AE Monthly

Articles - April - 2010 Issue

New York State Considers (Weakened) Auction Regulations

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When the earlier version was proposed in 2007, several auction houses voiced objections. Sotheby's warned that houses would move a substantial number of sales to London, and that bidders were aware of these practices anyway. However, if bidders were aware of these practices, we don't understand why this provision would be objectionable, as they rely on bidders' lack of understanding to be effective. If the auction houses would move a lot of sales from their natural location just to allow for "sham" bidding, the presumption is the practice must be very effective. That is unfortunate.

Basically, while "sham" bidding may be an old and venerable process, and many bidders may realize it is going on, its basic purpose is deception. Our own belief is that the previous requirement to notify bidders that a bid was "for the consignor" was better than no notification, and outright prohibition of the practice would be better still. Whatever the short term gains, buyers can become disenchanted with a process that employs deception, particularly if it leads them to overbid on an item. Venues that are perceived as being open and honest, as well as providing good value, are more likely, in our opinion, to prosper. We see the watering down of this provision as a squandered opportunity for auction houses to afford their customers greater confidence in the process while preventing wayward houses from gaining an unfair advantage, or hurting the reputation of auctions in general.

Most of the other provisions in Brodsky's earlier bill remain intact. One requires auction houses to disclose at the beginning of an auction whether some bidders have been offered loans. The idea here is that those with credit may push prices higher than they would without this benefit, though we imagine such a statement at the beginning of an auction will not have much more effect than fine print on a contract. Auctioneers are to be held responsible for the truth of statements in their catalogues, while consignors must warrant lawful title. Auctions must reimburse purchasers their bids if it turns out they have not received transferable title. Auctioneers must disclose whether they have a financial interest in an article. Prospective buyers must be allowed to inspect merchandise before sales, while auction houses must pay consignors within 14 days. That may prove a bit tight where there are a lot of consignors in an auction, but should help prevent a weak house from using the consignors' proceeds as a bridge loan to the next auction.

A copy of the summary and complete bill may be found on the New York Assembly website by clicking here now. It should be noted that this bill has passed the New York State Assembly before, only to die in the Senate, so there is no guarantee this one won't meet the same fate.

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