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Art Values: Appraisal and Valuation for Legal Reasons
Disclaimer: This article is not to be construed as legal advice. If you have a legal question, consult an attorney.
Appraising or assessing the value of works of art is necessary in a variety circumstances, many of them legal. The most common valuations for legal reasons are those performed for tax purposes where art is either donated or is part of an estate. Insurance claims or lawsuits arising over art that is lost, stolen, damaged or destroyed also require professional valuations. A less common instance where art appraisals are necessary is when a seller deliberately misrepresents art to a buyer, and the buyer seeks a full refund and/or damages based on what was paid for the art.
With any art appraisal, the greater the number of documented sales records that exist for an artist, the more straightforward that artist's art is to value. For example, tens of thousands of works of art by famous artists like Picasso, Chagall, and Warhol have sold at auctions over the years and these sales are matters of public record. In all, millions of auction sales of art by artists of all time periods and all nationalities are documented matters of public record. These sales results are available directly from auction houses as well as from companies that maintain large art price databases and charge access fees to users. Art sales at retail galleries are not generally matters of public record and may be provided by gallery owners on a case-by-case basis.
Qualified appraisers generally have little difficulty appraising art by established artists who are either well along in their careers or who are no longer living. Established artists tend to have large numbers of documented sales, both at auctions and through galleries, and valuing their art is usually no more complicated than locating recent selling prices for art similar to the art that needs to be appraised, and using those dollar amounts for the appraisals. Valuing a work of art based on recent selling prices for similar works of art is considered sound evidence of current fair market value in the overwhelming majority of legal situations.
The less established an artist, the less art an artist has sold, the younger an artist is, or the fewer documented sales that exist for art similar to art that needs to be valued, the more complicated the appraisal process becomes. More in-depth research may be necessary in order to assess values, a variety of factors may have bearing on final valuations, and supporting final valuations may require more in the way of explanation than simply citing prices of recently sold works of art. The important point to keep in mind is that any work of art can be appraised, regardless of the artist, and that value can be supported with facts about the artist combined with facts about the art market in general.
Suppose, for example, that a young artist makes an insurance claim for ten paintings that are destroyed as the result of a fire in the building where he maintains his studio. Suppose also that the artist has made few sales during the course of his career, none for paintings as large as those that were destroyed. His sales consist almost entirely of small paintings that sold for several hundred dollars each. The artist claims that the ten paintings, because they were so large, were worth $5,000 each.
To begin with, an artist is not necessarily the best resource for valuing his art. Price information directly from the artist is essential to consider when appraising that artist's work, but since virtually every artist wants his art to be worth as much as possible, an objective value assessment from a non-conflicted appraiser is also advisable, if not required. The appraiser must strike a balance between how the artist values his art and how the art community values that art.
In our fire example, the paintings may be worth $5,000 each to the artist, but that figure is not necessarily what they're worth on the open market. Even if the paintings were for sale for $5,000 each before they were destroyed, that is still not adequate proof of their fair market value. In order for them to be worth that amount of money, they must either be selling at those prices, or the artist (or appraiser) must demonstrate that comparable paintings regularly sell for comparable dollar amounts in typical art selling situations such as at galleries, art shows, or through agents or representatives.
Furthermore, no sales that the artist has made, regardless of dollar amount, can be considered as conclusive evidence of his art's value IF buyers are in any way related to the artist, or are conflicted, pressured, inclined, or otherwise self-interested in seeing the artist's art sell for as much money as possible. The only sales that have bearing on the fair market value of the destroyed art are those made to non-conflicted buyers in typical situations where art is for sale, preferably by a variety of artists, where those buyers have a variety of options in terms of what art or artists they ultimately decide to buy, and how much they pay for it.
