Auctions: the ins and outs of unsold goods

As a terra incognita within the art market, unsold goods have long stayed in the shadows. But they may be set to live a second life. This month, Art Media Agency, in partnership with Auction After Sale, is publishing an unprecedented report on this topic. A foretaste follows…

Until today, unsold goods have remained relatively overlooked by the media when talking about auction sales. Journalists, experts and researchers have only scantily broached the topic. As a direct consequence of this oversight, the art market faces a lack in knowledge — as well as tangible results — concerning this reality. Several reasons explain this silence: first of all, the negative image evoked by unsold goods. One need only look at the words used to describe the phenomenon — namely “burnt” works — to understand this. Such unflattering parlance refers nonetheless to a reality that is inherent to the distribution means offered by auctions.

Things are gradually evolving, with the issue becoming more urgent, and after-sales procedures gaining in popularity. In France, a number of auction houses fought for the liberalisation of the nation’s 2000 and 2010 legislation, which struck them as less favourable than their overseas equivalents. Today, while after-sales sales are gradually authorised across the globe, they do not seem to be an opportunity capitalised on by a majority of auction players.

If the situation is evolving — despite great resistance from the art market —, then this is also because auction houses are looking for new sources of growth, and several players are slowly getting involved with a market whose potential is increasingly apparent to them.

Over the first six months of 2016, the turnover “lost” due to goods failing to sell totalled 4.3 billion euros worldwide — a figure that would have been reached if lots had sold for their low estimates, which is the calculation method applied throughout this Data. To placd this into perspective, according the 2016 TEFAF report, the art market was worth 63 billion dollars in 2015, with public auctions — for fine-arts lots alone — representing a market of 29.9 billion dollars. It comes as no surprise that this shortfall has inspired a few new players who exploit the referencing, communication and contact tools offered by Internet — among them Auction After Sale and Lot Privé.

And isn’t it unfair to stick a label of dishonour on an unsold good? The fact that a lot fails to find a buyer casts a shadow upon it; according to widespread thinking, doubts are raised on its quality while perception of its value suffers. But in the very short period over which an auction is held, many reasons can contribute to a lot staying unsold: a poor correspondence of supply and demand, random estimates, an overly high reserve price, unsound communication or a patchy condition report, to name a few. All these being factors outside of the work itself.

During the first six months of 2016, 1,622,036 lots were sold and 541,050 remained unsold, making up just on one third of the total: 33.36 %. The average price of these unsold goods was €8,017, and the median price, €2,480. It should be noted that 21.8 % of these unsold objects were jewellery works, 16.8 % Impressionist, modern or contemporary artworks, and 12 % Art Deco or design objects.

In the West, the unsold rate came to 33.7 %, and was highest in the United States: 38 %, with the shortfall figured as 3.69 billion euros. The US result is far higher than in France, Germany or Great Britain, and may be explained by a far higher number of lots being placed on sale — for example, four times the number of lots are exchanged in the United States than in France — and a higher average price of unsold goods: €8,194 in the United States, compared with €4,096 in France, €3,915 in Great Britain and €3,233 in Germany.

Timing also seems to play and important role. For the first half-year of 2016, the start of the year turned out to a far less conducive sales period than April, May and June. Over 76 % of unsold goods from these first six months come from the first three months. This represents a “loss” in turnover of some 3.21 billion euros, in other words approximately 74 % of the total of the first half-year. The worst month of the year is also the first one: January, displaying an unsold rate of 46.1 %, representing a shortfall of 1.54 billion euros.

The fact that major sales take place in New York in May, and in London in February and June, seems to have a visible impact on the average prices of unsold lots. While only coming to €7,141 in January, prices settle at €8,000 in February and at over €9,000 in May and June.

As for price ranges, it’s common to divide the market into three categories: the low-end market, with objects selling under €50,000; the middle market with objects between €50,000 and one million euros; and the upper market with objects over one million euros. On the low-end market, 1,468,810 objects were placed on sale, and 487,605 failed to find a buyer: in other words, an unsold rate of 33.2 % and a shortfall of 2.58 billion euros. The middle market is the one most affected by unsold goods: out of the 17,374 lots offered for sale, 9,961 found no takers: in other words, an unsold rate of 57.3 % and a shortfall of 1.16 billion euros. Finally, 448 lots were auctioned on the upper market, and only 69 left unsold, making up a ratio of 15.4 % and an estimated loss in turnover of €312 million.

More specifically, the market’s most affordable works — those estimated as being less than €1,000 — reveal a relatively low unsold rate: 23.7 %. The 95,651 such objects placed on sale represented a shortfall of €65 million. For these inexpensive lots, not much effort is placed into after-sale procedures, as the time spent on prospection represents a higher cost than the generated profit. It should be noted that this is the only segment for which the median price of unsold objects (750 €) exceeds the average price of unsold lots, or their average low estimate at least (683 €).

The segment in which the shortfall is the highest is the one encompassing objects estimated as being worth between €20,000 and €50,000. It is thought that auction houses could have earned an extra €787 million if the low estimates of these objects had been met. On average, an unsold object is priced at €29,692, and the median price, €28,000 or so. The 26,526 lots left with no buyers make up an unsold rate of 52 %.

The segment bearing the highest ratio is the one for objects between €100,000 and €200,000. Out of the 3,855 lots placed on sale, 1,989 found no buyers, in other words an unsold rate of 63 %.  Meanwhile, the shortfall represented €458 million, with a median price of €63,000.

On the other hand, the segment most affected by unsold goods — no surprises here — is the very top end of the market: lots over the symbolic level of €10 million. In the first half-year, 216 works were offered at this price level, and only 9 left unsold, in other words an unsold rate of 4.17 %. Let’s not forget that this is the segment for which the greatest after-sale efforts are made. So it’s likely that auction houses which banged their hammers at below the reserve prices for this handful of works put in great efforts to resell them privately — thus further diminishing the ratio.

While unsold goods are an inevitable part of public auctions, they still represent a significant shortfall for auction houses. On top of the expenses entailed by efforts to “source” lots, and to transport, store, insure and assess them, to create catalogues and communicate, having unsold goods increases the risk of degradation of these objects, disappoints sellers, and can tarnish the image of auction houses, which are left with sales expenses on their hands — and for which auctioneers only rarely demand reimbursement.

Today, many players are looking more and more closely at this potential market, likely to change the face of the auction world in coming years. Art Media Agency, in partnership with Auction After Sale, will be publishing in September an unprecedented report on this topic to offer a better grasp of these issues.

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