Since moving to Seattle, I have had a number of conversations with gallerists about the hazy topic of paying commissions to art consultants and advisors. The recurring question: who is responsible for paying commission to third party brokers? The client or the gallery, or both? This terrain is justifiably confusing, as the art market is notoriously opaque and the vast majority of deals occur privately without any public record. Recognizing the need for more transparency, the APAA (Association of Professional Art Advisors) set forth a Code of Ethics that is useful not only to brokers (advisors and consultants) but also to gallerists and dealers.
The core APAA eligibility requirement that pertains to the question of galleries paying commission are as follows:
- APAA members do not solicit or accept compensation from service providers or vendors
In other words, APAA requires that members only be paid by their client, the buyer, and never from the seller (vendor). This creates a clear, transparent methodology for art market transactions and prevents consultants or advisors from "double-dipping" - receiving commission from both their client and the gallery, without either party knowing. Such business practices unfortunately do occur quite frequently in the art world, which is why the APAA established a standardized ethics code.
Another problematic issue with brokers requesting commissions from galleries is that this creates a model whereby brokers are encouraged to do business only with galleries who pay them fees. When a gallery pays a broker commission, the gallery is treating the broker as one of their salespeople. How can an advisor or consultant provide objective knowledge to their client if they are essentially working on behalf of a gallery? Again, this conflict of interest is precisely why the APAA set forth the clear guideline that brokers should be paid by their client.
How, then, can gallerists work with brokers? What typically happens is that galleries will offer a discount to reputable consultants and advisors. For example, Broker Bob walks into Gallery Galore with Client Claire. Client Claire decides to acquire a $10,000 painting. Because Gallery Galore values their relationship with Broker Bob, they offer him a 10% discount. Client Claire pays Gallery Galore $9,000 for the painting (either directly, or through Broker Bob) and pays Broker Bob his commission.
Simple, concise and transparent, this is the recommended way for gallerists to handle broker commissions. Questions? Feel free to contact me.