Art Auctions: A Basic Glossary

Behold! A quick and simple glossary of basic yet essential art auction terms.

Selling art in an auction is anything but an ordinary, straightforward transaction. Quality art auctions are prestigious, exclusive, and fiercely competitive. Art bidding among the experienced and the less experienced members of the art community, with affluent patrons and art enthusiasts gathering in opulent functions to vie for the finest pieces entering the marketplace. They also provide an evening of excitement and entertainment to awestruck spectators that gather to watch works of art, especially those works of fine art coming to market for the first time, fetch outrageous prices.

For the knowledgeable who know how an auction works, they are not only glamorous but also tremendously fun and exciting to watch, with superstar bidders causing a commotion. For those new to art auctions, the art world’s blood sport, they can appear to be incomprehensible enigmas, especially when a single work of art sells for tens of millions of dollars. 

Some auctions are record-shattering and the values far exceed the initial estimates, but there are also flops involving invaluable artwork selling under their estimates. Both attract attention from the community, but also from people not in the art scene. So how do art auctions work?

The Key Terms in Art Auctions

In an effort to introduce you to the unique joys of art auctions and perhaps get you interested in taking an active part in the auction scene, we have prepared a glossary of auction terminology which will also help you understand how an auction works.

Appraisal

The appraisal of a lot is its estimated market value according to the experts at the auction house, also referred to as specialists. Even in quality art auctions, a lot can fail to reach its initial estimate, but it can also exceed it.

Auction Block

When we visualize someone selling art at an auction, we imagine a person standing behind a platform. The focal point of the auction, the auction block is the podium in front of which the auctioneer stands and which he strikes with the hammer. Hence the expression “going on the block” for items going up for auction. In actuality, the items are displayed by white-gloved handlers behind the auctioneer, hence the expression “white-gloved”.

Auctioneer

Art auctioneers are experienced, trained professionals presiding over art auctions. Art auctioneers are required to have impeccable diction, and, in the most prestigious auction houses, they are often British. Their job is to describe the item within a lot as accurately and eloquently as possible and start the bidding process. Each accomplished auctioneer has their own trademark style and unique approach, but generally speaking, auctioneers are often capable of using edgy, in-your-face, tongue-in-cheek comedy and creating a dramatic, dynamic atmosphere in order to coax even the most hesitant bidders into bidding outrageous sums of money. 

Bid

Bidding is how an auction works. A bid is a price that a bidder is offering for a lot. It would be most unfortunate to place one of these accidentally. A bid can be made through direct signaling in the salesroom, through a surrogate present in the saleroom, over the telephone, or online. 

There is also something known as an absentee bid, which is a bid placed on behalf of an absent bidder. It is not common for art dealers and other representatives to act as surrogates for potential buyers who are unable or unwilling to attend an auction personally. 

A telephone bid is a bid placed over the phone with one of the specialists in impeccable apparel who are in charge of updating the phone bank. It is not uncommon for the telephone bid to be the winning bid, much to the dismay of auctions enthusiasts who like to witness the winning bid come from inside the salesroom. Namely, a large portion of the most dramatic transactions involves wealthy bidders from Asia, Russia, and other countries who want to remain anonymous.

Buyer’s Premium

This refers to the additional charge a buyer must pay for the winning bid. The winning bidder may need to pay an additional 10 to 20% of the price reached in art auctions when the gavel comes down. The premium is a percentage of the hammer price, and it often depends on the auction house’s own charges and the estimated market value of the item, but also on the administrative costs to be covered. However, the premium is included in the auction reports and auction records. The premium is common in many sectors, most notably real estate.

Buy-In Rate

The buy-in rate is the percentage of the lots within an auction that did not sell. The term bought-in is, by extension, used for works of art that failed to sell at auction and are to be returned to the seller.

Catalog

Best illustrated by the phrase the devil is in the detail, a catalog used for art auctions is the glossy, exclusive publication sent to the interested parties on behalf of the auction house. It is created with the intent to further glamorize the art auction and hype the collectors and investors up for the event. It showcases the works on offer and lists expert estimates of their frequently astronomical values. It is not uncommon for auction houses to invest a million dollars into the production of a catalog for a major sale. 

Chandelier Bid

Explaining how an auction works is impossible without at least mentioning some illegitimate auction hacks that may be unethical, even illicit, but are nonetheless common. A chandelier bid is a pretend bid, also referred to as a “rafter bid”. Auctioneers may resort to this unethical, unscrupulous method of attracting offers where the interest in a lot is low or non-existent. They gaze in the distance, pretend to see a bidder, and log these fake bids.

Collusion 

Collusion is an unethical activity that occurs when multiple buyers with a dominant presence in a particular market, often one associated with a certain artist or a movement comprising multiple artists, form a cartel and agree to protect each other’s interests and not compete against each other, that is, refrain from art bidding. This enables them to acquire invaluable works of art at artificially lowered rates. This practice is exceedingly difficult to stop, as it is not uncommon for a small group of affluent collectors to establish dominance in the art market, and they use their resources and connections to maintain the status quo.

