A Beginner's Guide to Art Auctions

Auctions are the art world's blood sport, with wealthy collectors and art speculators convening in tony salesrooms to compete with one another for the finest works coming to market—providing delight for the rows of onlookers who attend the events to watch the action. They also tend to set the mood for the art market, with successful sales indicating a continuing boom and poor-performing auctions undermining confidence throughout the art world. For the initiated, they are enormous fun to watch, with record prices eliciting gasps and applause and celebrity bidders causing stirs. For those unfamiliar with the baroque logic of art auctions, they can seem impenetrable mysteries. In the interest of spreading the joys of art auctions, we've compiled a glossary of auction terms to explain how these glamorous contests work.

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Auctioneer - The MC of the sale. A consummate showman (or woman), oftentimes British at the tonier houses, who is able to use both humor and high drama to wheedle remarkable prices from even reluctant bidders. Each auctioneer has a signature style, which among the younger generation of contemporary-art gavelers can lean toward the edgy and in-your-face (sometimes in the manner of Guy Fieri).

Hammer - This is the auctioneer's Excalibur, wielded as a cross between a conductor's baton and a judge's gavel, and when it comes down—sometimes with a light tap, other times with a plangent thunk—it indicates a sale.

Auction Block - The podium behind which the auctioneer stands, and frequently the object of the hammer's thwack. When an artwork goes up for auction it is said to "go on the block," though in reality the work is displayed by white-gloved handlers who strut out behind the auctioneer or on a screen.

Paddle - The snooty cousin of the ping pong paddle, these numbered instruments can be used to telegraph bids too—though many high-flying buyers opt for a more discreet approach, signaling the auctioneer with a prearranged system of signs. These can be as simple as a nod, or a complicated language with multiple bidding expressions.

Lot - This is the term for the work at issue in a particular round of bidding. A lot is typically a single work but can also contain more than one piece as a group.

Consignor - The person, estate, or institution that put a specific artwork up for auction, oftentimes as a result of one of the "three Ds": death, divorce, or debt.

Appraisal - This is the approximate market value assigned to a particular lot by the auction house's specialists.

Specialist - These are the on-staff connoisseurs who put together the auction, acquiring the works, assessing their value, and contextualizing them in the frame of art history for the catalogue. Specialists are highly trained professionals grouped by their expertise in a particular field—contemporary art, say, or Chinese ceramics and works of art—and they spend their time jetting around the world to scout private collections.

Estimate - This is the auction house's guestimate for what a particular work could fetch in a sale, agreed upon in advance by the house's specialists (as a bracket around the appraisal) and included in the auction catalogues. It includes a low estimate and a high estimate, and is typically written in the format of "$14,000,000 - $18,000,000," or a permutation thereof. There are estimates for each individual work and estimates for the overall sale. In auction reports, journalists can squeeze great writerly pleasure from these figures, saying that a work "unstoppably hurdled its high estimate," "sputtered and died short of its low estimate," et cetera.

Reserve - The minimum price that a consignor will allow the auction house to sell an artwork for, meaning that if bidding fails to rise to the level of the reserve the work will be bought in.

Catalogue - This is the glossy, beautifully produced glamorized brochure that the auction house sends to collectors and other interested parties to whet the appetite for a sale, provide the estimates, and pump up the works on offer. It is not unheard of to spend a million dollars to produce a catalogue for a major sale, enlisting top art historians and photographers to argue why a work deserves to go for sometimes astronomical sums.

Cover Lot - This is the lot displayed on the cover of the magazine, and it's generally the artwork that the house believes will generate the most excitement at auction.

Buyer's Premium - This is the surcharge that the auction house adds to the price of any sale, usually between 10 and 20 percent of the hammer price, depending on the house and the price point of the work being sold. Auction reports most frequently cite the total prices, including the buyer's premium, and auction records include them as well.

Seller's Commission - This is the vigorish that the auction house extracts from a work's consigner—unless the auctioneer is intent on landing the consignment, in which this fee can be waived (or negotiated down).

