Art valuation

Source: Wikipedia, the free encyclopedia.
See also: Art market and Art auction
An art auction at Christies
An art curator, Anne Pontégnie
An art collector
An art opening
An art dealer
An art exhibition
An art gallery
An art studio visit

Art valuation, an art-specific subset of

tax planning, insurance, and loan collateral purposes. This article deals with the valuation of works of fine art, especially contemporary art, at the top end of the international market, but similar principles apply to the valuation of less expensive art and antiques
.

Historic valuation and contemporary art

The source of a work's artistic charisma has long been debated between artists who create and patrons who enable, but the charismatic power of artworks on those who would possess them is historically the initial driver of value.[4][5] In the 1960s that charismatic power started edging over to accommodate commercialized culture and a new industry of art, when aesthetic value fell from prominence to parity with Pop art and Andy Warhol's idea of business art, a recognition that art has become a business and making money in business is an art.[6][7] One of many artists to follow Warhol is Jeff Koons, a stockbroker turned artist who also borrowed imagery from popular culture and made millions.[8][9]

For collectors, the emotional connection felt toward a work or collection creates subjective personal value.[10] The weight assigned by such a collector to that subjective measure as a portion of a work's overall financial value may be greater than that by an art speculator not sharing the collector's emotional investment, however, non-economic value measures such as "Do I like it?" or "Does it speak to me?" still have economic effect because such measures can be deciding factors in a purchase.[11]

In contrast, the Art Dealers Association of America (ADAA) suggests that the key issues are authenticity, quality, rarity, condition, provenance and value.[12]

Valuing art

An art fair

Art valuation activity concerns itself with estimating market demand, estimating

terms of art or vocabulary, for example, "bought-in", describing the disadvantageous situation occurring when a work or lot at auction is returned to its owner having been passed over, withdrawn or otherwise unsold.[14][15] Valuing art is also necessary when a piece is to be used as collateral. The art-lending market has expanded to an estimated $15 billion to $19 billion of loans outstanding in the USA.[16] The shift in Asia towards investment in western art is a factor that has allowed art lending companies to launch offices in Asia as western works are often easier to use as collateral.[17]

Market demand

As in the housing market, "

medium
of a work also affect market demand, as does rarity.

Liquidity

Liquidity in the art market means having artworks in very high demand and being able to sell those works without impediment. Art sales slow in downturns resulting in the market becoming more illiquid. There is a greater degree of liquidity risk facing the art investor than with other financial assets because there is a limited pool of potential buyers, and with artworks not reaching their reserve prices and not being sold, this has an effect on the auction prices.[11] In a divorce action between a couple who sought to divide a $102 million collection between them, the couple decided a sale would prove problematic because selling the entire collection and dividing the profit would saturate the market and drive down prices; in reporting on the case, The Seattle Times described the case as a study on how people measure the value of art, and which counts for more — pragmatism or sentiment.[18] The newspaper reported that one of the two litigants had a more sentimental view of the value of the works, while the other had a more businesslike view, wanting balance and diversification.[18] The newspaper attempted to calculate the value of the many artworks at issue in the case by determining a per-square-inch price based on each piece's value divided by its dimension, to end up with a per-square-inch price to apply to the amount of wall space the businesslike litigant wanted to cover with the available art.[18] The Times ultimately concluded that using this formula as between the litigants, John Singer Sargent's Dans les Oliviers à Capri was valued at $26,666.67 per square inch, that the sentimental litigant received $3,082 of appraised value per square inch while the businesslike litigant received $1,942 per square inch, but could cover more wall space.[18]

Valuation trends

Trends for values from the world's top auction houses are compared for study of market direction and how that direction affects given artists and works.[19][20] Valuations for art sold at the market's top houses usually carry more weight than valuations from less established houses, as most of the top houses have hundreds of years of experience.[20][21]

Long term economic trends can have a great impact on the valuation of certain types of work. In recent decades the values of historic Russian and Chinese art have greatly benefited from increased wealth in those countries creating new and very rich collectors, as the values of Orientalist and Islamic art had earlier been boosted by oil wealth in the Arab world.