Consignor

The consignor is the person selling art at auction through a consignee, usually an auction house. A consignor can be an individual, a deceased person’s estate, or an organization. The three Ds are usually the reason why works are being put up for auction on behalf of the consignor: death, divorce, or debt. 

Estimate

The auction house provides its estimate of the value of a given work, or more precisely, the value its specialists believe the said work could fetch at the auction. The estimate is transparently listed in the catalog in the form of a range. It has two components: a high and a low estimate. Specialists provide estimates for individual items in the sale and for the entirety of the offer. Of course, there is no guarantee that a work of art will meet its low estimate, just like there is no guarantee that its high estimate will be its limit.

Guarantee

A guarantee is a certain amount of money that the consignor is guaranteed to get from the auction house at the end of the auction, regardless of whether the lot sells or not. Prior to 2008, prestigious auction houses were issuing abundant guarantees in order to get their hands on highly coveted, often overestimated, showpieces to showcase in marquee evening sales. But after the crash that occurred that year, it all came tumbling down: investors were no longer confident in the long-term stability of the art market and auction houses ended up losing millions on guarantees attached to works that never sold.

Because of this, the two powerhouses Christie’s and Sotheby’s pretty much pulled the plug on guarantees. But with guarantees backed by auction houses gone, both auction houses suffered tremendous losses in terms of contemporary art revenue which roughly dropped by 75%. It was a different form of guarantee, called third-party guarantees, that saved the day.

Hammer

The hammer is the auctioneer’s weapon of choice. Art auctioneers use the tool to conduct the bidding process and steer the bidders into making their offers, as well as to reach the verdict upon receiving the final offer. A gentle tap or a loud thunk of the hammer signals the purchase.

Hammer Price

The hammer price is the final price reached, that is, the price of the winning bid. This would be the cost of the successful offer at the moment the gavel falls, The price does not include the premium that the buyers must pay. 

Increment

The increment is the term for the minimum sum of money by which a bid in an art auction must exceed the previous one.

Lot

A lot is one item or a group of items going up for auction within a single bidding round. This brings us to the term cover lot. That would be the lot displayed on the cover of the auction magazine. This is usually the most exciting lot, likely to attract the most interest.

Market Protection

Major galleries often engage in this practice and the artists they represent expect them to. Art dealers are protecting the market value of an artist by taking action to ensure that a work of art reaches a minimum price. They often place bids on behalf of the artists they represent, partially because they have their own financial interest in keeping their value as high as possible, and the art dealer commission percentage depends on it.

Paddle

These numbered instruments which closely resemble ping-pong paddles are utilized to signal bids. However, seasoned bidders prefer a much more discrete approach to notifying the auctioneer of their offers, using a prearranged system of signs, which can be simple and straightforward, such as nodding, or more complex.

Price Fixing

Auctions violate federal antitrust laws whenever they collude to establish prices and stifle competition. The most infamous example of this was the price-fixing controversy which had to do with the world’s biggest auction powerhouses: Christie’s and Sotheby’s. 

It was discovered that their chairmen have encountered at least 12 times and in absolute secrecy to engage in criminal practice. In 2002, a jury convicted Sotheby’s president and founder, A. Alfred Taubman, to one year and a day in prison for his involvement in the fraud.

The cost of the endeavor was just as outrageous: the two houses had to cough out a combined sum of $512 million. Both houses did manage to recover from the affair, but it still left a lasting blemish on their respective reputations.

Reserve

The reserve is the minimum price that the consignor agrees to allow the auction site to sell a lot. If the act of art bidding fails and the reserve is not met, the work will not be sold.

Sale

An evening sale is an auction held in the evening. All attendees often wear formal attire and are served champagne. These sophisticated auctions are the most exciting and the most highly anticipated events of their kind. They take place in an atmosphere that is extremely dramatic and packed with excitement and adrenaline because these events are always centered around the most coveted works. 

On the other hand, a day sale takes place on the day after an evening sale. The interest for art bidding in such a sale is lower and the lots in the sale are available at lower prices.

Seller’s Commission

This fee is the percentage deducted from the consignor’s earnings by the auction house. In some cases, it can be waived or reduced.

Sell-Through Rate

This rate measures the performance of an auction. Its two components are the rate by lot (the percentage of the lots that were sold) and the rate by value (the percentage of the estimated lot value achieved). Anything under eighty percent is considered low.

Specialist

Auction specialists are auction houses’ in-house art connoisseurs organizing the auction. Their job is to acquire the pieces for an auction, assess their value, and categorize them for the catalog. Specialists are trained and experienced experts who often specialize in a certain area. They devote their time to scouring personal collections around the globe.

Third-Party Guarantee

A third-party guarantee is a type of guarantee offered by the auction house which guarantees that a lot will sell regardless of its performance at the auction. The mechanism is simple: the auction house finds a buyer for a lot prior to the auction, and the said buyer agrees to pay a certain price above the reserve for the lot in question. 

White Glove Sale

A white glove sale is an auction with a 100% sell-through rate. It is usually a highly prestigious auction in which every single lot is sold or expected to be sold.