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Art Auction Guarantee: how it works

29 May 2012Written by ATG Reporter

ATG posed a number of questions to Art Auction Guarantee. Here is a summary.

 

Sellers

Who assesses the work for guarantee? Are they experts, and what are they looking for?

AAG rely on the appraisal made by the auction house offering the item in question as indicated on the mandate of sale. Additionally, they take into account other factors, such as in-house analysis of the item and comparables, and/or external appraisals. "Where we feel the estimates are too high, we may decide not to guarantee the piece and/or open a dialogue with the auction house and clients to review the estimates in detail."

Is the guarantee set at the auction reserve?

AAG offer two types of contract:

A) Guarantee at the reserve price: The guarantee level is set around the reserve price (usually 10% to 20% below the low estimate). The guaranteed amount is the net amount the client will receive from us in the case the piece does not sell in auction.

B) Guarantee above the reserve price: The maximum guarantee is the median between the high and low estimates.

• Does it cover additional costs, such as lot fees, the auctioneer's insurance charge and/or other expenses?

It does not cover catalogue fees, shipping, insurance and other costs.

What sort of premiums are sellers charged?

A) Between 8 and 12.5% of the guaranteed amount + 25% of the upside where the piece sells above the guaranteed amount (net of vendor's commission).

B) For sellers who wish to guarantee an amount above the reserve price, the additional option fee is 50% of the difference between the reserve price and the guaranteed amount (generally the median between high and low estimates).

C) Upside: 50% above the guaranteed amount (generally the median between high and low estimates).

The above-mentioned fees and conditions are valid for all pieces considered individually. Clients wishing to guarantee the sale of an entire collection may be able to negotiate individual terms and conditions.

Are there any additional charges?

"There is no additional/hidden charge on our side."

Under what circumstances does the guarantee becomes void?

A) Failure by clients to guarantee authenticity and title.

B) If the piece has been offered and remained unsold in the last 18 months at any public auction.

C) If the guarantee contract has not been signed and fees paid at least 30 days prior to the auction.

Does the guarantee pay out in the event that the buyer fails to pay for the work?

No, in that case the client should refer to the auction house. "We may waive, in some cases, the fees for a subsequent auction of the same piece, at our sole discretion."

In the event that the guaranteed work does not sell, how long after the sale is the guarantee paid out?

The client must recover the piece and deliver it to an approved storage facility (currently Christie's Art Storage Services in New York, London and Singapore). The piece is then photographed and verified. The payout is made by bank wire within seven days after confirmation that the piece has arrived in storage and is in good/normal condition.

AAG can also assist clients with shipping and insurance.

 

Buyers

 

At what point must a buyer take out the guarantee on a work?

Any time during the 12 months following the auction at which it was acquired. The grace period - during which time the piece may not be reoffered at auction - of 24 months runs from the signature date of the guarantee contract.

Is the guarantee set at the hammer price they paid for it or does it also cover all additional costs, such as the premium and any sales tax?

The guarantee can be set either at the hammer price or the hammer price plus buyer's premium paid when the policy holder acquired the item. The pay-out is calculated on the hammer price achieved at resale.

For example, if a piece was acquired for $100,000 + 25% buyer's premium, the client can choose to guarantee $100,000 or $125,000. If the piece resells at $90,000 hammer, the first option would pay out $10,000 (the difference between the current sale hammer price and the acquisition hammer price), while the second option would pay out $35,000 (the difference between the current hammer price and the acquisition price including buyer's premium).

Sales tax and other charges are not covered.

What sort of premiums are buyers charged?

Hammer guarantee: 5% of the acquisition hammer price plus a 10% share of any upside if the item sells above the guarantee.

Hammer plus buyer's premium guarantee: 7.5% of the acquisition hammer price plus a 15% share of any upside if the item sells above the guarantee.

Are there any additional charges?

There is no additional charge.

Who can sell the items?

The guarantee contract stipulates a minimum of three auction houses that AAG pre-select for the resale of the piece. A client may use another auction house with written agreement from AAG, which is discretionary.

If an item fails to resell and, under the terms of the agreement, AAG acquire the piece at the reserve, where does this leave the auctioneer, who usually retains the right to re-offer the piece?

The AAG guarantee only activates once the work is returned to approved storage and is then checked and verified. In order for this to happen, the auction house will have released the item from the after-sale or re-offer process. Consignors should be able to negotiate terms and conditions on this part of the process with the auction house in advance of consignment.

In the event that the guaranteed work does not sell, how long after the sale is the guarantee paid out?

The same arrangements apply as to sellers.

What is the period of cover?

Past the 24-month grace period, there is no limit in time.

Under what conditions must the resale fail for the buyer to qualify for a pay out?

Issues concerning authenticity and title may affect payments in the same way as they apply to sellers opting for guarantees. Also, condition: if the piece is damaged/ altered during the 24-month grace period.

In the event that the guaranteed work does not sell, how long after the sale is the guarantee paid out?

The same arrangements apply as to sellers.

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