Participant activity

One of many factors in the primary market's price of a living artist's work is a dealer's contract with an artist: many dealers, as stakeholders in their artists' success, agree to buy their own stable of artists' work at auction in order to prevent price drops, to maintain price stability, or to increase perceived value, or all three, thus dealers bidding on their own artists at auction have a direct impact on the selling price for those artists' works and as a result, the valuation of those works.[22]

Research data

Research data available from art auction houses such as Christie's, Sotheby's,

hammer prices without other, crucial valuation factors. Additionally, the databases of auctioned work do not cover private sales of works, and thus their use for art valuation is but one source among many needed for determining value.[11]

General valuation factors

Valuation estimates by auction houses are typically given in ranges of prices to offset uncertainty. Generally, estimates are made by looking at what a comparable piece of art sold for recently, with estimates given in a range of prices rather than one fixed figure,[25] and in the case of contemporary art especially, having few comparables or when an artist is not well known and has no auction history, the risks of incorrect valuation are greatest.

One potential factor in valuation are the seller's reasons for selling a particular work and/or the buyer's reasons for buying, neither of which may have anything to do with the other. For example, a seller may be motivated by financial need, boredom with a particular artwork, or the desire to raise funds for a different purchase.[26] Common motivations include the so-called three D's: death, debt and divorce. Buyers may be motivated by market excitement, may be acting in accord with a collection plan, or buying like buyers of stock: to drive value up or down either for themselves or for another person.

One method for pricing pieces by new artists of uncertain value is to ignore aesthetics and consider, besides market trends, three semi-commoditized aspects: "scale" - size and level of detail, "intensity" - effort, and "medium" - quality of the materials.[27]

Valuing artworks in such a specialized market, therefore, takes into account a wide variety of factors, some indeed in conflict with each other.

Valuation for tax and other law-related purposes

In the United States, art bought and sold by collectors is treated as a

gain on its sale are usually decided by the federal Tax Court
, and sometimes by other courts applying federal tax law to specific cases.

