A new company wants to help collectors buy and sell art without losing money — and make a profit for itself in the process. Is it too good to be true?

Risk-averse art collectors, meet Art Auction Guarantee, a business that wants to put a new twist on the traditional third-party guarantee service employed at auctions all over the world. Since 1999, select art funds, investors, and private collectors have attempted to profit from rapidly rising auction totals by promising to purchase a work of art at a mutually agreed-upon price before it hits the block. The arrangement limits the risk for the seller, who has assurance that his piece will find a buyer, and offers the guarantor an opportunity to make a pretty penny. (If the guaranteed work sells above the agreed-upon price, the seller and the guarantor split the profit.) Art Auction Guarantee has a novel take on this tactic: It wants to bring it to humble world of gallery sales.

“Nobody wants to pay $100,000 for a piece and realize that two years later, when they have to sell it for whatever reason, they can't get back what they paid,” said Arnault Aquizerate, the founder of AAG. “With us, you know you will get back the money.” The business has been providing traditional third-party guarantees since its inception in 2011, but will launch its new service at Art Basel Miami Beach next month. Since it began offering a similar product to buyers (as opposed to sellers) at auction in July, AAG says it has already guaranteed over 45 works of art.

So how, exactly, does the service work? AAG charges clients a fee of 5 to 7.5 percent of a work’s acquisition price in exchange for a guarantee. If a collector decides to sell the guaranteed artwork at auction two or more years after purchasing it and the work fails to sell above its reserve, AAG will buy it back for the same price he or she originally paid. (Inflation, exchange rates, and auction house fees aren’t factored into the total.) If the work sells above the original acquisition price, AAG receives 15 percent of the profit and the collector keeps the rest.

“It’s a competitive rate,” noted Aquizerate. By comparison, most third-party guarantors take at least 50 percent and as much as 80 percent of the upside. To entice dealers to recommend the service to their clients, AAG will be offering them approximately 1.5 percent of its initial fee and a small portion — approximately 5 percent — of the resale profit. 

Aquizerate, who ran a design gallery in Beverly Hills before founding AAG, believes his model fills a gap in the marketplace. Auction houses and third-party guarantors traditionally work with only the most expensive pieces. (In 2010, for example, a private New York dealer backed Picasso's 1932 painting “Nude, Green Leaves, and Bust,” which sold for an auction-record $106,482,500.) “Christie’s and Sotheby’s might guarantee a piece because they want to get it in the auction,” explained Aquizerate. “But that's risky. You might not be able to sell it back later, because it's so high-profile.” AAG, by contrast, offers guarantees on artwork in the $10,000 to $500,000 range — material that auction houses and billionaire collectors tend not to bother going after.

In theory, AAG's business plan sounds like a win-win. But some art market players aren’t so sure. An untested company helmed by a little-known art dealer might have trouble getting traction in the reputation-obsessed art world, advisors suggest. “In theory, it sounds like a good idea. But how can they guarantee the property owner comfort?” asks Jeff Rabin, co-founder of art investment firm Artvest Partners. “I don't know what they own or the scope of their guarantees. But if all their clients try to cash in at once, they might be forced to go into bankruptcy and liquidate. And if that happens, what happens to all the people they guaranteed?”

Aquizerate says he is planning to approach investors at the beginning of next year to provide an additional backstop, but “for the time being we have not had the need to invite in our shareholding structure any private investors or investment bank.”

Observers note that there might be another side to the service as well: The arrangement provides AAG the opportunity to get access to premium material through the back door. “It seems like the company wants to participate in the momentum of the market and probably wouldn’t otherwise get access to what they want to be getting access to,” said art advisor Wendy Cromwell. In other words, a little-known dealer like Aquizerate might have difficulty nabbing a work of art by a market darling like Wade Guyton. (There are waiting lists, museum quotas, and other hurdles to jump.) By working with a well-known collector, “he gets a free look and the potential to own all sorts or property,” notes Rabin.

So far, most art advisors say the business is too untested to recommend to clients. But as the art market becomes ever more labyrinthine, such tactics have a way of taking hold. “It’s really not adding extra layers,” contends Aquizerate. “It’s meant to simplify the process.”