good point. I am selling some wine for someone that will go to auction in March, and the only fees associated with the seller are a percentage based on this high estimate if it does not sell as well as a handling charge of a percentage of the high estimate. Seems that this high estimate is quite arbitrary? No?
Estimates tend to be based on prior sales with an adjustment for the perceived current trend of the market. Negotiated reserves play a role. The auction industry is not your friend or enemy, they just are. They sell wine. No one is screwing you with an estimate. You buy or not.
There is speculation especially in some wines which leads to widely different results at times. No doubt some lots sell for more than the wine can be found retail. Most of the time this isn’t true. There are many reasons for pricing, sometimes a retailer needs the wine to satisfy a customer futures order , someone may want to buy up 10 or 20 cases and sometimes the wine searcher data you’re looking at means nothing and no wine is available.
How does the estimate inflate the price? I don;t know anyone who bids based solely on estimate. If an auction house consistently made too high an estimate, they wouldn’t sell the wine or would sell below low estimate, and would lose credibility. Plus, if I’m not mistaken, some house make guarantees (90% of low estimate or whatever) to sellers and unreasonably high estimates would be a real moneyloser. I think I’ve won 2 lots of the last 15-20 I’ve bid on ( most bids probably low to mid estimate) so my personal experience is that estimates are not unreasonably high. Actual bids reflect the market.
Now, that;'s the auction house. I’d agree that sometimes top bids on some recent readily available wines seem really high. But maybe the auctions provide advantages. Maybe:
if someone is bidding on 40 lots hoping to win 25, they might have substantial shipping savings vs 2 dz separate retailers. Plus if international buyers auction houses tend to have more international shipping expertise
Lots of WS hits for retail are actually just a few bottles in stock, and we know the premium for OWCs.
we all know that the fever of competition can up bids
In any case, while you might feel the bids are too high, I can’t see how lower estimates would be somehow fairer or more ethical.
My guess is that that’s wrong. You’re right: if nobody bid based just on the estimate, then the house would lose credibility as a result of seemingly irrational prices, lose money, and be punished. But that doesn’t happen, and this is a pretty consistent pattern. I also credit the house with being run by savvy business people who like making money (not that there’s anything wrong with that). So, why consistently put low estimates that only a fool would pay, given that you can easily buy the same wine with equal or better provenance? (Incidentally, these are not huge quantities - a case at most, and more than once I have in fact just gone out and bought the same thing at retail instead - and having used the house I can assure you that there are few or no shipping efficiencies, so I don’t think the other explanations hold up.) The rational explanation is that the house can goose prices at auction by goosing the estimate - okay, you and I might not pay that, but someone will. The estimate influences price.
Is that unethical? As I said, not really. But I think the auction houses do hold themselves out as providing an unbiased estimate of fair market price, and in fact that’s why I think this little game works. Contrary to your assumption, I think people do rely on what the houses tell them, and that inflates prices for informed buyers as well (or, more accurately, takes them out of the market as people who don’t look up every wine just rely on the estimate). So why raise it? As you said: they should lose credibility. They’ll keep doing it until it no longer works, so I’ll stay away myself and point the tactic out to others in hopes that evenetually it won’t.
I agree with Dale Williams above. It’s not an inflated estimate if someone pays it. At the auction house I use I only bid the low end of the range and hardly ever win, they often sell for more than the upper limit.
Maybe provenance has something to do with it, maybe it’s just feeding a lot of drinks to rich in-person bidders. Prices seem to have risen considerably the last 3-6 months.
As Tom D said its up to you to do the comparison research. After that it is your desire to get your paws on it and the ability to pay for it. Most reputable auction houses will not go through an auction knowing that they might have wine sticking around in their possession. In addition to generally knowing wine desirability auction houses also monitor economic trends and try to push the envelope to bring in more revenue…Gary
I disagree with your idea that higher estimates lead to higher bids (everyone I know bids what they are willing to pay, not some part of estimate), but let’s just pretend for a moment that you are correct and estimates form a significant part of final bid. Most of the wines I bid on in last HDH auction went for high estimate or one/two increments above.
