“There isn’t much upside in the auction market,” says Philip Hoffman, CEO and founder at The Fine Art Group in London, an art advisory. “It used to be that work could start at US$10 million and make US$20 million—that hasn’t happened for the last 12 to 18 months.” 

One reason is a “disconnect between the sellers and buyers,” Hoffman says. “Consignors want 20% more than we’re recommending buyers [should] pay.”

That disconnect was evident in evening sale results. More than two-thirds of the lots sold at the evening sales fetched hammer prices below the mid-range of their presale estimates—the prices used to draw in bidders—while only 31% sold above the mid-range, ArtTactic said. 

The results also revealed estimate ranges that were too high, considering buyers weren’t in the mood to bid to the stratosphere. As Hoffman says, none of his clients “wanted to go mad and spend US$50 million this week,” even though they were “perfectly capable of spending that if they wanted to.”

The lofty estimates are “very much a function of the proposal process,” says Jason Carey, an art advisor at Citi Private Bank, who formerly was the international director of impressionist and modern art at Christie’s in London. Months before the auctions, each of the auction houses may vie to sell the same work, or a collection of works, arguing to potential sellers that they can offer the best venue for the sale.

“The estimates are very much part of that conversation,” Carey says. “The auction houses will go as high as they think they possibly can to sell it to the room or to get a guarantor in place.” 

To make the economics work, auction houses increasingly have relied on these guarantors, essentially pre-selling works before the sales take place by finding a collector who will place a “third-party” guarantee, or an irrevocable bid, on an artwork. 

In a piece Carey wrote for Citi clients, he explained how the guarantor in this scenario gets a “share of the upside” if the work sells to someone else for a price above the guaranteed level. If the price doesn’t go above that level during the sale, the guarantor gets it, sometimes landing a discount on the buyer’s premium, he said. 

The practice can take the wind out of a live auction, as lot after lot sells at or just below the low-estimate. 

“It’s not really an auction, it’s a private sale held in a public place,” Hoffman says.

That scenario played out last week. At least 70% of Sotheby’s contemporary and modern evening sales were guaranteed in one way or another, while there were guarantees on 40% of the works in Christie’s 20th-century sale on Thursday. 

According to ArtTactic, the hammer value of lots guaranteed at all the evening sales (assuming that they were guaranteed at the published low-estimate) accounted for 73% of the total sale value, up from 64% a year ago, according to ArtTactic. 

Its effect on the final outcome was evident in the sale of major works by Jean-Michel Basquiat through the week. At Phillips this past Tuesday, the artist’s Untitled (ELMAR) sold for US$40.2 million, before fees, just above a US$40 million low estimate. At Christie’s, Basquiat’s The Italian Version of Popeye has no Pork his Diet, sold for US$27.5 million, before fees, just below its US$30 million low estimate. Similar scenarios played out at Sotheby’s with two other works by Basquiat, Untitled from 1981, which sold, before fees, just above a US$7 million low estimate, and Campaign, 1984, which sold for US$8.5 million, before fees, above an US$8 million low estimate. 

In the negotiating stage with a consignor, the auction house may initially guarantee the work, and then find a third party to fully or partially offset their stake. 

But this practice can backfire. Christie’s had a house guarantee—but no third-party guarantee—for Brice Marden’s Event, which was the cover image for its sales catalog of the 21st-century auction this past Tuesday. 

Christie’s pulled the 6-foot, two-part, oil-on-linen painting before the auction after it failed to draw enough interest to make the estimated price of at least US$30 million. That price seemed to make sense, given the record US$30.9 million, with fees, achieved by Marden’s Complements at a global Christie’s sale during the height of the pandemic in July 2020. 

After Tuesday’s sale, Alex Rotter, Christie’s chairman of 20th- and 21st-century art, said the auction house withdrew the work because “we’re not willing to jeopardize the career of an artist like that.”

Calling it a “fantastic piece,” Carey says maybe the auction house should have estimated it would sell for at least US$20 million. Instead, “they now own that piece, a significant hit to their bottom line for the week.” 

“No one wants to own a guaranteed work and not sell it,” Hoffman says. “The trouble with these house guarantees is it wipes out from 10% up to 50% of the revenue of the sale.”

The weakness in the art market appeared to largely be for the priciest works. Though there were some standout results with lively rounds of bidding, notably the sale of surrealist artist Leonora Carrington’s 1945 work Les Distractions de Dagobert at Sotheby’s modern auction on Wednesday for a hammer price of US$24.5 million above an US$18 million high estimate, there were also some notable failures.

At Sotheby’s, no works were withdrawn before its contemporary evening sale last Monday, but Richard Diebenkorn’s Ocean Park #126, with a low presale estimate of US$18 million, didn’t ultimately draw a buyer. The painting, which had been bought for nearly US$24 million, with fees, at Christies in May 2018 from the collection of real estate developer David Zucker and his wife, Barbara, was not guaranteed.

Hoffman says his firm lost out on a handful of works with estimates up to US$3 million last week that it sought to buy for clients; the pieces ended up selling for more than their high estimates. ArtTactic data backs this up, noting that 62% of lots with estimates below US$1 million sold above their low-estimate levels, while sales of works priced at US$10 million or more fell nearly 25% from a year earlier.

These pricier “trophy” works have an outsized impact on the market, of course, accounting for nearly half of the total evening sales value last week. 

Hoffman is finding his clients preferring to shop their works valued at US$10 million or more among a few collectors rather than seeing their expensive art going unsold on the auction block. 

“We’re seeing a lot of things brought to us privately—they don’t want the exposure to the massive auctions,” he says.