Guarantee - An amount of money that the auction house promises it will pay the consignor regardless of whether a work sells at auction. Issuing guarantees was a central strategy during the years of the mid-2000s art book for houses to acquire showpieces for their marquee evening sales, but after the 2008 financial collapse drained confidence in the art market, auctioneers lost millions and millions of dollars paying out guarantees on overestimated lots. As a result, Christie's and Sotheby's more or less stopped offering guarantees backed by the auction houses. In the immediate aftermath the two auction houses saw annual revenues for contemporary art decline by a stunning 75 percent, but since then—with the help of third-party guarantees—sales have rebounded.

Third-Party Guarantee - A guarantee that an auction house offers by finding a buyer for an artwork before the sale who is willing to pay a certain price above the reserve for the piece. The house can then assure the consignor that the work will sell no matter the action in the salesroom.

Evening Sale - These are the marquee auctions held at night, offering the most coveted lots in a sophisticated atmosphere of high drama and adrenaline. Champagne is often served, and bidders (and onlookers) typically arrive in formal attire, with gawkers craning around to spot celebrities.

Day Sale - These are the sales that typically occur the day after the evening sales and offer lower-priced works.

Bid - This is the price that a bidder indicates that he or she is willing to pay for a particular work, either by personally signaling it in the salesroom, having a surrogate place it on the bidder's behalf, calling it in on the phone, or logging it online. You do not want to place one of these accidentally.

Increment - The minimum sum by which a bidder must top the previous bid.

Absentee Bid - A bid placed on behalf on someone by a surrogate. Art dealers and other market experts often attend sales as surrogates for an anonymous prospective buyer. Larry Gagosian, in particular, is known to relish bidding on behalf of others.

Telephone Bid - A bid called in to one of the immaculately dressed specialists who fill the phone bank behind the auctioneer. Because so many of the most spectacular sales are made to anonymous buyers in China, Russia, or elsewhere, an auction's top lots frequently are won by telephone bids—to the chagrin of auction aficionados, who prefer to see the action unfold more dramatically in the salesroom.

Chandelier Bid - A fake bid that the auctioneer logs in order to goose tepid bidding, looking off to an indistinct spot and pretending to see a bidder. Also known as a "rafter bid," this is an unscrupulous practice that is frowned upon in the industry.

Hammer Price - This is the price of the winning bid at the time that the gavel comes down, before the buyer's premium has been added to the sum.

Bought In - The term for an artwork failing to sell at auction, at which point it gets returned to the consignor.

Sell-Through Rate - This is the tally compiled after bidding is done to assess how the auction performed, with percentages crunched down to see both the rate by lot (i.e. the percentage of lots that sold) and by value (i.e. the percentage of the overall estimated value of the sale to have been achieved). Rates under 80 percent are considered to be anemic, lackluster, or worse.

Buy-In Rate - The percentage of the overall lots on offer that failed to sell.

White Glove Sale - An auction in which every single lot sells, for a perfect 100 percent sell-through rate. A flood of champagne is uncorked after one of these.

Collusion - This is a practice when a group of buyers who dominate a certain market—for Warhol, say, or a category like the Zero Group—band together into a cabal, agreeing not to bid against each other in order to win works at artificially deflated prices. This is an unethical practice, but hard to prevent because certain markets are dominated by a small circle of wealthy players.

Protecting a Market - When a dealer places a bid on behalf of an artist he or she represents or has a financial interest in to ensure that the price of the work does not fall below a certain price, which can bring down the artist's overall market value. Artists represented by major galleries typically expect this kind of protection from their dealers.

Price Fixing - When auction houses conspire to set rates and eliminate competition, violating federal antitrust law. The most notorious instance of this was the price-fixing scandal at Christie's and Sotheby's in which the chairmen of the two leading auction houses were found to have met in secret 12 times to set the prices for sellers' commissions, a practice that effectively locked consignors into exorbitant rates. In 2002 a judge sentenced Sotheby's chairman and owner A. Alfred Taubman to a year and a day in prison for his part in the crime, and class-action lawsuits cost Christie's and Sotheby's a total of $512 million—not to mention reputational harm that took years for the houses to but behind them.