Important U.S. cases

See also

References

  1. hdl:11343/113919
    .
  2. ISBN 9780691134031
    . Retrieved 9 June 2017.
  3. ISSN 0001-4273
    .
  4. ISBN 978-0-252-06310-7
    .
  5. ^ Jeffri, Joan, Philanthropy and the American artist: A historical overview, The European Journal of Cultural Policy, 3(2), 2009, pp. 207-233.
  6. ^ Kuspit, Donald, Art Values or Money Values?, ARTnet.com, 6 March 2007.
  7. ISBN 978-0-415-33956-8
    .
  8. ^ Littlejohn, David, Who is Jeff Koons and Why Are People Saying Such Terrible Things About Him? Artnews, April 1993, p. 94.
  9. ^ Inflatable investments, The volatile art of Jeff Koons, The Economist, 28 November 2009.
  10. ^ a b c How to Value Art, artnet.com, retrieved 21 November 2011.
  11. ^ a b c Campbell, R.A.J., Art as a Financial Investment, Erasmus Univ., Rotterdam, Maastricht Univ., 2007.
  12. ^ "Collector's Guide" (PDF). artdealers.org. Retrieved 3 September 2023.
  13. ^ See artnet.com's Market Trends FAQ.
  14. ^ Kendzulak, Susan, definition of "Bought-In Archived 2016-03-04 at the Wayback Machine", about.com
  15. ^ Buying in Archived 2012-05-04 at the Wayback Machine, teachmefinance.com. Accessed 20 June 2012.
  16. ^ "Art & Finance Report 2016". Deloitte. Deloitte & ArtTactic.
  17. ^ "London-based art fund targets $1bn lending in Asia". The Financial Times. 28 December 2017.
  18. ^ a b c d Armstrong, Ken, The art of divorce: She gets the Monet, he gets the Renoir Archived 31 July 2012 at the Wayback Machine, Local News | The Seattle Times, seattletimes.nwsource.com, 28 July 2012. Retrieved 30 July 2012.
  19. doi:10.1111/j.1475-4932.2005.00237.x
  20. ^ a b Worthington, AC and Higgs, H, A Note on Financial Risk, Return and Asset Pricing in Australian Modern and Contemporary Art, Journal of Cultural Economics, 30(3), March 2006, 73-84.
  21. ^ Kendzulak, Susan, Top 11 Fine Art Auction Houses, About.com lists the top houses (as of April 2014, and this list is volatile) as:
    1 & 2. Bonhams, and Bonhams & Butterfields (London, New York, Los Angeles, Sydney, Hong Kong, Dubai, and San Francisco)
    3. Christie's (London, Paris, Milan, New York, Hong Kong and Dubai)
    4. Dorotheum (Vienna, Brussels, Düsseldorf, Munich, Milan and Rome)
    5. Heritage Auctions (Dallas, Beverly Hills and New York)
    6. Phillips de Pury & Company (New York and London)
    7. Sotheby's (London, Hong Kong, Geneva, Milan, Paris, Zürich, New York, Toronto, Doha)
    8. Stockholms Auktionsverk (Stockholm)
    9. Tajan (Paris and Monaco)
    10. Villa Grisebach Auktionen (Berlin)
    11. Waddington's (Toronto)
  22. ^ Thornton, Sarah, The reinvention of artist Damien Hirst, The Sunday Times, 2009-10-04, Retrieved 23 November 2011.
  23. ^ For an example see artnet.com's sample report: Market Performance Report for Piet Mondian.
  24. ^ For example, arttactic's monthly Rawfacts newsletter Archived 8 July 2009 at the Wayback Machine.
  25. ^ de Pury, Simon, FAQ #13.
  26. ^ Cornish, Audie, Wealthy Use Art Collections As Way To A Better Loan, NPR, npr.org, 3 October 2012. Accessed 29 January 2013.
  27. ^ Why A Dead Shark Costs $12 Million, NPR, npr.org, 25 June 2010. Accessed 2010-07-27. Archived from the original at archive.org.
  28. ^ Capital asset defined: 26 U.S.C. § 1221, Legal Information Institute, law.cornell.edu. Accessed 14 November 2015.
  29. ^ Andrew Crispo Gallery, Inc. v. Commissioner, 86 F.3d 42 1996 affg. T.C. Memo. 1992-106.
  30. DOC
    , T.C. Memo 1986-528, aff'd 861 F.2d 723 (7th Cir. 1988).
  31. ^ Drummond v. Commissioner, T.C. Memo. 94-16958; and appeal, 155 F.3d 558, (4th Cir. 1998), affg. in part & rev. in part (via vlex.com). Both accessed 17 November 2015.
  32. ^ Estate of Querbach v. A & B Appraisal Serv., No.L-089362-85 Supr. Ct N.J., Bergen County, 1987, in Orenstein, Show Me the Monet: the Suitability of Product Disparagement to Art Experts, George Mason Law Review, 13(4), Summer 2005, pp. 905–934 at 912–913 & fn. 66.
  33. ^ Estate of Scull v. Commissioner, 67 T.C. Memo. 2953 (1994) (CCH) 1994-211 as cited by Walford v. Commissioner, T.C. Memo. 6506-86 (2003).
  34. ^ Nataros v. Fine Arts Gallery of Scottsdale, 126 Ariz. 44, 612 P.2d 500 (Ct.App.1980). See also Dufy, Raoul, When Ishmael Called, Artinfo, 28 April 2009. Accessed 17 November 2015.
  35. ^ Williford v. Commissioner, 64 T.C.M. (CCH) 422 (1992) fn. 13. The eight 'Williford factors' are: (1) frequency and regularity of sales; (2) the substantiality of sales; (3) the duration the property was held; (4) the nature of the taxpayer's business and the extent to which the taxpayer segregated the collection from his or her business inventory; (5) the purpose for acquiring and holding the property before sale; (6) the extent of the taxpayer's sales efforts by advertising or otherwise; (7) the time and effort the taxpayer dedicated to the sales; and (8) how the sales proceeds were used.

Further reading
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