In this young artist's case, because he has sold no paintings comparable to those that were destroyed, that art most likely has to be appraised according to facts about the art market in general in combination with facts about the artist. A qualified appraiser should study selling prices for works of art in this artist's local art market that are similar in size, medium, subject matter, quality, and other particulars, and that are produced by artists similar in age, credentials, and accomplishments to the artist in question. These selling prices would more likely reflect the fair market value of the artist's art than the artist's retail selling prices or personal opinion of what his art is worth. If, for example, comparable art by similar artists regularly sells on the local art market for between $1000 and $1500 per painting, then those dollar values may be used to value the destroyed art.
When art is merely damaged, not lost or destroyed, in addition to having the art appraised, a qualified fine art conservator must consider its condition. Continuing with the building fire example, if the art is only smoke damaged and can be returned to its original pre-fire condition with a professional cleaning, then the damage claimed should be equal to either the value of the art or the cost of the restoration, whichever is less. If the art cannot be restored to its pre-fire condition, or can only be restored at a cost greater than the value of the art itself, then the damage claim should equal the fair market value of the art. Lastly, if the art can be restored, but it's value when restored is diminished over what it would have been worth in perfect condition, then the damage claim should be equal to either the cost of restoration plus the dollar amount that value is diminished, or to the total value of the art in perfect condition, whichever is less.
In cases where substantial losses occur, on the order of twenty percent or greater of an artist's total output, the value of all works of art remaining in the artist's possession or estate may also be affected. For example, when an artist is established and highly salable, the loss of a substantial percentage of the total body of work would likely increase the values of any surviving works (demand remains the same or even increases, but supply is reduced). However, when an artist is less established, a substantial loss of body of work can reduce the values of the remaining pieces. The reason is that the less art an artist has for sale, the less the total profit potential for marketing that art, and, therefore, the less inclined a dealer, gallery, agent, or consultant is to represent the artist. For instance, a gallery would not be likely to show a less established artist who has only three works of art available for sale. In general, the less art a minor artist has for sale, the more difficult that art is to sell, and the less money it eventually sells for.
Depending on the quality of the art that is lost or destroyed, an appraiser may also have to consider a certain coattail effect where the best art by an artist positively impacts the values of all of that artist's art. In other words, the best art helps to sell the not-so-best art. When an artist loses many or all of the best, most important examples of his art, values of the remaining pieces may be diminished below what they would have been had the best art not been lost or destroyed.
Suppose that an artist suffering loss or damage of art sells little, but instead receives income from commissions, grants, teaching, inheritance, or non-art related employment? The art may be for sale, but not currently be selling; the artist may not have the time to seek out gallery representation; the artist may not be interested in selling, and so on. Whatever the case, the appraiser's job is to piece together as much information as possible relating directly to the value of the art.
In addition to what limited sales data exists, this information would include types and amounts of grants that the artist has received, shows the artist has participated in, prizes or awards that the artist has won, news coverage or reviews mentioning the artist, and any other career accomplishments or distinctions relating directly to the artist's art. The appraiser must take this data and construct what almost amounts to a hypothetical market for the artist. Fair market values for art by the artist in question would then most likely approximate selling prices for similar works of art by artists from the same geographical region with similar career credentials, but with more documented sales histories.
Even when an artist has never sold a single work of art, has no current market for her art, and no career credentials, art that is lost, damaged or destroyed may still have value. In these rare cases, the opinion of an expert with a critical eye such as a dealer, art consultant, or curator may be necessary, in addition to that of an appraiser, to establish whether the art has value. Previously unknown artists are "discovered" from time to time, their art is determined to have merit and value and, once it is exposed to the public in gallery settings, strong markets, collector bases, and selling prices evolve. Do not assume that a work of art is worthless simply because the artist has never sold a work of art.
In all cases where art must be valued for legal reasons, regardless of whether you believe you know how much that art is worth, enlisting the services of a qualified appraiser and/or additional fine arts professionals as required is highly advisable. Determining art values and evaluating art business transactions are complex processes that take years for fine art specialists and professionals to learn, understand, and apply to real life situations. These professionals make sure that you are aware of the full financial implications whenever art and money come together in your life.