The Thorny Problem of Appraising Works by Living Artists
by Joan Seifried, M.A., ISA CAPP Angel Appraisers
In this article I would like to offer some insights on appraising works by those artists who are active in the marketplace; either through gallery representation, personal representation or at auction. Artists in each of these marketplaces offer a whole new set of challenges. I will also address the finer points of writing an appraisal for insurance purposes and charitable contribution appraisal, especially in these days post Pension Protection Act of 2006, As a whole, we are looking at volatility and confusion increased to by artists who are sometimes unaware of paper record keeping of sales. I have actually created sales spreadsheets from marked up cocktail napkins!
It is sometimes difficult for the appraiser to ascertain which market to go to for values. As an example, I recently appraised an artist’s oeuvre for an estate appraisal where the date of death (valuation date or sometimes called effective date) was January 2005. Since that date the artist’s trajectory in this mercurial art world had not been tracked and there had been studio sales to major New York gallery representation and auction room stardom. When I phoned his gallery in New York for this artist’s values in 2005, they gave me what sounded like an over-inflated value, close to present gallery prices. Of course, there’s a reason for this. The gallery wants to keep up the “price structure” of their artists.
When I asked if they minded if I called the artist directly, they hung up the phone on me, perhaps not knowing if I am an undercover buyer posing as an appraiser. I have sometimes found galleries cleverly sabotage artist’s old web sites and contact information for the artists in their stable, just because of the possibility of a client purchasing a work from the artist directly without the gallery mark-up. So sometimes finding the price is pert-near impossible. But don’t despair, we are a devious bunch. One particular artist I was researching loved the work of his former teacher, and always attended the former teacher’s lectures and openings. So I went online to LACMA’s chat room and found him blogging about his friend and teacher before his friend’s opening. I got his number
We are charged with considering in Federal Tax Purpose cases, relevant sales before and after the valuation/effective date. This has impact on an artist who is reaching first big stardom. Artists can jump from gallery to gallery in search of top representation. You might have to beg the present gallery owner to talk about his competition (the previous representation for the artist).When you get in touch with that gallery, they often say “we no longer represent X”; why should they spend time on an artist they no longer represent? They don’t know and don’t have the time to learn about appraisal practices. Their job is to sell.
My work in Southern California revolves around the San Diego/ Los Angeles gallery scene. I keep detailed records of who shows where and have big files where I cram every gallery card and show opening brochure. These are worthless unless I have an estate appraisal within a few years of the effective date. Why? Volatility. Things change fast in the contemporary art world. I can identify a few factors, which account for the blinding speed of change in the art world today.
- The astounding prices paid at auctions for artists’ works that are under 50 years old. Even ArtPrice speaks of contemporary art sales in terms of “sales turnover of artists born after 1945,” not style, or theme, but the age of the artist. Auctions fuel price changes and price are volatile in auctions.
- The hip new phenomenon of “open-street” exposure. The whole street erupts in an art event when you get a block of galleries – bars – coffee houses together. Downtrodden sections of modern cities are renovated by the artists. The galleries follow but this is a movable feast, as areas become “artist gentrified” and then too expensive for the artists. The artist move on and can be lost to appraisers. Downtown San Diego is an example and Ray Street in North Park and the East Village Art scene are up and coming.
- The amazing growth of the Art Fair, which has become a center for the emergence of art, is full of raves and celebrity attractions. Art Fairs are now sponsored by such prestigious commercial powerhouses as USB and Bvlgari as large corporations see the obvious market niche.
- Artists as celebrity brings in the “It” factor aided by fairs where artists like Jeff Koons seems to have been born over night. How does this happen? A combination of a major collector, the right artistic Bohemian attitude, and powerful friends has to be present for “cool” to be born. What about talent, you may ask? Oh yes talent, too, and sometimes vision.
- The new “uber-inventive” marketing tool just recently undertaken by Christies and Sotheby’s is to actually represent a living artist, much in the manner of a high-end gallery, and sell this artist’s work at retail through their outlets, as well as on the secondary market at their auctions. This is the next big star maker machine in our world, just watch.
So we have five “speed of light” developments that force us appraisers of works by living artists to remain constantly busy, persistently on a working art vacation. Now let’s talk about an artist’s involvement in the appraisal process. We all know artists are not accountants and office managers. So when you track an artist you may get surprising fluctuation in prices paid. For example:
- An artist sells works at different prices i.e. two at $20k and one to a particularly young and pretty girl at $5k, then another to his brother-in-law for $7500. For emerging artists, all these markets are indeed his market. So what do you write as far as replacement cost to the insurance company?
- An artist sells through a gallery on consignment at a 40/60 split. He also sells works from his own studio for more than what the 60% gets him from the gallery. What is the most common market for this artist? Value is to be determined in the market where such items are most commonly sold to the public – and here we see two markets are both “common” for this artist. Knowing that fair market value is the value received on and not retained from the sale is part of the answer, but not the whole answer.
- What do you do when an artist sells almost exclusively on the secondary market after they has reached a relative zenith and doesn’t create new works? Add to this question that this artist is not “top tier.” This artist is a semi-star so he doesn’t have consistent auction prices paid. Prices fluctuate widely based on who wants his work in the auction crowd that day. This artist’s work will appear to have lower value than say a “lower tier” artist who sells only at a gallery and that is his most “common” market. Moreover, we need as appraisers to hearken to E/O Robert Scull v. Commissioner TC Memo 1994-211 that states auction estimates are not a good valuation technique, and the buyer’s premium must be included in using auction prices.
- More fluctuations in prices occur when prices cannot be verified by the artist. A gallery owner who was also a collector asked me to appraise his own collection. The gallery owner says to me “don’t call artists because artists don’t like to talk to strangers”, which is often true.” But an appraiser has to absolutely sure of prices for charitable contribution purposes. The appraiser has to sign the appraisal in full view of the office of Art Appraisal Services and the Commissioner’s Art Advisory Panel (IRS). Do you trust the client or do you put on the appraisal, “values established by the client” which is likely to be challenged by the IRS.
- Now to the charity auctions sale which for emerging artists is a way to get out there in the marketplace (sometimes the only way at first). If that is the emerging artist’s only market, do you rely on those wildly fluctuating prices paid? Here in Southern California I know at least ten career charity auction artists. Charity auctions also don’t necessarily have premiums. And the records are hard to find and substantiate.
I hope I have confused you thoroughly by now and given you all reason to email me or debate me with or dare I say it send criticism to me. The good news about appraising works by living artists is that, as a group, artists are usually curious. They usually need help with understanding the road map of the art business. I have also found myself doing Excel spreadsheets for sales records for artists and being taken out to the local beer joint as a way of thanks. True experience is always the best aid I have in most of theses cases. And if the perk is beer, so be it.
by Joan Seifried, M.A., ISA CAPP Angel Appraisers Tel: 619.995.7015
Read Joan Seifreid on Pricing Art and FAQ Appaising Art
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