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Tuesday, March 1, 2011

Mr. Arader - Congratulations you WON

Many times while bidding over the phone at an auction, the representative of the auction house says this to me when my bidding is more than anyone any one else.

HELLO. "YOU WON"

How about saying the truth - "Thank you idiot - you have just paid more than anyone else in the world for this old piece of paper with some ink and watercolor on it. We were able to get you to bid this much because you have serious issues with your self esteem. So you actually bid twice as much as it is worth because you THOUGHT that someone you didnt like was bidding against you."

You WON!!!!!!!!!!????????????????

No. YOU won auction houses. The fact is that I am simply too lazy and small an operator to get to the incredible sources that you have in Europe and America. The simple fact is that any lawyer with a brain knows he is off the hook if he puts something up at auction. He has performed his fiduciary responsibility.

There just is one huge problem. While you can buy $1,000,000 of stock for $10 on the internet, the cost of selling artwork runs 30% of the gross selling price including commission.

That is why auction houses make so little money. It costs a fortune to sell art compared to selling anything else because there is so much serivce involved in the process. In 40 years of selling art, I have never been able to beat this ratio. It has consistently cost me between 28% and 33% of the selling price for the expenses of selling art.

But auction houses cant sell art for this kind of a markup because all the entitled super rich bidders are CHEAP. That is why they are rich. The thought of paying an auction house 30% to sell them artwork is repellent to them.

So what do auction houses do. The split the commission calling one part of the commission the buyers commission and another part the sellers commission. It is just words. The difference between what the buyer pays and what the seller gets runs about 35% these days so that auction houses can make a tiny profit. If a buyer is paying 25% and a seller is paying 10%, that adds up to 35%.

What these cheap billionaires don't realize is that actually are getting a bargain. Auction house by and large are extremely honest and do a huge amount of due diligence and research on the art that they make available.

They make this money by creating competition between bidders and telling them that they 'won.'

Its brilliant and its fun.

By the way, if you want some help, we will represent you at any auction for free, teach you what we know and drop out of the bidding just to establish a relationship with you. Auction houses have won and are putting most dealers out of business.

The only reason that Arader Galleries has survived is that we have a fairly vast inventory purchased as much as 40 years ago. That inventory has been increasing at at rate of 400% every 10 years. So something we bought 20 years ago is now worth 16 times more than our cost at auction, something 30 years ago an amazing 64 times!

So sometimes to make ends meet we will sell something for less than the auction price and still be able to make a good profit.

This is the only way that a dealer can survive today. The auctions houses do a better job but its a terrible business model because no one is willing to allow them to make the profits necessary to be a viable business.

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