When I tell people I am an appraiser, it usually gets a Coooool!! response, followed by many questions: Like the people on Antiques Roadshow? Or How does one appraise a work of art? Or Can you take a look at this thing my grandma gave me? [Takes out cell phone to show me photos…]
And when someone engages my services, there is often a lot of explanation required to help them understand why, for instance, they can’t submit their insurance appraisal to the IRS for gift tax purposes; or how the prices they saw on 1stdibs.com are completely unrelated to what they’ll get for selling the same piece; or that, as cute as their collection of beanie babies is, Christie’s isn’t interested, so they’re better off donating it.
So, for today’s blog post, I thought I would lay out a little Appraising 101, so now when someone ask me how I do what I do, I can just send them this convenient, comprehendible and fun (emphasis on fun!) article.
*Disclaimer*: reading this article does not qualify you to go out and start appraising property. For any occasion requiring an appraisal—insurance, divorce, donations, tax liability, collateral, etc.—you are encouraged (and usually required) to engage the services of a qualified, USPAP-compliant appraiser, with membership in a vetted, professional appraisers’ association (such as myself).
First – what is an appraisal?
An appraisal is an opinion of the value of an object, based on available market data of the same or similar objects. It is important to stress that an appraisal is an opinion: an educated—and hopefully substantiated—projection or estimation of value.
So Emily, what’s this worth?
Let’s say someone comes to me and says, Hey Emily, I have this artwork by Artie McArtyface. What’s it worth?
The answer is: it depends! Because objects have multiple values. Yes, that’s right: objects have various values, which are determined by the context and circumstances of the sale. The purpose of the appraisal determines what kind of value I use.
Below are some of the more common values appraisers use, and the purposes for which they are used. Now I promise, the definitions below are as dry and boring as my article will get. Note that these are simplified definitions, and there are exceptions; the determined value is on a case by case basis.
Retail/Replacement Value: Retail Replacement Value or Replacement Value (RV), is how much it costs to replace something by buying the same/similar piece in a retail setting (i.e. gallery, dealer, etc.). This value is most typically used for insurance inventory appraisals or damage/loss claims.
Fair Market Value (FMV): A sale between a willing buyer and willing seller, neither under compulsion to buy/sell, in the most appropriate market (i.e. auction value including buyer’s premium). This value is typically used for Estate tax liability, charitable donation, gift tax, equitable distribution (e.g. divorce), and other purposes.
Marketable Cash Value (MCV): The value realized, net of expenses, by a willing seller disposing of property in the most appropriate market (i.e. the fair market value, minus fees, etc.). For example: a seller sells a painting at auction, and it hammers at $50,000. The seller must pay a 10% commission to the auction house, plus the 1.5% insurance fee, a $250 photography fee, and $200 transportation fee. So the client nets $43,800 = MCV. MCV is often used in equitable distribution (e.g. divorce settlements) or collateral asset appraisals.
Liquidation Value (LV): The price realized in a sale situation under forced or limiting conditions and/or time restraints (i.e. seized asset sales, fire sales, etc.).
Salvage Value (SV): The value of an abandoned (usually damaged) property. Commonly, this value is what an insurance company might get for selling repossessed property, so it comes into play for damage and loss claims.
Back to Artie McArtyface…
So my prospective client clarifies that he wants to donate Artie McArtyface’s work to the National Museum of Cultural Heritage, and wants to submit an appraisal to the IRS to get a tax deduction for the value of the work. Now that I know the purpose of the appraisal, I know I will use the fair market value, and must research the artist’s auction market.
The first place to start with research is with the client and the object itself: where did the client get it? Did he buy it at auction, or a gallery? Or was it inherited from his parents? Does he have a sales receipt? Any previous appraisals conducted on the piece? Was it ever exhibited in a museum exhibition? Firsthand inspection of the work is preferable, but the IRS will accept review by photographs if necessary.
