By Jasmine T. Cruz, Reporter

Manila’s auction war: of ethics and authenticity

Posted on October 11, 2013

(Part 1 of a series)

Despite diplomatic disclaimers -- we have nothing against them, I wanted him to succeed, I hate crab mentality, we only want to educate -- it’s clear that there is little love lost among the three main players in Manila’s small auction scene. Salcedo Auctions, formerly the only auction house in the Philippines, is worried that the entrance of Leon Gallery and Now Gallery+Auctions -- new players who don’t share the same standards as Salcedo -- could compromise a nascent industry.

“We welcome competition,” said Ramon E. S. Lerma, art advisor of Salcedo Auctions, during an Aug. 23 interview that included his wife, Karen Lerma, who is president of the auction house. “We are only speaking up because people are bastardizing the industry.” Mr. Lerma criticized the other players for not adhering to “international standards” followed by “reputable auction houses,” namely Sotheby’s and Christie’s. Misleading starting bids, the apparent lack of due diligence on matters of authenticity and provenance, and conflicts of interest have given him cause to worry.

In a separate interview, Jaime Ponce de Leon, owner of Leon Gallery, contested the allegations. “They’re trying to create the rules, which are not rules. I am very much aware of the right thing to do,” he said. The practices of Leon Gallery, he explained, are modeled after those found in Europe’s “small auction houses” -- such as Mercier & Cie in Paris and Duran Subastas in Madrid. To bolster his position, Mr. de Leon pointed out that Now Gallery+Auctions, the most recent entrant to the local auction scene, adheres to the same standards as Leon Gallery.

And yet, Mr. Lerma contends that many of these practices could be considered “fraud.” He also denied that voicing his concern was a way to stamp out the competition. “Christie’s and Sotheby’s can co-exist, and so can we with someone who does things right,” Mr. Lerma said.

Back in the 1980s there was The Auction House, and in the 1990’s Kim Camacho had a satellite office for Sotheby’s. Both establishments are now defunct. Small charity auctions were (and still are) held by Finale Art File.

The scene was reborn when Salcedo Auctions was established in 2010. Located in Salcedo Village in Makati, the auction house is operated by Mr. Lerma’s wife Karen, while he serves as the art advisor. Mr. Lerma is also the Director and Chief Curator of the Ateneo Art Gallery and a Philippine Star art columnist (ArtSpeak). An accomplished art writer, he won the 2006 National Book Award for Art (Alfonso T. Ongpin Award for Best Book on Art) from the Manila Critics Circle and the 2006 Gintong Aklat Award for the Arts from the Book Development Association of the Philippines for editing Tanaw: Perspectives on the Painting Collection of the Bangko Sentral ng Pilipinas.

The idea to set up Salcedo Auctions came to the couple after they attended sales in Sydney, Australia, where they previously lived. The risk paid off as Salcedo regularly auctions fine art, jewelry, decorative arts, and collectible accessories. It was also named this year as one of the top auction houses in Asia (the only one from the Philippines) by Blouin Artinfo, an an online publication under Louise Blouin Media (also the publisher of a New York magazine called Art+Auction).

For Mr. de Leon of Leon Gallery, the route to the auction was a long one. He first dabbled in politics and tried his hand at real estate, all the while remaining active in the art scene in his hometown of Dumaguete. “I was always into beautiful things,” he said, explaining how he visited galleries and collected antiques.

In 2005, he went to Manila and studied interior design at the Philippine School of Interior Design. When he began working as an interior designer, he learned how to acquire art because many of his clients wanted visually arresting pieces to adorn their homes. He began selling artworks so he could buy other pieces, and thus he discovered his knack in art dealing. In 2010 he decided to set up a permanent space in Legazpi Village in Makati, which then became Leon Gallery.

His gallery began holding auctions last year because Prudential Life Plans Inc. sought his help regarding the artworks they had. Mr. de Leon said that he offered to buy the pieces, but Prudential refused because the protocol on liquidating pieces by a public entity was through auction.

