Some may rightfully be confused by the variation in notation of auction prices. Auction houses, on their websites, publish prices that include the buyer’s premium, though their pre-sale estimates do not account for the buyer’s premium. The art press usually refers to premium prices, and appropriately specifies them as such.
Artnet, one of the major databases for recording auction prices, only publishes the price including buyer’s premium, unless (typically for smaller auction houses and/or older sales) they publish only the hammer price — in either case specified accordingly. Another major auction price database, Artprice, typically publishes both the hammer price and the price including buyer’s premium, respectively specified as such. This may be most instructive to many, myself included.
There are, however, a few visible exceptions, who persistently cite only hammer prices, sometimes without specification. One is ArtTactic, an art market research firm. The other is BaerFaxt, an art market newsletter. Both, for example, posted to social media last night to announce the sale of Claude Monet’s Nymphéas (1914-17), using only the hammer price of $59 million; ArtTactic did not even specify it to be a hammer price.
The price that matters most for reportage is that which includes the buyer’s premium, in this case $65,500,000, which most closely approximates its Fair Market Value (FMV), a value type defined by the IRS as “the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.” (IRS Publication 561).
Fair Market Value is in fact the only type of value that can be used for an appraisal for any IRS tax purposes, and it is important to recognize, as the IRS has done for over 30 years, that Fair Market Value corresponds to the price including buyer’s premium. In 1992, the Internal Revenue Service specified in Technical Advice Memorandum 9235005 that for estate-tax purposes, FMV includes buyer’s premium. This is universally understood to be applicable to the calculation of FMV for any purpose, not limited to estate-tax purposes. In other words, hammer is only a portion of the total price, the remainder being the buyer’s premium.
The hammer more closely approximates another type of value, namely Marketable Cash Value (MCV), defined by the Appraisers Association of America as “the net value a willing seller realizes after disposing of property in a competitive and open market to a willing buyer. Both the buyer and seller must be reasonably knowledgeable of all relevant facts, and neither being under constraint to buy or sell.” However, the hammer is not necessarily the net price to seller; some (but not all) sales are subject to vendor’s commission (VC), and at some auction houses vendor’s commission may be negotiable.