Art valuation

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.Balfe, Judith, Ed., Paying the piper: causes and consequences of art patronage, Univ. of Illinois Press, 1993, p.307. {{ISBN|978-0-252-06310-7}}.Jeffri, Joan, Philanthropy and the American artist: A historical overview, The European Journal of Cultural Policy, 3(2), 2009, pp. 207-233. 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.Kuspit, Donald, [http://www.artnet.com/magazineus/features/kuspit/kuspit3-6-07.asp Art Values or Money Values?], ARTnet.com, 6 March 2007.Jeffri, Joan, Managing Uncertainty, The visual art market for contemporary art in the United States, in Robertson, Iain, Understanding international art markets and management, Routledge, 2005, p. 127. {{ISBN|978-0-415-33956-8}}. One of many artists to follow Warhol is Jeff Koons, a stockbroker turned artist who also borrowed imagery from popular culture and made millions.Littlejohn, David, Who is Jeff Koons and Why Are People Saying Such Terrible Things About Him? Artnews, April 1993, p. 94.[http://www.economist.com/node/14941205 Inflatable investments, The volatile art of Jeff Koons], The Economist, 28 November 2009.

For collectors, the emotional connection felt toward a work or collection creates subjective personal value.[http://www.artnet.com/auctions/pages/common/help/howtovalueart.aspx How to Value Art], artnet.com, retrieved 21 November 2011. 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.Campbell, R.A.J., [https://ssrn.com/abstract=978467 Art as a Financial Investment], Erasmus Univ., Rotterdam, Maastricht Univ., 2007.

In contrast, the Art Dealers Association of America (ADAA) suggests that the key issues are authenticity, quality, rarity, condition, provenance and value.{{cite web|url=https://artdealers.org/sites/default/files/adaa_guide.pdf|title=Collector's Guide|website=artdealers.org|access-date=3 September 2023}}

File:Art Fair Enough Melbourne.jpg

Art valuation activity concerns itself with estimating market demand, estimating liquidity capability of lots, works, and artists, the condition and provenance of works, and with valuation trends such as average sale price and mean estimates.See artnet.com's [http://www.artnet.com/products/mt_faq.asp Market Trends FAQ]. As with other markets, the art market uses its own industry-specific 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.Kendzulak, Susan, definition of "[http://fineart.about.com/od/Glossary_B/g/Bought-In.htm Bought-In] {{Webarchive|url=https://web.archive.org/web/20160304212426/http://fineart.about.com/od/Glossary_B/g/Bought-In.htm |date=2016-03-04 }}", about.com[http://teachmefinance.com/Financial_Terms/Buying_in.html Buying in] {{Webarchive|url=https://web.archive.org/web/20120504231250/http://www.teachmefinance.com/Financial_Terms/Buying_in.html |date=2012-05-04 }}, teachmefinance.com. Accessed 20 June 2012. 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.{{Cite web |title=Art & Finance Report 2016 |url=https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html |website=Deloitte |publisher=Deloitte & ArtTactic}} 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.{{Cite news |title=London-based art fund targets $1bn lending in Asia |url=https://www.ft.com/content/0b641fea-e17f-11e7-a8a4-0a1e63a52f9c |website=The Financial Times|date=28 December 2017 }}

As in the housing market, "comparables" are used to determine what level of demand similar items have in a current market. The freshness of the comparables is important because the art market is fluid and stale comparables will yield estimates that may have little relation to a work's current value. Subject matter and the medium of a work also affect market demand, as does rarity.

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. 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.Armstrong, Ken, [http://seattletimes.nwsource.com/html/localnews/2018791206_larson29m.html The art of divorce: She gets the Monet, he gets the Renoir] {{webarchive |url=https://web.archive.org/web/20120731233730/http://seattletimes.nwsource.com/html/localnews/2018791206_larson29m.html |date=31 July 2012 }}, Local News {{pipe}} The Seattle Times, seattletimes.nwsource.com, 28 July 2012. Retrieved 30 July 2012. 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. 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. 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.

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.Higgs, H. and Worthington, A., [http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1016&context=commpapers Financial Returns and Price Determinants in the Australian Art Market, 1973–2003], Economic Record, 81:113–123, 2005-06. {{doi|10.1111/j.1475-4932.2005.00237.x}}Worthington, AC and Higgs, H, [http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1022&context=commpapers 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. 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.Kendzulak, Susan, [https://web.archive.org/web/20140412120752/http://fineart.about.com/od/AuctionHouses/tp/Fine-Art-Auction-Houses-Established-Auction-Houses-For-The-Fine-Arts.htm 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)

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.

