The primary sector of the art market is where newly created works are generally consigned by artists to a gallery or dealer who exhibits them. The gallery acts as an agent, and is remunerated through a commission on sales. It generally bears the cost of the exhibition and sets the prices, taking into account the size and medium of the works and the reputation of the artist. As it is uncommon for artists to have a ‘sell out’ show, works are generally held in the stock room and are available for sale after the exhibition while the dealer continues to attract customers, arrange commissions, enter works in art prizes, create publicity, and publish material promoting the artist. Having this sort of association with the dealer allows the artist to concentrate on their art production and this specialisation is ideally of benefit to both parties. Not all artists generate enough income to compensate dealers for the costs of conducting exhibitions, but galleries generally cross subsidise less successful artists with income derived from those whose works underpin the gallery’s financial viability. Formal contracts are far more common amongst non-Indigenous artists and their dealers than has been the case with Aboriginal artists. Even community art centres have argued strongly against exclusive contracts with artists whose lack of literacy and numeracy skills place them at a disadvantage in negotiations unless an educated local language speaker is present to assist in the process. Nevertheless, those galleries that have become signatories to the newly introduced Art Industry Code of Conduct have agreed to use standard contracts when working directly with Indigenous artists in order to demonstrate transparency and equity in their dealings.
Contracts are only useful if they describe the role and responsibilities of each party toward each other. Most agents, whether community based or independent, have been extremely reluctant to subject Indigenous artists to punitive clauses that could lead to litigation, given the constant need for money to support families living in remote communities. However, whether under contract to a dealer or not, successful artists, both black and white, are liable to receive offers to move to other galleries and the majority of dealer rivalry arises from often emotive accusations of ‘poaching’. Most galleries eventually jettison unsuccessful artists and these eventually drop out of the artist-gallery system, while the galleries take on a mix of new younger, and already established artists that they are able to win over from others.
As eminent economist Dr. Jon Stanton has observed,
The abiding characteristic of the primary market is the general level of excess demand; there are more paintings for sale than there are willing purchasers. There are more artists than the number that can be represented by galleries; galleries exhibit more paintings than anyone is willing to buy, and galleries operate at lower than normal profit levels.’
The final point here is worth considering. Commercial galleries generally operate on between 30 and 50% commission for primary market sales. This figure is considerably lower than for many products sold through retail stores, especially those that are vertically integrated. (That is they manufacture their own products, mark them up to wholesale and then mark them up again to retail. This is how they can offer up to 80% off sales at the end of each season.)
Due to their low commission structure and an oversupply of art, there is a high turnover of artists and galleries. While established galleries seek ‘marquee’ artists who can ensure their financial viability and underpin their elite reputation, the vast majority of galleries and dealers struggle to win the hearts and pockets of collectors, who are drawn from a variety of walks of life. While they have an interest in visual art, most of these ‘collectors’ are not wealthy and will visit galleries many times to seek advice and develop their passion. Only very occasionally do they ever actually purchase an artwork. Those galleries that screen artists, and thereby reduce their client’s search and transaction costs, immeasurably aid collectors, in particular those who seek new and innovative works of art. Galleries differ and the styles of work and particular artists they show. They attract collectors who share their taste and value their aesthetic ‘eye’ and critical judgement, as well as their business acumen.
Today, however, there is a new competitor on the scene that is challenging the conventional ‘brick and mortar’ gallery system: Online sales. Make no mistake. This can be a game changer, and an enormous boon to art buyers. But it is a trap for the unwary and foolhardy.
The rules of engagement still apply, whether you buy directly off the wall of an art gallery or over the web.
 Dr. Jon Stanford FSIA, Submission to the Department of Communications, Information Technology and the Arts, Discussion of the Proposed Resale Royalty Arrangement’2004
An artwork, having been originally purchased in the primary market, may remain in a private or public collection for a year or a decade; It may even remain in a single family for generations.
Having sold art for nearly 40 years, many of my clients were in their 30s, 40s and 50s when they first bought a work from me. As their life circumstances change and age catches up with them, they inevitably look to sell them in the secondary market. Their artwork may have been created by a highly collectable deceased or living artist, or one who has disappeared into obscurity. Whatever the case, they will look for a dealer, auction house, or online platform to help them find a new home for their pre-loved collectable.
There are many dealers who specialise in the work of deceased or highly collectable artists, whose works are sourced from existing collections. Premature offerings in the secondary market can easily destroy a living artist’s primary market performance if seen to be unsuccessful, or the price paid falls below current market expectations. For this reason artists, galleries, and agents occasionally seek to manipulate secondary sales in order to ensure that works created by artists they represent are ‘supported’. They may even introduce an artist’s work themselves in order to establish a secondary market profile as part of a strategy to underpin, or even boost, their primary market standing.
It is now possible to bid online in real time as the auction is taking place halfway around the world. New online art auction platforms can operate exclusively online, function live as well as digitally, or aggregate and provide access to dozens of auctions with online bidding.
In auctions it is commonly said that 80% of the value is in 20% of the works. Most auction houses make their money by charging both the buyer and the seller. They charge the buyer a premium, currently between 20% and 25% on top of their winning bid (the hammer price of artwork). Depending on the rarity and desirability of an artwork, auction houses are generally prepared to lower their seller’s (vendor’s) commission, which can vary from as much as 20% on works worth less than $5,000 to 5% on works worth more than $100,000. In the case of some extremely rare and highly desirable pieces, auction houses will even consign them at 0%. However, while the sellers commission is always a matter of negotiation, the 20-25% ‘buyer’s premium’ is inviolable! Auction houses would never sacrifice a penny of it, as it represents the greater part of their income.
An Australian ‘Tier One’ auction house will offer between 80 and 250 individual works of art worth a total of anything from $500,000 to $10 million in one single evening. In an attempt to attract fashionable and well-heeled audiences, and to achieve between 70 and 90% clearance (success) rates, the major auction houses produce full colour catalogues with the highest production values. They have just one shot at selling, after months of hard work. However, when run professionally auctions are, without a doubt, the most successful way of selling quality art.
In the words of the mercurial Rod Menzies, proprietor of Menzies Art Brands.
'There’s nothing as successful in the world of sales as Going…Going… Gone!'
More on buying and selling through auctions later on.