Though Mr. de Leon had no experience in conducting an auction, he organized the sale, which he said, was 100% sold out (a rare occurrence in the auction world). The success motivated him to hold more of these events. So far, Leon Gallery has held four auctions, the latest of which was on Sept. 28. Though effective in attracting buyers, Mr. de Leon’s pieces have been marred by controversies regarding their authenticity. Despite the criticism against him, Mr. de Leon explained that forgeries slip into even the best auction houses. A recent example is the 2012 auction of Christie’s Hong Kong where The Bird Seller, a dubious piece attributed to Vicente Manansala, was withdrawn. Committed to his business, Mr. de Leon said he pursued more art-related studies. “They can’t discount what I know,” he said. “I’m not stupid.”

Now Gallery was established in 2011 by art collector Patrick Reyno, who decided to enter the auction scene because of his background in business and art. He studied economics at Harvard, finance and business at Columbia, European art at the Sorbonne, Modern and Contemporary art at Christie’s London, and Asian Art at the School of Oriental and African Studies at the University of London. This year, the gallery moved to a larger space at the ground floor of the Eco Plaza building in Makati, changed its name to Now Gallery+Auctions, and held its first auction on Aug. 31.

One bone of contention has to do with auction prices. Leon and Now publish starting bids, which are low prices meant to jumpstart the auction. In theory, if the bidding ends at the published price, the collector should win the piece. Mr. Lerma, however, doubts the plausibility of this when published prices are so bargain-basement that they become suspect. “When is a 60’s (Federico Aguilar) Alcuaz worth P100,000?” he said. “There is no way.”“It’s beyond comprehension that people will sell at that price,” continued Mr. Lerma. “You don’t know where the bidding is going to go or if those prices are real.”

Mr. Lerma suspects that there are reserve prices higher than the published prices. The reserve price is the lowest amount that the consignor is willing to sell his piece. If collectors at the auction don’t fight over the piece, the bidding might end at an unacceptable amount. That’s why the reserve price is there to protect the consignor from losing money. If the bidding ends below the reserve price, the consignor is not obligated to sell his piece, and thus the piece is “bought in” or returned to the owner.

Photo by Jonathan L. Cellona

Salcedo uses an estimated range, which consists of a low estimate and a high estimate, and they set the reserve price at or below the low estimate but never higher. The low estimate is also part of Salcedo’s published price (price stated in the catalogue, or printed in press releases circulated through various publications). Having a reserve price that is higher than the published price is illegal in other countries, said Mr. Lerma, but this cannot be enforced in the Philippines because there is no auction law for art.

“It’s wrong to publish a price where you can’t buy a work,” said Mr. Lerma. Calling this practice “fraud,” Mr. Lerma claimed that these prices go against fair trading. “When we come up with an estimate, it is based on reality,” he explained. “We don’t just come up with numbers.”

Ms. Lerma added her two cents by comparing this practice to going to a store and picking up an item on sale, but once you reach the counter, you are informed that it is being sold at its full price.

“They’re fooling people!” Mr. Lerma said.

For Salcedo, people can get the artworks at the price stated in the catalogue if the bidding ends there. They can even get it for lower the catalogue’s price if the reserve is below the low estimate. “(Here at Salcedo) we don’t create false hopes,” said Mr. Lerma.

When BusinessWorld asked Mr. Reyno about their prices, he said in an e-mail on Sept. 25, “The price of the artwork depends on the price given by the consignor which the auction house double checks with the prevailing market price. As much as possible, we try to price artworks competitively, meaning lower it in a range that won’t be injurious to the artist’s reputation, as long as the consignor or the owner agrees to the new price. Because this is what an auction is all about, getting pieces at a good or reasonable price.”

“Yes, every auction house has a reserve price for each lot or item. This is standard practice in the business,” Mr. Reyno continued. “The starting bid was chosen primarily as an internal decision to entice potential participants to join in the auction process.”

A young art patron, who has been collecting art for 11 years, told BusinessWorld that when he consigned an artwork for Now’s first auction, the published price in the catalogue was markedly lower than the minimum net return that he was asked to state in the consignor’s contract. This suggests that the reserve price was higher than Now’s starting bid. Asked if this was true in a follow-up, Mr. Reyno said he couldn’t answer as he was very busy.

Mr. de Leon, on the other hand, finds nothing wrong with low starting bids. He also admitted that Leon Gallery allows the setting of reserve prices higher than published prices, although that practice is discouraged. “Starting low is the risk the owner of property has to take in order to have the opportunity to sell more than expected,” Mr. de Leon said.

