Art auctions: what comes on top of the hammer price

The hammer falls at 10,000 euros. The winning bid commits you to the purchase, but the painting is yours only once the invoice is paid in full. At Grisebach in Berlin the invoice reads 13,400 euros, at Lempertz in Cologne 13,213 euros. If the work is by a living artist, the gap grows: Lempertz adds 180 euros, Grisebach at least 400 euros. The largest item between hammer and final price is the buyer’s premium, the house’s commission. Tax and resale royalty may be added depending on the lot. Both houses set everything out in their auction conditions, and it belongs in your calculation before your first bid.

What the premium includes

The buyer’s premium is the commission the auction house charges the buyer. It is calculated as a percentage of the hammer price and falls in tiers at higher amounts.

Grisebach charges EU-resident buyers 34 per cent on hammer prices up to 1,000,000 euros for works without a special designation. Flat charges and VAT are included. The house applies the margin scheme under § 25a of the German VAT Act and therefore does not show the tax separately.

Lempertz calculates differently. It adds VAT to the premium, calculated on the premium alone. The tiers at both houses:

Source: auction and purchase conditions of Grisebach and Lempertz

At Lempertz you effectively pay just over 32 per cent on the hammer price up to the first threshold, at Grisebach 34 per cent. A tax-inclusive rate and a lower rate with tax added look different on paper but yield similar amounts. The real differences lie in the designations and resale royalty.

When an R appears in the catalogue

Some lots have a designation in the catalogue. At both houses, R means standard taxation. VAT is then added to the combined hammer price and premium.

For artworks, the reduced rate of seven per cent applies. Paintings and drawings made entirely by hand, original engravings and original sculptures are listed in Annex 2 to the German VAT Act, the list of items taxed at the reduced rate. Lempertz specifies seven per cent for art and collectors’ items and 19 per cent for all other objects, including antiques and photographs.

Grisebach reduces the premium for R lots, but tax is added. At Lempertz , the R lot for an artwork in the table’s example therefore costs 376 euros more than the lot without a designation (13,589 versus 13,213 euros); at Grisebach the difference is 403 euros (13,803 versus 13,400 euros). Standard taxation can be cheaper for dealers entitled to deduct the VAT as input tax. For private buyers it is slightly more expensive in these examples.

An N marks works imported into the EU for sale. Both houses then charge additional import VAT, seven per cent for artworks. At Grisebach , a painting with a 10,000 euro hammer price and no designation becomes 13,400 euros; a painting marked R costs 13,803 euros. A price of 14,100 euros results with an N designation when 7 per cent import VAT on the hammer price is added to the 34 per cent premium.

At both houses, R means standard taxation.

The artist’s resale right

Artists, and after their death their heirs, receive a share of resales. § 26 of the German Copyright Act requires the seller to pay the creator a share whenever an auction house or art dealer is involved. For proceeds up to 50,000 euros it is four per cent; the rate then falls in tiers.

No royalty is due on proceeds below 400 euros, and it is capped at 12,500 euros per sale. It applies for as long as copyright lasts: until the end of the seventieth calendar year after the year of death of the artist.

Legally, the seller owes the royalty. Both houses nevertheless pass it on to the buyer in different ways. For original artworks by living artists and artists who died less than 70 years ago, Lempertz charges a flat 1.8 per cent of the hammer price.

Grisebach passes the full statutory royalty on to the buyer, so 400 euros on a 10,000 euro hammer price. Under its conditions, VAT may also apply to that amount.

If you buy contemporary art, allow for one more item. The artist’s year of death determines whether it applies. A painting from the 1950s is subject to the resale right while its painter’s copyright term runs.

After the hammer falls

At Lempertz, possession and risk pass to you when the hammer falls; at both houses, ownership passes only upon full payment. Grisebach expects you to collect the work within one month of the sale. Until then, the house stores and insures it at its own expense. After that, Grisebach may place it with an art shipping company at your expense or store it on its own premises for a flat monthly charge of half a per cent of the purchase price. On 13,400 euros, that is 67 euros a month. If the work goes to a country outside the EU, Grisebach or an art shipper handles customs clearance; you pay the costs.

The calculation before your first bid

Set your limit on the final price and work backwards: divide your budget by the house’s total factor including all charges and the resale royalty, so in the standard Grisebach case by 1.34. For a maximum of 15,000 euros, that looks like this:

Source: own calculation based on Grisebach and Lempertz conditions

For an R or N lot, the final bid will be lower still. Read the auction conditions before every sale. Rates vary by house and can change from auction to auction; Grisebach publishes separate versions for room and online auctions. Look for R and N beside the lot number in the catalogue and ask the house if the resale royalty is not clearly stated.

In the example, the two houses are less than 200 euros apart for a work without a designation or resale royalty. For a living artist, the gap grows to just over 400 euros because Grisebach passes on the full royalty. If you buy contemporary art, look first for the resale royalty clause in the conditions and then for the premium tiers.