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Winning the Bidding Wars
Robert LaFranco
04/01/2007
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David Flaschen’s decision to sell his Andy Warhol painting from the early 1960s Flowers series had as much to do with
his family’s dynamics as with today’s overheated art market. Flaschen, a private
equity investor in Boston, refers to himself as a buy-and-hold collector of
contemporary art. But recently his art dealer, Richard Polsky of Sausalito, Calif.,
identified a chance for Flaschen to realize a profit of more than 1,200
percent.
 Flaschen acquired the 24-by-24-inch acrylic and silkscreen ink
on canvas for $75,000 in 1993, a few years after the last art market crash, from
New York’s OK Harris Works of Art. As Flaschen recalls, Polsky contacted him
last year to enlighten him of the market’s skyrocketing prices. "I was going to
have to increase my insurance on the collection," Flaschen says. Polsky, who
owned a San Francisco art gallery during the 1980s that specialized in Warhol
and authored the gossipy memoir I
Bought Andy Warhol, also had a proposition.
"The art market is out of control. The Flowers painting is worth $1 million,"
he remembers Polsky saying.
"I turned to my wife and said, ‘I’m glad you really love this
painting, because it is now a very valuable piece of art,’" Flaschen recalls.
"She looked at me and said she really didn’t love the painting. Then I asked my
daughter—who stands to inherit the painting—and she pretty much said the same
thing. As it turned out, I was the only one who really loved the painting—and it
was my favorite. But at the end of the day, it was just a painting. If a truck
ran over me tomorrow, it was obvious my wife and daughter would sell it. So I
decided we would do something else with the money."
Today, many art collectors, particularly those who specialize
in modern, contemporary or Impressionist works, experience the strange sensation
of looking at a beloved piece only to watch it transform into another Warhol
icon—his Dollar Signs series—right before their eyes. The notion of cashing out
during one of the hottest art markets in modern history can lure even the most
conservative connoisseur into selling prized art. Auction houses, by dint of
their size and their armies of experts who are in the know about who owns what
from Brookline to Beijing, can wield irresistible powers of persuasion. They
are moving into territory the minds of private collectors—once solely occupied
by galleries and dealers. Supported by record-breaking auction prices, these
multinational firms aggressively market to more and more individual art
collectors in their search for both pieces to sell and buyers to fill their
sales rooms.
Flaschen’s case embodies how they are changing the once very
exclusive world of high-end art collecting. Had Polsky conceived the idea of
selling the Flowers painting just a few years ago, he likely would have first
turned to the private market, using his carefully constructed network of
colleagues, galleries and collectors to find a buyer. This time, though, he
contacted a client who was a Warhol buyer to test the market. That client said
he would buy Flowers for $1 million. Polsky told Flaschen, "We could take the
million now, or take our chances at auction in London, where the Russian buyers
might be more inclined to be and bid."
TOP VIEW
As the spring auction season begins, collectors around the world
who have any plans to consign art wonder how long the bull market can continue.
Auction houses entice would-be sellers to enter the fray with promises of large guarantees and pride-of-place in the sales rooms. But even experienced collectors must tread carefully. Today’s auction industry demands coolheaded
analysis and careful deliberation from anyone considering selling a prized
piece of art. |
Big-Ticket Bouquet
Flaschen agreed to take a chance, so Polsky spoke to both
Sotheby’s and Christie’s about the piece. As he had anticipated, both wanted it,
and both confirmed his estimate that it should sell for roughly $1 million. Then
came the tricky part. Both houses offered to sell the work with a guarantee of
80 percent of the estimate: If Flaschen accepted the guarantee, he would be
assured of getting $800,000, minus the auction house consignment fee (likely 15
percent at that time), plus Polsky’s fee of between 5 and 10 percent, and
possibly a sweetener of half of the buyer’s price over the value of the
guarantee. While the final figure would equal nearly a 10-fold return on the
original purchase, Polsky advised against it. He was certain the painting would
generate heavy bidding, and it just might bring in well over $1 million.
Polsky admits that the only time he counsels an owner to
consider taking a guarantee is when an auction house approaches the owner to
consign a particular work of art. This signals that the auction company may
want the piece sorely enough—for the sake of publicity, perhaps, or simply to
outfox a competitor—to be willing to surrender some of its own potential profit.
This situation elicits further analysis by Polsky to determine just how much the
auctioneer may be willing to overpay the owner.
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