Sometimes a client will dig up a sales receipt—irrefutable proof that grandma spent $100,000 on the piece! And the sales receipt looks like this:
Attention! Atención! Beachtung! The market for art and antiques, like any other market, fluctuates over time (remember my beanie babies joke?). So, sadly, the price grandma paid for something in 1952 (or 1852) has no bearing on the current value of the work. A sales receipt from 1952 is helpful to understand the authenticity and provenance of an item—that is, its history of ownership. But value-wise, generally speaking the last 5 years of sales data are most relevant to an appraiser, particularly for auction records.
What determines or impacts value?
Once I know everything I need to know about my client’s piece, I need to do my market research. This means finding recent auction values for comparable works (colloquially abbreviated to “comps”) to my client’s artwork. To use a shorthand phrase, we’re looking for works in LKQ: “Like Kind and Quality.”
What factors do I have to consider when comparing works of art? What qualities of a work of art impact or determine its value?
Well, we can start with the obvious ones:
Yes, it does matter.
Originals, Multiples & Reproductions
Is the work a completely unique work, like a handpainted oil on canvas painting? Or is it a print, in which the artist used a printing press to make 50 copies of the same image? Or is it a print or poster after an original work of art—like when a museum sells prints or posters of its most famous painting? Of course, it would be a big mistake to use a Picasso poster as a comp for a signed Picasso print!
Not all subjects are created equal. Is it a landscape? A genre scene? A portrait? A universal truth of humans is that we’re horndogs: a nude portrait of a woman will sell better than that same woman with her clothes on.
An artist’s skill and style can change dramatically over a lifetime: their early work may not be as developed as their “mature” works; or perhaps their early work is figurative, which collectors prefer to their later works, after the artist pulled an “180” into abstraction.
Let’s say Artie McArtyface died in 2010 at the age of 90, and was making art right up until his death. In his old age, his hand was not as steady, and his X series from later in life does not have the bold strength and presence of the earlier Xs. Perhaps collectors prefer the Xs from the 1960s to the Xs from the 1990s and 2000s.
Any damage, or repaired damage? What’s the quality of the repair—was it Cecilia Giménez-ed? Or conserved by a trained professional?
The old adage “beauty is in the eye of the beholder” is only true to a point. Believe it or not, humankind has come to a consensus on the aesthetic appeal of certain colors and shapes, and how they’re arranged (also known as composition). How many people say their favorite color is blue? And how many people say their favorite color is poo brown? That’s what I thought.
That’s all to say that an artist will not make a museum-quality piece every time: there’s a range in the quality of the work, and the market prices will reflect the consensus on quality. The ability to analyze and compare the formal qualities of art or objects is honed over years of expertise and education—so again, make sure you’re hiring a qualified appraiser (such as myself).
The provenance, or history of ownership, of a work of art can have an impact on value. For instance, if a celebrity or person of historical importance owned something, it usually increases the value of the item.
Oftentimes there are gaps in the provenance for a work of art, as not everyone keeps sales records or receipts over decades, or even centuries. When an artwork has a solid and continuous provenance, that will give buyers more confidence that it’s authentic, and not stolen. By contrast, if a work of art has a gap in provenance from 1938–1949, for instance, that could be a red flag it was a Nazi-stolen artwork. Buyers will be less enthusiastic to spend the big bucks, in the event a rightful owner comes forward to claim it. Works that were known to be in the custody of the Nazis won’t be traded at all in the United States (at least at auction), because you can’t have clear title to something you don’t rightfully own.
Where in the World?
Unsurprisingly, items will sell best in the market where they have the largest concentration of interested collectors. So when researching comps and the appraised work, it is important to consider where the work is being sold, and at what market level (i.e. an international auction house? Regional auction house? Tag sale?).