So if there is a case of 2005 Ch. Marquardt. Under that premise, let’s say if auction house says estimate of $700-1000, they’ll get $1000, if they say $900-1200, they’ll pull down $1200. Now, the auction house has a contract with seller, and a fiduciary duty to achieve the best price possible. But you want them to place the lower estimate? Obviously the higher hammer increases their take, but beyond that seems to me they could be sued if they intentionally tried to reduce hammer.
In the early days at a Christies NY auction, there was a parcel of 10 cases of 1970 Latour. sherry lehmann was retailing it at $3600 a case. My memory may be hazy, but I do recall that the first case went for around $16,000 hammer, and the buyer took 5 cases from the parcel at that price, The underbidder then bought four cases in the $6000-7000 range and the final lot sold for $3000.
That being said, if the auction house depended on this kind of irrational behaviour, they would soon be out of business. They make no money if the lot is unsold. As for immoral, come on! That is ludicrous. They price where they think it will sell, and usually as low as they can, subject to seller input. The cost of running an auction are pretty high; you do not want to have a ton of lots without buyers; it not only screws up cash flow, but logistics, warehouse space, specialist time having to talk to the sellers multiple times etc. Bad business plan. I will not be in the least surprised if all the lots that so disgusted our OP sell within estimate.
how about the percentage charge of “unsold lots” that would be charged to the seller to restock the inventory? I know that this is not alot of money to the house but its something.
This is an interesting discussion. Personally, I always account for buyer’s premium and sales tax when factoring in my bids. Often times, using the low end estimate, that price is substantially higher than other credible retailers in the market.
I’ve currently got my eye on a few lots in the upcoming Acker auction, but my “buy” price is right around, or just slightly higher than the low estimate. It should be very interesting to see where these lots hammer vs. what the current retail market looks like.
That said, the estimates compared to retail are far more easy to compare with younger wines that are more widely available. With the older and/or more rare lots, it’s anyone’s guess.
I think people do use the ranges as a guide to what the market price is and often don’t research every wine in an auction. I think you’re not dealing with the more telling case: why would anyone pay a minimum of $220 at auction for a wine he or she could buy at retail from a well-known seller for $175? The most obvious answer is that they don’t know that the wine is available for $175 and are relying on the estimate range as a “good price”. (Ooo, I got it below estimate!)
And let’s be clear - yes, if you don’t do your homework, too bad for you, and I understand why auction houses have every incentive to inflate their estimates. As a buyer, though, I have every incentive to call them on it and increase awareness of the practice among other buyers, and I in fact avoid the houses that are consistent repeat offenders (and no, not every house does this, which is another indication that it’s a strategy and not just a reflection of the market). There’s no reason I should do business with an entity who is using sharp practice to make more money from its customers, and that’s just as much a part of the free market as “buyer beware.”
I think each auction house has a different approach to setting estimates. Of two that I am familiar with, one sets low estimates quite low so wines usually hammer at the high end of the estimates. Another sets their low estimates higher so wines usually hammer close to the midpoint of low and high. Of course, there will always be outliers that are estimated incorrectly but I find very few of those. Since the two houses I’m quite familiar with have 99 to 100% of the lots sold at each auction, I have to believe that they are fairly pricing them.
Of course, I am not familiar with all the auction houses so there may be one that sets higher estimates but that doesn’t make sense to me as what good is it if the lots don’t sell.
Since I have no idea who you are talking about it is difficult to take this any further.
As far as I know, there is currently only one wine auction house charging that “buy back” or “buy in” fee. We do not.
Estimates are a very tricky thing. Sometimes there are months in between the first appraisal of a list and the catalog mailing. When the market is going crazy like it is now, sometimes the prices shoot up drastically, so we have to inflate the estimates in anticipation of the rising market. We are also currently seeing a strange phenomenon where the auction realized prices are much higher than retail pricing (mostly on top Bordeaux). With those wines, we have to base our estimates on recent auction sales, rather than on retail pricing.
Certainly some consignors shop their lists around to all the auction houses. I suppose some of these people pick the auction house with the highest estimates. So it is important to be competitive with the other houses. Our estimates tend to be on the more realistic side of things. We would never want to inflate estimates out of the range of realistic expectations. As Mark G. stated, the economics of unsold lots are too great.
Poppy Davis
Associate Director, Fine & Rare Wine
Heritage Auction Galleries wine.ha.com
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, someone may want to buy up 10 or 20 cases and sometimes the wine searcher data you’re looking at means nothing and no wine is available.