Open any Christie’s, Sotheby’s, or Phillips auction catalogue and some of the lots will be punctuated by tiny symbols indicating that they are guaranteed by irrevocable bids. In layman’s terms, this means the auction house has a financial agreement with the seller that ensures the latter receives a minimum price for their artwork, regardless of the auction’s outcome. These guarantees can be backed by the auction house itself or a third party, and now account for an estimated 50-70% of major auctions.

Auction guarantees are increasingly shaping the dynamics between sellers, buyers, and auction houses – and have become a significant tool in the art market. We will outline the benefits of irrevocable bids for sellers, auction houses, guarantors, and buyers, and give real-life examples.

Sellers

Let’s start with sellers. Auction guarantees provide a financial safety net because the seller can bank on receiving a minimum price for their artwork, no matter the auction result. This guarantee eliminates any concern about shallow bidding and/or unpredictable market conditions, and is particularly significant at the higher end of the market when one bid can mean millions of pounds. The subsequent reduced risk is especially appealing to sellers who are depending on a certain level of financial return like museums, estates, or people selling artworks to fund alternative investments. What’s more, when an artwork is secured with an irrevocable bid, it increases its perceived value, which in turn can fuel bidding and drive up its hammer price.

Example: In 2015, Amedeo Modigliani’s Nu couché (1917) went up for auction at Sotheby’s with a third-party guarantee. The painting hammered for $170.4 million, which was a record for the Italian painter and far beyond the irrevocable bid. This meant the seller benefitted from the security of the guarantee and reaped the rewards of the profit.

Auction houses

For the auction houses, guaranteed bids are a no-brainer. Auction houses want to sell, sell, sell for their clients – there is nothing worse than an unsold lot for business. Auction guarantees help the houses to consign grade A artworks because they cut the risk for sellers. This also helps the houses to build long-term relationships with high profile sellers who have collections of valuable artworks. While auction houses or third parties carry some risk by placing irrevocable bids, the potential rewards and the confidence they bring often outweigh any concern.

Example: Edvard Munch’s iconic The Scream (1893) was sold by Sotheby’s in 2012. Its seller, Petter Olsen, secured the painting with a massive third-party guarantee of around $80 million. It eventually hammered for almost $120 million, which was an auction record for any painting back then. It was a huge win for both Olsen and Sotheby’s.

Guarantors

Now for the guarantors. There are several benefits. Firstly, irrevocable bids give guarantors the chance to buy a collectible for brilliant value, because they represent the minimum a seller is willing to accept for an item – so no paying over the odds! Guarantors also pay lower premiums by assuming the initial risk, while it is also possible to receive a percentage of the final price if the bidding exceeds the guaranteed price.

Example: The Toledo Museum of Art in Ohio recently started providing guarantees for artworks that is wants to buy at auction. So far in 2024, such deals have generated $500,000 for the museum after it was outbid on two artworks by Sotheby’s – and subsequently received a percentage of the final hammer price. “It allows us to use an existing mechanism for artworks we have a legit strategic interest in,” the Toledo Museum’s director told Artnet. “We have a clear collecting strategy. We know what we want. But auction is an environment in which it’s exceedingly difficult for museums to be competitive. We have scarce resources. If we don’t get the artwork, we should feel disappointed. But at least we get compensated.”

Buyers

Auction guarantees are obviously primarily benefit sellers and auction houses, but there are several indirect benefits for buyers as well. Aside from market confidence and validation, while auction guarantees often increase bidding, they can also make potential buyers hold back because they assume the work will fetch a high price. This reduced competition can result in fewer bids, which means the eventual buyer pays less. Auction guarantees can also mean increased transparency in the value assessment of an artwork because each irrevocable bid is often near to an artwork’s reserve (if it has one). This means potential buyers have a clearer picture of its minimum valuation and can therefore make more informed decisions when bidding.

Example: Sotheby’s sold Andy Warhol’s portrait of Mao Zedong in 2015. The house gave the seller a guarantee of around $40 million. It hammered for $47.5 million, a disappointing result for both the seller and Sotheby’s, but not the buyer, who may have benefitted from other potential buyers being deterred from bidding aggressively due to its guarantee.

Auction guarantees have traditionally been reserved for the higher end of the art market for several reasons, none more so because they often involve significant financial risk and complexity, which are more justifiable when dealing with grade A artworks and the wealthy buyers who gravitate to them. Guarantees also bring more visibility for an auction house because they tend to lure in high-profile consignments thanks to the security they offer.

However, all consignors face similar uncertainties regardless of the value of their property, such as:

Will my property sell at auction?
What price can I expect for it?
Should I consider selling through a dealer or broker to avoid the uncertainties of an auction?

The White Glove platform is dedicated to expanding access to auction guarantees. This focus aims to allow a broader range of consignors to benefit from guaranteed sales and enable more collectors to act as guarantors. By doing so, we are addressing a significant market gap, where only a small minority of premium lots, typically valued at $1 million or more, can secure a guarantee. This effort fosters a more inclusive and dynamic market, supporting dealers and auction houses that have traditionally operated within the binary framework of direct sale versus auction.

As The White Glove continues to evolve, we are also exploring ways to democratise other financing solutions, such as art and collectible loans, with the aim of becoming the go-to marketplace for innovative financing solutions across the art and collectibles sectors.

Art & Finance Masterclass