Sometimes markets can be very niche: can you guess where California landscape painters’ work sells the best? That’s right—California! What would be a better market for selling a Picasso painting: at Christie’s New York, an internationally-recognized auction house with the marketing budget and connections to access the millionaire class that would bid on a Picasso? Or at a small regional auction house in Romania? (You’re so smart, I don’t need to tell you the answer…)
The “Bigger Picture”
Curveball: let’s say Artie McArtyface is world-renowned not for his Xs, but for his Os! What if he made Black X as a totally aberrant and wild experiment while flying high on peyote one night? It happens…
That’s all to say: you have to contextualize the artwork you’re appraising within the artist’s larger body of work. How did the artist develop and mature? What are they “known” for? Is scholarship changing on the artist? That is, are museums or curators “rediscovering” the Xs, and giving them more attention in public exhibitions or collections?
In addition to contextualizing within the artist’s career, I also take a look at the “bigger picture” of the artist’s market. Some art market databases to which I subscribe offer analytic charts and tools that allow you to examine the artist’s turnover, percentage of lots sold, average price ranges, etc. Very useful.
Comps for Black X
So I’ve researched Artie McArtyface’s auction records, and here are the most recent sales of Xs:
A Blue X from 1965 sold at Christie’s New York in May of 2016 (comp 1), just passing its pre-sale auction estimate of $30,000 – 50,000, to sell for $58,000. Both the client’s Black X and Blue X are from the same period, but formally speaking, the Blue X is more vibrant and visually appealing than the Black X.
The Checkered X (comp 2) came from the artist’s LSD-infused period of the early 1970s; although smaller in scale than Black X, the purple and yellow are satisfying contrasting colors, and create a lively visual rhythm that appeals to collectors. Thus, Checkered X outperformed its $15,000 – 20,000 estimate at Sotheby’s New York in May of 2018 to sell for $35,000.
Most recently, a Black X from later in the artist’s career was offered for auction at Sotheby’s, Paris in November 2018 (comp 3). Although the 2002 Black X exceeded its high estimate to ultimately sell for $36,000, the composition of the 2002 X is not as tight and controlled as the Xs from the 1960s and 1970s, and thus it is less appealing to collectors. Additionally, the work sold in Paris, which is not the artist’s best market; the artist’s work sells best in New York and London.
The above comps are useful, but still make it difficult to nail down a value for my client’s Black X; I’ll have to dig a little deeper. Ideally for an appraisal you want at least three comps that support your opinion of value; sometimes I’ll use four or five comps to substantiate the appraisal.
In May of 2015, Phillips auction house in New York offered a Blue X from 1967 (comp 4). The pre-sale estimate ($20,000 – 30,000) and the final selling price of $40,000 are both much lower than the Blue X that sold a year later at Christie’s ($30,000-50,000/$58,000). Did the market change that much in a year? Review of the condition report indicates that the Blue X at Phillips (comp 4) in fact had repaired breaks, thus the lower selling price. But a Blue X with condition issues may approximate the value of a Black X is good condition…
Finally, an auction result for a Black X similar to my client’s (comp 5)! Christie’s New York offered a Black X from 1966 in May 2014 with a pre-sale estimate of $20,000 – 30,000. It went on to sell for nearly double its high estimate, selling for $55,000. It is important to note the sale date of 2014: that year was an incredibly bullish year for the art market in general, and you can see the spike in the McArtyface’s sales chart above. That said, the McArtyface’s market has been on a continuous climb since 2015, and in 2018 the Museum of Modern Art put on a big retrospective exhibition of his work, which should benefit his market. And don’t be fooled by the dip between 2018 and 2019—it’s only August! With the fall sales still ahead of us in 2019, the turnover for the 2019 will probably be on par with—or better than—2017 and 2018.
Fair Market Value
Given the available market data, an appropriate fair market value for my client’s Black X by Artie McArtyface as of the date of my inspection is $50,000. And voilà, my appraisal allows my client to justify a $50,000 deduction from his taxable income for the year.
And that, my friends, is how you appraise a work of art.