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.Thornton, Sarah, [https://web.archive.org/web/20110615112418/http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/visual_arts/article6857843.ece The reinvention of artist Damien Hirst], The Sunday Times, 2009-10-04, Retrieved 23 November 2011.

Research data available from art auction houses such as Christie's, Sotheby's, Phillips, Bonhams, and Lyon & Turnbull are those tracking market trends such as yearly lot transactions, bought-in statistics, sales volume, price levels, and pre-auction estimates.For an example see artnet.com's sample report: [http://www.artnet.com/products/MT_sample.pdf Market Performance Report for Piet Mondian]. There are also companies such as ArtTactic utilizing art auction data as providers of art market research analysis.For example, arttactic's monthly [http://www.arttactic.com/newsletters.php Rawfacts newsletter] {{webarchive |url=https://web.archive.org/web/20090708175114/http://www.arttactic.com/newsletters.php |date=8 July 2009 }}. Information available from internet-based art sale history databases generally does not include the condition of a work, a very important factor, therefore the prices quoted in those databases reflect auction 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.

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,de Pury, Simon, [https://web.archive.org/web/20110715074548/http://www.phillipsartexpert.com/ask_simon/ FAQ #13]. 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.Cornish, Audie, [https://www.npr.org/2012/10/03/162246654/wealthy-use-art-collections-as-way-to-a-better-loan Wealthy Use Art Collections As Way To A Better Loan], NPR, npr.org, 3 October 2012. Accessed 29 January 2013. 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.[https://web.archive.org/web/20100630230248/http://www.npr.org/templates/transcript/transcript.php?storyId=128084948 Why A Dead Shark Costs $12 Million], NPR, npr.org, 25 June 2010. Accessed 2010-07-27. Archived from the original at archive.org.

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

In the United States, art bought and sold by collectors is treated as a capital asset for tax purposes,Capital asset defined: 26 U.S.C. [https://www.law.cornell.edu/uscode/text/26/1221 § 1221], Legal Information Institute, law.cornell.edu. Accessed 14 November 2015. and disputes relating to the valuation of art or the nature of gain on its sale are usually decided by the federal Tax Court, and sometimes by other courts applying federal tax law to specific cases.

:*Crispo Gallery v. Commissioner (need to produce credible documentary evidence of valuation as taxpayer has ultimate burden of persuasion),[http://openjurist.org/86/f3d/42/andrew-crispo-gallery-inc-v-commissioner-of-internal-revenue Andrew Crispo Gallery, Inc. v. Commissioner], 86 F.3d 42 1996 affg. T.C. Memo. 1992-106.

:*Angell v. Commissioner (fraud perpetuated upon the IRS through inflated appraisals),[http://www.regulations.gov/fdmspublic/ContentViewer?objectId=09000064806dfc03&disposition=attachment&contentType=msw8 Angell v. Commissioner]{{DOClink}}, T.C. Memo 1986-528, aff'd 861 F.2d 723 (7th Cir. 1988).

:*Drummond v. Commissioner (cannot claim gain from art sale as income from business unless actually in the business),[https://scholar.google.com/scholar_case?case=10161146252021691587 Drummond v. Commissioner], T.C. Memo. 94-16958; and [http://vlex.com/vid/drummond-v-commissioner-irs-18181935 appeal], 155 F.3d 558, (4th Cir. 1998), affg. in part & rev. in part (via vlex.com). Both accessed 17 November 2015.

:*Estate of Querbach v. A & B Appraisal Serv. (appraiser's liability for misidentifying a painting),Estate of Querbach v. A & B Appraisal Serv., No.L-089362-85 Supr. Ct N.J., Bergen County, 1987, in Orenstein, [http://www.georgemasonlawreview.org/wp-content/uploads/2014/03/13-4_Orenstein1.pdf 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.

:*Estate of Robert Scull v. Commissioner (previous sales of the same property without subsequent events affecting value are generally strong indicators of fair market value),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).

