Auction Estimates and Market Value: What the Numbers Really Mean

1. The auction numbers, in order

Low and high estimate

The specialist’s published range for a plausible hammer price, based on comparable sales, condition and current demand.

Reserve

A confidential minimum agreed with the seller. It is commonly set at or below the low estimate, but terms vary. If bidding stops below it, the lot does not sell.

Opening or starting bid

Where the auctioneer begins. It is often below the low estimate to get bidding moving and does not signal value.

Hammer price

The winning bid when the hammer falls.

Buyer’s premium

A percentage added to the hammer price, set in the conditions of sale. Rates vary widely between houses and may be tiered.

Price realized

Usually the hammer price plus the buyer’s premium. This is the figure most published results show, so check which one a database is reporting.

2. How estimates are set, and why they can mislead

Specialists base estimates on recent results for comparable works, adjusted for condition, size, quality, provenance and the current market. Estimates also serve a commercial purpose. A modest estimate can attract more bidders, and competition can carry a lot well past the high estimate. An ambitious estimate may reflect a seller’s expectations more than the market. Either way, the estimate is an opinion published before the sale, not a valuation of what the work is “worth.”

Read estimates as a starting point for your own research. When a lot finishes far above its estimate, that is not proof the work was undervalued; it shows that two bidders wanted it that day. When a lot passes or sells below its estimate, that is market information too.

3. “Value” means different things in different settings

Much confusion comes from comparing numbers that measure different things:

Fair market value

For U.S. tax purposes, the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion and both having reasonable knowledge of the relevant facts. Auction results for comparable works are a common reference.

Retail replacement value

What it might cost to replace the item by buying a comparable one at retail. Insurance appraisals usually use this, and it is often well above auction prices.

Liquidation or quick-sale value

What an item might bring when it has to be sold quickly. Usually the lowest of the figures.

Asking price

What a dealer or seller hopes to receive. It is a starting point for negotiation, not evidence of value.

So an insurance appraisal that is double the auction estimate is not necessarily a sign of a bargain. The two numbers answer different questions. If you need a formal valuation, hire a qualified appraiser who has no stake in the sale, and tell them which kind of value you need.

4. How to research market value yourself

Before bidding on any significant lot, look for comparable sales. Several subscription databases collect auction results, and many auction houses publish their own past results online. Good comparables match on as many of these points as possible:

• Same artist, and the same attribution level (a full attribution is not comparable to “circle of”).
• Same medium and type: a painting is not comparable to a print; a hand-signed print is not comparable to a plate-signed one.
• Similar size, subject, period and quality within the artist’s work.
• Similar condition and provenance.
• Recent dates. Markets change, and a result from many years ago may tell you little.
• The same price basis: compare prices realized with prices realized, or hammer prices with hammer prices.

Look at unsold lots too. A work that failed to sell at a similar estimate is evidence about demand. A range of several results is far more useful than a single record price, which may reflect two determined bidders on one day.

5. Adjust for what makes this lot different

No two lots are identical. Move your figure up or down for condition problems revealed in the condition report, for strong or weak provenance, for an unusually good or weak example, and for costs you will incur, such as conservation or reframing. Then decide what the work is worth to you. That number can reasonably differ from the market figure, as long as you are clear which is which.

6. Turn value into a maximum bid

Your maximum bid is the hammer price you are willing to pay, worked back from the total cost:

1. Start with the most you would pay in total for the work, delivered and hung.
2. Subtract expected shipping, framing and conservation.
3. Divide the remainder by one plus the buyer’s premium rate, and allow for sales tax where it applies.
4. Round down to the nearest bidding increment. That is your hard maximum.

For example, with a 25% premium and a $5,000 all-in budget after other costs, the hammer maximum is $5,000 ÷ 1.25 = $4,000 before tax. See set a hard max bid and the estimates video.