Third-party guarantee

What is a third-party guarantee?

A third-party guarantee secures a minimum price for a work before the sale itself: the auction house agrees with someone outside it (the third party) that they will buy the work for a predetermined sum. The seller therefore need not fear the work going under the hammer with no safety net at all.

How does it work?

Before the sale a guarantor is arranged who undertakes to buy the work at the agreed minimum price. If no one in the room bids higher, the work goes to them; if someone does bid higher, the guarantor either receives a share or simply gives way to the winning bidder. In effect the work cannot go unsold.

Why does it matter?

Guarantees are what sustain saleability even in a weaker season, and are one reason why you almost never see a failure among the most expensive lots. When a painting is worth millions, a house does not want to risk it going unsold and looking like a flop in front of an audience. Isn't it interesting that the surest sales tend to be the ones insured in advance?

Can you give an example?

Say an exceptionally expensive canvas comes to auction, one about which interest might normally be uncertain. The house arranges a guarantor in advance, and so, however the evening goes, the work sells and appears in the summaries as a success. Buyers in the room often know nothing of this arrangement behind the scenes.

What should you watch out for?

As a buyer it is worth knowing that such an arrangement may stand behind a work, because a high sell-through rate or a smooth result then need not reflect purely spontaneous demand. It means nothing untoward, but it does deserve to be read with the context in mind. It always helps to ask why this particular work went so effortlessly.

— Anna Pulkertová, founder of Art Part Club