:*Nataros v. Fine Arts Gallery of Scottsdale (in the absence of fraud or negligent misrepresentation, buyers believing they have overpaid at auction because of bad advice bear a heavy burden of proof),[https://scholar.google.com/scholar_case?case=6569097192995527990 Nataros v. Fine Arts Gallery of Scottsdale], 126 Ariz. 44, 612 P.2d 500 (Ct.App.1980). See also Dufy, Raoul, [http://www.blouinartinfo.com/news/story/272774/when-ishmael-called When Ishmael Called], Artinfo, 28 April 2009. Accessed 17 November 2015.

:*Williford v. Commissioner (the 'Williford Factors' test: eight factors to determine whether property is held for investment or held for sale).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.

• Appraiser
• Art finance
• Blockage discount
• Market demand
• Valuation; sociology of valuation

• Blaug, Mark, Where Are We Now on Cultural Economics?, Journal of Economic Surveys, 15(2), 2001, pp. 123–43.
• Dunbier, Fine Art Comparables, tfaoi.org, [https://web.archive.org/web/20110728092601/http://www.tfaoi.org/articles/rd4.htm Part 1] and [https://web.archive.org/web/20110728092613/http://www.tfaoi.org/articles/rd5.htm Part 2].
• The [http://www.arlisna.org/artdoc/vol18/iss2/04.pdf Dunbier System & ENCompass 22,000 Artist Directory] {{Webarchive|url=https://web.archive.org/web/20210518103024/https://www.arlisna.org/artdoc/vol18/iss2/04.pdf |date=2021-05-18 }}, an early computerized valuation method no longer updated.
• Reitlinger, Gerald, [https://books.google.com/books?id=-OvfSAAACAAJ&q=editions:ISBN0878172882 The Economics of Taste], Hacker Art Books 1982, (3 Volume Set). {{ISBN|9780878172887}}. An early, 3-volume study of art market prices over a long period of time by a noted scholar.
• Gerzog, [https://ssrn.com/abstract=1028366 Valuing Art in an Estate], Tax Analysts, Tax Notes, Vol. 117, 5 November 2007.
• Fitz Gibbon, [http://caliber.ucpress.net/doi/abs/10.1525/si.1987.10.1.111 From Prints to Posters: The Production of Artistic Value in a Popular Art World], Symbolic Interaction, Spring 1987, Vol. 10, No. 1, Pages 111–128, {{doi|10.1525/si.1987.10.1.111}} (subscription).
• International Foundation for Art Research: IFAR's [http://www.ifar.org/case_law.php?ID=60 overview of case law] on valuation in the U.S..
• Marshall & Chisti, [http://www.una.edu/sobie/proc2006.pdf An Exploration of the Relationships of Physical Features of Art Works to Art Valuations and Selling Prices in Fundraising], Society of Business, Industry and Economics, Proceedings 2006, p. 81.
• Ackerman, Martin S., The Economics of Tax Policies Affecting Visual Art, Journal of Arts Management and Law, 15:3 1985, pp. 61–71. {{doi|10.1080/07335113.1985.9942163}}.
• Spencer, Ronald D., The Expert Versus the Object: Judging Fakes and False Attributions in the Visual Arts, (New York, Oxford University Press, 2004). {{ISBN|9780195147353}}.
• Thompson and McAndrew, [https://ssrn.com/abstract=878385 The Collateral Value of Fine Art], Journal of Banking and Finance, Jan 2006.
• Role of critics: Cameron, S., On the role of critics in the culture industry, Journal of Cultural Economics, 19(4), 1995-12-01, pp. 321–331, Springer ISSN 0885-2545, {{doi|10.1007/BF01073994}} (subscription).
• Art vs securities, a discussion: from the perspective of a well-known art educator and co-founder of the [https://web.archive.org/web/20090811005545/http://www.artasanasset.com/main/ Mei Moses Fine Art Index], Michael Moses, two podcasts of how art has performed on a historical basis in comparison with securities. [https://web.archive.org/web/20090822200340/http://www.arttactic.com/podcast.php?id=6 Part 1] and [https://web.archive.org/web/20100425195735/http://www.arttactic.com/podcast.php?id=9 Part 2], at [http://www.arttactic.com/ ArtTactic].
• Wood, Christopher, [https://www.worldcat.org/search?qt=wikipedia&q=isbn%3A9780903872584 The Great Art Boom 1970–1997], Art Sales Index Ltd., Weybridge, Surrey, England, July 1997. {{ISBN|9780903872584}}. {{OCLC|37881234}}.

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Category:Museology

Category:Art auction

Category:Art