The Department Of Consumer Affairs Has To Press Jewelry Auction Houses For More Transparency

Back in 2016, New York’s Department of Consumer Affairs made some changes to the law and clarified that auction results should reflect the true final price paid by buyers, especially if the buyer was the guarantor of the item being sold, net of the fees paid to the guarantor by the auction house. Some auction houses agreed and some did not, but since it was part of the law, every auction house had to follow it. Today, items that have a third party guarantor, even if it is the auction house itself, is clearly marked as such in the catalogue.

Auction Houses Should Lead By Example

Going forward almost 4 years to today, and the law needs to be further improved. Further detailed guidelines need to be given to auction houses in regards to transparency. Each of the major auction houses prides itself on their steps into improving their business, and they should always improve, especially now, that the major auction houses are no longer publicly traded. Sotheby’s was the latest auction house to be acquired by Patrick Drahi, a  french-Israeli collector and a top client of Sotheby’s. Christie’s was acquired years ago by Francois Pinault, owner of LVMH who also acquired Tiffany’s lately. Phillips auction house as well as Bonhams are also owned privately.

What exactly are we talking about? items that have been published to be sold at auction, and that the items “some how” disappear from the results after the auction took place. I am talking about items that were either withdrawn, not sold, or sold and removed for some other reasons. 

Honesty Is The Best Policy

When we review results of each auction, we end up seeing a trend of items being removed from the website, as if they never existed. This should not be allowed. In the same manner that auction houses promote their online as well as printed catalogues before the auction, should an item not sell ( there are several ways an item ends up not selling; either the item has not reached its minimum bid requested by the buyer, or the item has been withdrawn), the auction house should be held responsible for publishing those facts, and not just simply removing the item from the website. Since it is not consistent with all items, to me, it is clear that the items removed are done so, after the owners of the items had made such a request from the auction house, and not initiated by the auction house itself.

Why Are Items Being Removed?

In most cases, items are removed from the site after they have failed to sell. The request is done by the owner of the item, because now it has a bad perception that it was not sold at auction. How does that affect the item? when the owner will eventually want to attempt to sell the item privately, and with technological advancements, it is quite easy to research the item online and find out details. When potential buyers see that an item has not sold, they assume ( in most cases correctly) that the item did not reach its minimum bid and now they know what the item is not worth. Is it a legitimate assumption? not really. At the end it all depends. It depends how long after an auction the item is put up for sale again. For how much and depends on market conditions. But to remove an unsold item from the auction results should not be allowed.

Why Are Sold Items Removed From The Website?

Many times, the actual buyers of expensive items at auction are dealers themselves and not end consumers. In that case, the dealer will want to eventually offer the item for sale as part of his or her own inventory. A sophisticated consumer may research the item on the internet and will find out what the dealer has paid for it, and will press the dealer to reduce the  price to a level close to the actual paid price or published result by the auction house. I have had many instances where I published items sold at auction and dealers contacted me to remove the article from my website because they did not want their potential buyer to see it online. Is that the right thing to do? no, it is not. Does that mean that consumers should press dealers to reduce their asking price? Consumers may do so in any case, as it is called free trade. On the other hand, dealers may reject an offer from their client. There is no right or wrong. Dealers that acquire items at auction may see a potential profit where others don’t. This does not mean that the dealer works for free. 

When Should Items Be Allowed To Be Removed From Auction Websites?

In my opinion, if an item has been published both online and in a printed catalogue of the offerings, it should never be removed from the website, in the same manner that the auction house cannot recall all of the printed and distributed catalogues and remove an item. Even if an owner of an item would like to withdraw an item from the auction prior to the actual time of auction, the item should remain listed on the website with a note of “withdrawn from the auction” but all the details should remain written including details of the item as well as appraised value (in the same manner it is written in the published catalogue). Otherwise I would categorise it under “public deception”.

Conflict Of Interest Of Items Removed

I concentrate on the top four auction houses because they account for the majority of items sold at auction in the jewelry industry; Sotheby’s, Christie’s, Phillips and Bonhams. In all cases, many items are offered by jewelers and dealers. They are a major source of items for the auction houses, which creates a conflict of interest situations, otherwise known as “ i’ll scratch your back if you scratch mine”. Some major dealers are prominent and volume buyers at auction and at times, major sellers at auction. Auction houses do not want to “rock the boat” with these dealers and therefore are willing to push the limits, or borderline break ethical rules of behaviour. What if a dealer is a major client of the auction house, and gets a volume discount at the end of the year, should that also reflect in the final price of the items they acquired? This used to be the same in the financial industry where deal makers were also the bankers and advisors to the companies going public. since then it was separated.

I remember 2some major instances of such behaviour. The first one being a fancy vivid yellow diamond being offered at auction. The 100.09 carat, Fancy Vivid Yellow diamond by Graff that was offered by Sotheby’s on May 13, 2014. It started at a bid of CHF 11.8 million, went to CHF 12.6 million and stopped. It ended up not selling because it did not reach the minimum bid required. After about 15 minutes, the item came back to the auction and David Bennett claimed that the potential buyer miscalculated the exchange rate. It went on starting again at CHF 12.6 million, a woman bidder bid CHF 12.8 million (she was the single bidder) and it got sold. Did she really miscalculated her bid or exchange rate? I don’t think so, and neither will you if you saw the video of how it occurred. But what about the reputation of Graff should it be known that his item was not sold at auction? Another instance happened and I wrote about it previously in another article.

Conclusion

The auction houses should remain true to their core ethics and serve the public with true transparency, not a selective. It is clear that there is a conflict of interest or “grey area”, but increased transparency will only serve the larger public in believing in true free markets. Auction transactions are not the majority of transactions in the world, but represent a minute size. The fact that they are so public, makes it even more important and noisier. I would also like to see in the publications of auctions (both online and in catalogues) a notation on each item suggesting that the seller is a dealer or private individual. In auction results I would like to know if the buyer was a dealer or a private individual.