A Guide to Art Market Terminology
by Abigail Murray, Design Associate at Masterworks
“Consignor,” “Provenance” and “Reserve” — art market lingo can be confusing and foreign to many, even to lovers of art. But with auction houses reaching record sales in 2018 alone, there’s never been a better time to start investing in art. Learn the basics with our terminology guide.
Appraisal
The auction house’s evaluation of an artwork’s market or insurance value.
Bid
A binding offer to buy an artwork at a specific price. The highest bidder becomes the buyer of the work at the end of the auction.
Buyer’s Premium
An additional surcharge that auction houses will tack onto the final price, which is typically 10–20% of the hammer price.
Condition Report
The condition report will indicate the current condition of the artwork at sale time, and state if theres any damage, restoration, or noticeable imperfections in the work. At auction, lots are sold “as-is”, so condition reports are extremely useful for sight-unseen buyers.
Consignor
The seller (either a person, institution, or estate) who decides to put the artwork up for auction. The 3D’s are the most common factors that drive individuals to consign artworks: death, divorce, or debt.
Estimate
How much an auction house thinks a work will sell for. This includes a low to high estimate, and is typically written in a format such as “$1,500,000- $2,000,000”. Many factors go into determining an estimate, including rarity, condition, quality, and recent auction prices of comparable works.
Guarantee
An agreed upon amount of money that the auction house promises to pay the consignor (seller) regardless of whether or not the work sells at auction. If the work sells for more than the guaranteed amount, the house and the seller negotiate a split in the profits. If the highest bid is for less than the guarantee, the house makes up the difference to the seller and owns the work of art. Guarantees can also be financed by a third-party.
Hammer Price
Literally, the winning bid indicated by the fall of the hammer at auction. This doesn’t include the buyer’s premium or other fees.
Lot
Another term for an artwork up for auction in a round of bidding. A lot is typically a single work, but can also contain more than one work in a group. Usually, there will be a lot essay attached to the piece, which is a short description about the specific artwork and the artist who produced it.
Price Realized
The final price: the hammer price plus the buyer’s premium.
Provenance
Not to be confused with Provence, a region in France known for its wine– an artwork’s Provenance is formal documentation of who previously owned a work, and where it was stored. For example, 1 Colored Marilyn by Andy Warhol (which Masterworks recently acquired), was previously owned Douglas S. Cramer (a famous TV producer and one of the founders of MOCA). He bought the painting back in 1984 from a gallery in Zurich, Switzerland. Having a strong and evident provenance helps reassure buyers, and sometimes adds to the value of a work.
Resale Royalty
Also known as the Artist’s Resale Royalty (ARR), this is a percentage of the hammer price that must be paid to the artist who created the work or to their estate. Although ARRs are standardized in the European Union, no such law exists in the U.S. yet.
Reserve
This is the minimum amount of money that the consignor (seller) will allow the lot to sell for. If the artwork fails to reach that minimum, the work will be bought-in, and returned back to the consignor. The reserve is confidential prior to the auction.
Conclusion
So there you have it — everything you need to know to give you a head start in the fascinating world of fine art auctions.
Interested in investing in art? Masterworks is currently democratizing ownership in the world’s greatest masterpieces by allowing investors to purchase and trade shares on an approved trading platform.
