Selling an artwork at auction can be a risky proposition that threatens to dramatically reduce the value of the piece if it fails to sell. That is the view of Rayah Levy, director of fine art investment company ArteQuesta.
“The biggest risk associated with selling your works of art at auction is the chance that it doesn’t sell. If your artwork is listed but it does not sell, the reputation of the work will most often decrease drastically. This can make it extremely difficult to recover your investment in the piece,” she says.
She adds that you also need to consider the fact that you will be subject to significant fees when you sell a piece at auction.
“Generally, when you sell artwork through an auction house you are subject to a 20% to 30% fee, plus 12% above the premium—that is, a resale price that exceeds the estimated value or is greater than one million dollars. In addition, you will pay a 28% capital gains tax.”
For buyers at auction, the biggest risk is that they will find themselves paying significantly higher than market value for a work of art – and while this scenario might sound like good news for an artist’s career, it can also damage their reputation if the prices fetched by their art suddenly decrease.
“If the piece sells for below the estimated price, it can destroy not only an investment, but an artist’s career,” she says.
While auction houses operate on the secondary market, which by nature makes it difficult to build long-lasting relationships with artists, art investment advisors such as ArteQuesta function in the primary market, which helps not only preserve the works and careers of artists, but also builds them up.
“Long-term relationships are formed between passionate collectors and artists and they work together to create resale plans that flourish for both the artists and collectors,” says Levy.
“When you purchase an artwork through ArteQuesta, you pay a small resale fee based upon an agreed sale price. In addition, ArteQuesta is qualified to offer a tax-deferred exchange, enabling you to reinvest your profit into new artworks, thus eliminating the capital-gains tax.”
She adds that there are also advantages when you decide to sell items in your collection.
“Working on the primary market enables you to make a wise and well-timed choice to sell your artwork. This preserves the value of the artwork as well as the artist’s reputation.”