However, we would caution that the spirit of thrift should not embrace the meat cleaver approach. Lopping off an arbitrary percentage of values that may add up to hundreds of thousands of dollars in lost coverage to save a few hundred dollars in insurance premiums is ill-advised. Rather, a delicate surgical approach is required.
First, not all collecting categories are in a correction. Second, even if there are declines, they have not contracted at the same rate or to the same degree.
Moreover, one should not lose sight of the fact that a price correction does not mean worthless. As Steve Pincus, Managing Director, DeWitt Stern Insurance and Risk Advisory, New York, observed,
For galleries, that may mean trade show containment, reduced inventory, or a credit for good loss experience.
Locating Price Information
Art owners need accurate and reliable price information in order to make wise and timely decisions. In the post-boom market there are two emerging trends.
One is that sales are moving from public to private arenas. Anyone with the slightest bit of discretion, both in the sense of option to sell and with a desire for privacy, is not keen to put good works of art up for sale in public at the time when price guarantees have evaporated and risk of failure is real.
In valuing works of art in this sort of climate, if one were to examine only auction price data, it might reflect fewer lots of property and sales by distressed sellers or shopped around property, none of which may be relevant to the subject works being valued. Lackluster property does not encourage blockbuster prices. Still, estate property consignments will be more sought after than ever because they typically represent property fresh to the market and that is considered desirable.
Dealers and galleries have redefined the public/private market boundaries in recent years though the proliferation of art fairs. The publicity and attention they attract have generated a hybrid space where art fairs straddle the line between public and private sales. We like this option because it enables clients to test the market in a semi-public semi-private space where disappointment is recorded only on people’s eyeballs, not on the Internet where images and price records permanently acknowledge failure for all to see. For the purposes of price research, it is important to research art fair gallery sales as another extension of the public market, and these prices should be included in one’s value results, when appropriate.
The most recent Art Basel Miami Beach in 2008 confirmed a second trend that is newer than the art that was on view: power is decisively shifting away from hot artists and bold-faced galleries back to collectors with cash and a willingness to spend it.
Just as bidding in the front row of the auction room may be regarded as poor form for a CEO whose company faces publicly announced layoffs, buying at an art fair has become too public for comfort. Wandering amidst friends, colleagues and the watchful eyes of the press from aisle to aisle is a diminished thrill. Deals are happening offstage and out of the public eye.
Further, with the certainty of “selling out” the entire booth now gone, dealers are no longer keen on meeting tourists and tire-kickers. They must decide which pieces they are willing to risk showing in public, and to contain costs they are being much more selective about fair participation.
For an industry notorious for operating behind closed doors, finding relevant price information becomes more difficult when sales take place in private. This makes it more complicated for attorneys, too.
With even less price transparency than before, the art and science of valuation become more technical and arcane. Formulae, rules of thumb, online price records and Web sites claiming to track and index the public art market may capture data points but probably will not provide clients and their attorneys with adequately nuanced information that is reliable, actionable, and current.
Other tactics that worked during the boom, such as free appraisals from galleries and auction houses performed as a courtesy for important clients and their collections, in our experience, do not measure up in times like this. They provide information too limited in scope and applicability to be useful to achieve the optimal outcome for the legal purposes our clients seek to achieve. Like a doctor who may prescribe a combination of medicines at various dosage levels to fight an infection, a good valuation report must be able to deploy a range of methodologies in order to zero in on an accurate value for the purpose at hand in a specified market at a particular point in time.
When faced with making a decision about whether to keep, restore, sell, donate or bequeath a work of art, utilizing the last three auction prices and calling it a day is not likely to be of much help, particularly if the shared characteristics of the subject work and the price records include little more than authorship and size. Without interpretation and qualification, a recent auction record provides little more information than that on a certain day, at a certain time, in a certain place, someone paid a certain amount of money for a work of art described as by somebody.
Even if attorneys have been satisfied with a firm’s work product in the past, in order to avoid surprises, now is the time to inquire in advance about work practices and research, not just fees. Ask about the state of the market for the subject works to be valued and drill into more technical matters, such as contemplated methodology and approach to establishing values in a fast moving marketplace. An appraisal is a snapshot in time so clarity about stipulated dates has never been more crucial.
Engaging an independent consultant to review an auction house or other appraisal for a second opinion can have a valuable benefit for both attorney and client. Clients of ours who have their own sense of what their objects are worth tell us how surprised they were when a document was handed over with values of 25-75 percent less than what they expected. On the other hand, colleagues have mentioned that clients forget or fail to share relevant, indeed crucial information, such as a unique provenance or scholarly opinion that would have markedly changed the appraised value. A second opinion can highlight a discrepancy or inaccurate value.
Alas, the client may not always be available or even alive, but if possible, when we are engaged to do a valuation or provide a second opinion, we always request a meeting with the principal decision maker. Once, an executor and heir handed us a brown paper grocery bag she discovered in the back of a bedroom closet while cleaning up. It contained a jumble of over 50 purchase invoices, dating back to the 1950s and ’60s, on the letterheads of famous galleries, many no longer in business. Not only did these papers establish the attribution, date of acquisition and cost basis for each item but together they illustrated the deceased’s special personality as a collector, which added nuance to our appraisal report.
We gather exactly this sort of personal information that is often overlooked but proves to be highly relevant to the valuation. Attorneys and advisors like to act as gatekeepers to their clients, which is understandable, but can be counterproductive. Dissatisfied clients and unsatisfactory results can often be avoided by facilitating contact and providing as much information as possible. It usually saves time and money, and everyone agrees that is a good thing in today’s economy.
The Bottom Line
In up or down markets attorneys are primarily interested in the bottom line.
The number on the bottom of the cover page gets plugged into a variety of calculations, the results of which produce consequences for clients. Recognizing the illiquidity of art, even of a masterpiece, we always say it is better to sell when you don’t need the money.
Similarly, now is an excellent time to research the value of an art collection. For most people, the details of the valuation process combine the suspense of a lecture on accounting with the sleight of hand of a magician pulling a rabbit out of a hat. Reports may not spell out every step or aspect of research undertaken, but it certainly gives report users more confidence in the values when they are able to follow the reasoning and/or formulae applied to document the findings.
People of good will may disagree about values, but right now, more than ever before, the numbers and the reasoning behind them matter. Good arguments will make the difference between what is accepted by reviewers as fair and reasonable based upon the use of appropriate comparables, and what is rejected as vague or unsupported. Good numbers will help attorneys serve their clients’ best interests.
Beverly Schreiber Jacoby is president of BSJ Fine Art, an independent consulting and appraisal company specializing in art advisory, collections management and valuation services. She can be reached at [email protected]
Endnotes:
1. See Beverly Schreiber Jacoby, “Here Comes the Future,” New York Law Journal, Asset Valuation special section, April 30, 2007, at p. S2.