He also observed that Salcedo begins its auctions below the published price, and if bidding doesn’t reach the reserve price, the piece remains unsold. So instead of starting the actual auction below the published price, it starts at the published price. “It’s actually the same,” Mr. de Leon said. “We just have different styles.”

Mr. Lerma did discuss that Salcedo starts the bidding at fifty percent of the published price just to get the ball rolling. “It brings out the desire in people,” Mr. Lerma said. The auctioneer is allowed to bid on behalf of the seller up until the reserve price. “That’s why the auctioneer says, ‘The bid is with me,’” said Mr. Lerma, thus the auctioneer informs the public that the reserve has not been reached. Once the auctioneer hits the reserve price, he declares, “I’m out,” stating that the reserve has been met, and the bidding is a free for all for the rest of the collectors.

The auctioneer can also do chandelier bidding, which means he can point to the ceiling, between two people, to anywhere, and call out bids, but he can only do that up until the reserve price or else he is already making a fake bid. For Salcedo, collectors know that the reserve price will not be higher than the low estimate published in the catalogue, but for Leon the reserve price is not disclosed.

“The exact price is kept with the auction house,” Mr. de Leon said, pertaining to reserve prices.

Photo by Jonathan L. Cellona

As to how Mr. de Leon comes up with the starting bid, he explained that he bases his prices on his knowledge of the art market and the value of the painting, but he said that he can’t start the auction at the direct selling price because those high prices will not interest people to come to the auction. When asked how much lower than the actual value does he set the published price at, he said: “It depends. As long as it makes it attractive.”

When asked if the prices are a marketing tool, Mr. de Leon said: “Of course, but who knows it can be yours for that price.”

When asked if, say, an Amorsolo sold at P100,000 was an aberration, he replied, “Is there a problem? I want to sell my Amorsolo for P100,000. When you sell it at auction, the real value is determined (at the auction). Not everything is spoon-fed (to the collectors).”

Auction prices can’t be just left to what the group of collectors decide to bid for at the auction, contested Mr. Lerma in a follow-up interview with BusinessWorld. The auction price determined before the auction is not equal to the purchase price of the winning bidder at the auction, but it is just one of the many prices that are considered to arrive at the auction price.

Mr. Lerma offered an example: consider an artwork of a certain artist priced at P250,000, selling at auction for P2 million because of a bidding war. This stellar result doesn’t guarantee that another work by the same artist, in a following auction, will be hammered at a price anywhere near P2 million. “Do you see our estimates changing?” asked Mr. Lerma. “Yes, but slowly.” You can’t make big jumps, he added, because you also have to consider other factors such as the gallery price, private transaction prices, and direct-to-artist prices.

“Everything we do is a product of research and knowledge,” said Mr. Lerma.

Some collectors share Mr. Lerma’s concern over enticingly low prices. Two of Salcedo’s clients, who have also dealt with Now and Leon, spoke to BusinessWorld upon the condition of anonymity.

“It’s a threat to a collector’s portfolio,” said the young collector mentioned earlier in this article. Low published prices will force die-hard collectors to “protect” an artwork by an artist he favors, lest his entire collection be devalued. “There’s no law but let’s put a little ethics in what we’re doing here,” he said.

Another collector said that these prices attract members of the “decorating crowd,” who don’t truly care about art and only want “paintings that go with the sofa”. “People are confused and excited,” he said, describing these auctions.

Another issue is the guarantees. Since there’s a possibility that artworks can become unsold at auctions, some auction houses put guarantees on a piece. This means that the auction house will buy the piece at the reserve price if no one bids up to that point. If a third-party guarantees the piece, it is the same, but the third-party guarantor gets a commission if the piece is sold.

Mr. de Leon admitted that they have third-party guarantors, and if they buy the piece, it is considered sold. Ms. Lerma protests that guarantees should only be done for really important pieces and that if the piece is sold to the guarantor, it should be declared as “bought in” and it should not be a reason why Leon should claim that their auction was 100% sold out.

Guarantors can sit in the auction and can even bid on the artwork just to take the price higher, said Mr. de Leon, but it will be a risk on the guarantor’s part because if he wins the piece, he has to pay.

(Next week: Authenticity and ethics of affiliations)