Tuesday, April 25, 2006

Guaranteed

Bloomberg has this story on Sotheby's increased use of "guarantees" to attract business. In a "guarantee," the auction house commits itself to pay a fixed amount to the seller of a work, whether or not it sells at the auction. The Bloomberg story notes that "If a picture sells for more than the guaranteed amount, the auction house keeps the extra money. If a picture doesn't sell, the house risks losing all or part of the guarantee if it can't resell the picture for enough money later." But the first part is not quite right: typically the seller also shares in the profits if the sales price exceeds the guarantee amount (which is what makes it such an attractive deal to sellers).