Auction house price guarantee

To win a consignment from a competitor, an auction house promises the seller a floor price before the sale. If bidding stays below it, the house makes up the difference; if bidding exceeds it, the house shares the upside as agreed. To lay off its exposure it often places part of the risk with a third party, who lodges an irrevocable bid at the guaranteed level. That party buys if nobody tops it, and otherwise receives a fee or a share of the gain. This is price risk, outside the scope of art insurance: a fine art policy covers damage to the object, not the hammer price. The guarantee therefore sits in the house's accounts and, for the third-party guarantor, in its own capital. The major houses flag it in the catalog, usually with a symbol, since otherwise a bidder competes against an undeclared financial interest.