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pabloWorld record price. Then another world record price. Then another?

While world record prices are widely celebrated, some question the prices — some question the process.

Picasso’s “Women of Algiers (Version O)” sold at Christie’s Monday, May 11, 2015 for $179,365,000 and the buyer elected to remain anonymous.

The (only few) doubters label this murky and cite these somewhat rhetorical questions:

    1. Auction houses often guarantee prices; was the purchase prearranged?
    2. Final bidding was done by telephone?
    3. The buyer “elected” to remain anonymous?
    4. Others in this market have similar artwork which is enhanced by record prices?
    5. Bidders are required to be pre-approved so auctioneers know their upper bidding limits?
    6. Is the seller the buyer? Is this merely a charade to increase perception of overall values?

So the skeptics suggest that maybe the auctioneer prearranged the purchase or bought the painting, pretending there were bidders on the phone in order to suggest like paintings and artists are worth similar values and enhance the auction house’s reputation for such sales.

These same analysts say that the benefit of enhancing perceived values overall outweighs the cost of this one painting — and further — that maybe that world record price is never actually paid in full?

Wow.

That’s a lot of presumption based more on a lack of information than actual facts. Yet, why is there such secrecy? Why so many unanswered questions? One might argue that it’s unlikely Christie’s and Sotheby’s stage these types of sales for greater good.

But how prevalent is this type of thing … where auctioneers and/or auction houses (mis) represent specific sale prices to maintain or enhance the overall market?

And if an auctioneer and/or auction house sought to misrepresent certain sale prices to enhance others, wouldn’t it be easy to do with anonymous phone bidders or the like? And it might well not be art, but cars, jewelry, real estate … virtually any property.

This type of falsely representing prices to bolster other prices is nothing less than price fixing. We discussed here: https://mikebrandlyauctioneer.wordpress.com/2011/07/04/price-fixing-at-auction/

While many bidders and buyers endeavor to remain anonymous for their own reasons, there would certainly be less suspicion of staging sales if the bidders and buyers were identified — even present at the auction.

It’s given that the Internet further provides for unidentified bidders, but at the same time it supplies a vast resource for researching market values. The more a property resembles a commodity, the easier it is to assess if a current auction price is aberrant.

One of the oldest sayings in appraisal science (or is it an “art form?”) is that property is only worth, “what someone is willing to pay for it,” in regard to market value. This saying could be also interpreted that buyers only pay what something is worth. In other words, they don’t pay any more — and why would they?

The theory of substitution is just that. It’s thought that a prudent buyer will not pay more for a particular property than a comparable substitute. Buyers endeavor to pay the least they can, not the most.

Thus, generally when something sells at auction, it’s believed that constitutes market value; that’s why price fixing is so believable and problematic. We discussed when it establishes misrepresentation (and thus price fixing) and when it might not here: https://mikebrandlyauctioneer.wordpress.com/2015/04/29/can-an-auctioneer-say-sold-and-not-mean-it/

Lastly, was the auction staged or let to develop normally? Staging such is clearly price fixing and thus illegal under federal law.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.