Guarantees, Irrevocable Bids, and the Price You Read

A guarantee is a floor, and the floor gets sold twice

When an auction house wants a consignment badly enough, it stops behaving purely as an agent and becomes a counterparty. Christie's says so in its own conditions of sale: on occasion it has a direct financial interest in the outcome of the sale of a lot, and this will usually be where it has guaranteed the seller that whatever the outcome, the seller will receive a minimum sale price. Lots carrying that promise are marked with a degree symbol. The house is then exposed. If the lot fails to sell it owns a picture it did not choose, at a price it set while competing for the consignment.

The second step transfers the exposure. Christie's states that where it has provided a minimum price guarantee it is at risk of making a loss which can be significant, and that it therefore sometimes chooses to share that risk with a third party. The third party agrees before the auction to place an irrevocable written bid, and is committed to buying the lot at that level even if there are no other bids, unless someone bids higher. Those lots carry the degree symbol together with a diamond.

What the symbols do not cover is as important as what they do. Christie's own notices describe other arrangements that carry no symbol at all: advances to the seller against the proceeds of sale, and risk-sharing with a partner who is not required to place an irrevocable written bid or otherwise to participate in the bidding. Because those arrangements are unrelated to the bidding process, they are not marked. A further symbol is used where a party with a direct or indirect interest who may know the reserve is bidding, which can include a beneficiary of a consigning estate or a joint owner. The symbol set is a partial map of the house's financial position in the room, not a complete one.

The guarantor's fee is real money and it is not in the price

Christie's states that it compensates the third party in exchange for accepting the risk, that the remuneration may be either a fixed fee or an amount calculated against the final hammer price, and that the third party may also bid above its irrevocable written bid. In the Hong Kong conditions the compensation is expressed conditionally: it is paid provided that the third party is not the successful bidder, and where the third party does win, it is required to pay the hammer price and the buyer's premium in full.

Sotheby's builds the same machinery into its bidding clause. The auctioneer may open bidding below the reserve on the seller's behalf and may place successive or consecutive bids up to the amount of the reserve, or, where there is an irrevocable bid on the lot, up to the amount of the irrevocable bid. Legal and trade commentary describes the guarantor's compensation as a share of the commission earned on the sale and of any overage above the guaranteed level, capped in some arrangements at the total buyer's premium. The Center for Art Law has reported that the two houses differ on whether a guarantor who wins the lot still receives a financing fee, with Christie's permitting it and Sotheby's not. Published conditions are not uniform across jurisdictions and per-lot terms are never disclosed, so that difference is best treated as reported practice rather than a settled rule.

For anyone reading a result, the consequence is arithmetical. The fee is paid out of the house's own commission, not netted off the price, so it never appears in the published figure. Where the guarantor loses, the printed number is a genuine competitive price, but the underwriting cost of producing competition has been absorbed invisibly. Where the guarantor wins, the printed number is a gross price against which a private fee may run in the opposite direction. Two economically different transactions produce the same kind of public number, and nothing in the record distinguishes them.

One record, read with the mechanism in view

On 1 July 2025 Christie's London sold Canaletto's Venice, the Return of the Bucintoro on Ascension Day at a hammer price of GBP 27.5m, GBP 31.9m with fees. It was a record for the artist. The previous record, GBP 18.6m with fees, had stood since Sotheby's London sold Grand Canal from Palazzo Balbi to the Rialto in July 2005. Five bidders competed, from Asia, Europe and North America, and the painting went to an anonymous telephone bidder.

The Art Newspaper reported that the lot was initially covered by a house guarantee, and that by the time of the sale it was backed by a third-party guarantor, one of several who had approached the house. That sequence matters to anyone working from the printed catalogue, because the financial structure of the lot changed between cataloguing and the moment of sale. The reader who checked the symbol at the time of viewing and the reader who checked it on the day were looking at two different arrangements.

Set out what the public record contains and what it does not. Public: the hammer price, the premium-inclusive total, the date, the saleroom, the existence of a guarantee, the count of bidders. Not public: the level of the guarantee, the level of the irrevocable written bid, the fee paid to the guarantor, and whether the guarantor was one of the five. A comparable drawn from this result carries every one of those unknowns into whatever valuation it is used to support. The result is accurate. It is simply less informative than its precision suggests.

How much of the top of the market is now pre-sold

Apollo, reporting ArtTactic data in October 2025, put the scale of the practice with unusual clarity. In the first six months of 2025, close to 73 per cent of lots by hammer value in the post-war and contemporary evening sales at Christie's, Sotheby's and Phillips were guaranteed, an outlay of some $400m and a record. By volume, 45.5 per cent of evening sale lots in that category carried a guarantee. In the Impressionist and modern sales the figure was 72 per cent of hammer value. In New York evening sales as a whole, guarantees backed 78 per cent of value in 2025 against 36 per cent in 2016. In May 2025 a fifth of the total day sale value across the three houses was guaranteed, more than double the 2024 share.

These are shares of value, not of lots, and the distinction is the whole point. The same reporting notes that only about 1.5 per cent of individual lots at Christie's carry a guarantee. Guarantees are concentrated exactly where the price data is most cited and least abundant: at the top, where the sample is thin and each result becomes a comparable for the next.

The concentration also shows what a guarantee cannot do. At the Emily Fisher Landau sale at Sotheby's New York in November 2023, all thirty-one evening sale lots were guaranteed, and thirteen of them sold at or below the low estimate. Guarantees remove the risk of a lot going unsold. They do not manufacture demand, and a sale where most of the value is underwritten can look robust in its sell-through rate while the bidding underneath it is thin.

What guaranteed lots do to the evidence

Three distinct distortions follow, and they are worth separating. The first is the sell-through rate. A guaranteed lot cannot go unsold, because someone has already committed to buy it. An evening sale in which three quarters of the value is guaranteed will report a sell-through rate that measures guarantee coverage at least as much as it measures appetite.

The second is price formation itself. Ashenfelter and Graddy, surveying the empirical literature on art auctions, describe the ordinary mechanics: the reserve is secret, the auctioneer may accept fictitious bids off the chandelier or from the order book so long as bidding has not passed the reserve, and must stop bidding for the seller once it has. Sotheby's conditions extend that permission to the irrevocable bid, allowing house bids up to the amount of the irrevocable bid. Where the guarantor's commitment is the only real bid, the visible ascent to the guarantee level may contain no independent demand whatsoever, and the hammer will still be recorded as a price.

The third is disclosure, and it has moved in the wrong direction for anyone who wants to correct for the first two. New York City repealed subchapter 13 of chapter 2 of title 20 of its Administrative Code and subchapter M of the corresponding Rules under Local Law 80 of 2021, effective in 2022. Auctioneers in the city had been required to disclose financial interests in a lot, including guarantees and advances, to state that reserves existed, and to keep records for six years. None of that is now required by the city. What remains is what the houses choose to publish in their own conditions, and those conditions disclose the existence of an interest, never its size.