Recently, we’ve seen a great deal of media coverage of the sale of a Leonardo Da Vinci painting at Christie’s in New York.
Salvator Mundi, commissioned by Louis XII of France more than 500 years ago, fetched a record sum of $450million.
This was remarkable and miles beyond people’s expectations given that, in the run up to the auction, there was enthusiastic speculation it would fetch as much as $100million.
The excitement in the auction room was palpable, with the bidding opening at $70million and the hammer falling at just over $450million within a mere 20 minutes. A figure that’s even more impressive when you consider it was bought for £45 in the late 1950s.
While it’s unlikely the vast majority of us has multi-million pound works of art gathering dust in our attics, the auction process is becoming increasingly popular, for example, as a mean of buying and selling commercial property.
Inverness event
It’s an area where we regularly support clients and — where it used to be the go-to option for more difficult-to-sell properties — now, it’s common to see both mainsteam commercial and investment properties go under the hammer
We held a commercial property café event in our Inverness office recently, highlighting the pros and cons of this approach, which included a mock auction to give those who came along a real flavour of the process.
While selling this way means there’s exposure to a larger market and more diverse range of buyer, there are complex tax rules that can apply in certain circumstances, and what was interesting was the level of surprise amongst those attending about the risks for buyers.
In a nutshell, if you purchase at auction you take the property warts and all.
There’s no way to negotiate favourable purchase terms, and no scope to pull out if you later discover the roof is leaking, or the tenant has gone bust.
So why take the risk?
Return on investment
If we consider again Leonardo and Salvator Mundi, we may well find an answer.
While $450million sounds like an oligarch or desert oil baron getting carried away, closer analysis suggests the bid was well thought through in advance.
After all, it was only a few years ago when thousands of people queued for hours to see Da Vinci’s paintings and sketches on exhibition at the National Museum in London. And of course, the ticket sales must have equated to a very decent return.
Suggestions are that Salvator Mundi is heading to the new Louvre museum in Abu Dhabi, where presumably thousands more will wait in line to see it in its splendid new home.
In short, if an asset is a strong income generator, its capital value will likely increase over the long term, even if that initial outlay is as much as $450 million!
Simply put, the auction process is not for the faint of heart, but you don’t need to take unnecessary risks.
The lesson then is that full due diligence should be carried out well in advance of the auction, unless you have the inclination and financial ability to absorb the risks.
