Art valuation

An art auction at Christies
An art curator, Anne Pontégnie
An art collector
An art opening
An art dealer
An art exhibition
An art gallery
An art studio visit

Art valuation, an art-specific subset of financial valuation, is the process of estimating the potential market value of works of art and as such is more of a financial rather than an aesthetic concern, however, subjective views of cultural value play a part as well. Art valuation involves comparing data from multiple sources such as art auction houses, private and corporate collectors, curators, art dealer activities, gallerists (gallery owners), experienced consultants, and specialized market analysts to arrive at a value. Art valuation is accomplished not only for collection, investment, divestment, and financing purposes, but as part of estate valuations, for charitable contributions, for tax planning, insurance, and loan collateral purposes. This article deals with the valuation of works of fine art, especially contemporary art, at the top end of the international market, but similar principles apply to the valuation of less expensive art and antiques.

Historic valuation and contemporary art

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.[1][2] 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.[3][4] One of many artists to follow Warhol is Jeff Koons, a stockbroker turned artist who also borrowed imagery from popular culture and made millions.[5][6]

For collectors, the emotional connection felt toward a work or collection creates subjective personal value.[7] 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.[8]

The art market economic model

The art market operates in an economic model that considers more than supply and demand: it is a hybrid type of prediction market where art is bought and sold for values based not only on a work's perceived cultural value, but on both its past monetary value as well as its predicted future value. The market has been described as one where producers don't make work primarily for sale, where buyers often have no idea of the value of what they buy, and where middlemen routinely claim reimbursement for sales of things they've never seen to buyers they've never dealt with.[9]

Market size

Unlike the volumes in the securities market where millions of people and firms participate in buying and selling financial interests, or the commodities market where measures of raw or primary products are exchanged using standardized contracts, art market activity largely follows the demands of a more limited array of private collectors, museums, and large corporate interests as the principal market participants.[10] Corporate collectors, however, can have a disparately large market impact, for instance, Spear's reported in 2015 that British Rail began investing in art for its pension fund beginning in 1974 (prior to privatization), spending about £40M or approximately 3% of its funds on art, before selling those assets between 19871999.[11] Also, because original artworks are not fungible like stocks, they have valuation challenges not similarly affecting securities.[12]

Thus, because the art market's participants are far more limited in number than the securities or commodities markets, because artworks are not fungible, and because art valuation relies to a great extent on the advice and enthusiasm of a variety of specialized market analysts, these limitations each in turn dictate the size of the market and increase the risk that some items may be over or undervalued.

Market timing

The art market moves in cycles with activity generally peaking in the spring and autumn when the major auction houses traditionally schedule auctions, and results in the market being seasonal rather than ongoing.[13] While private sales take place all year, those sales are often not publicized as auctions are and thus do not affect the market until they become known.

Art valuations made for an autumn auction may be unrealistic for the following spring auction season because fortunes in the financial markets during one season can affect the art market in the following season. Volatility in the financial markets often causes volatility in the art market as happened in the contraction of the art market during the 2008-2009 recession[14] when sales at Sotheby's, Christie's, and Phillips de Pury & Company were less than half the previous year: November 2008, $803.3 million compared to November 2007, $1.75 billion; and between 2000 and 2003 when the annual volume of art works sold at auction dropped 36%.[13][15] In other instances, the art market can fare reasonably well despite volatility in the stock market such as happened from January 1997 through May 2004 when the average quarterly fluctuation in the Artprice Global Index was two to three times smaller than the same statistic for the Dow Jones Industrial Average and the S&P 500.[13]

As art market participants' fortunes wax and wane in the financial markets, buying power evolves and affects participants' ability to afford highly valued works, resulting in new buyers and sellers entering, leaving, or re-entering the market, and an artwork sold to offset losses in the financial market might be sold for substantially more or substantially less than its last hammer value at auction.[16] In the late 1980s during the stock-market boom, the art market expanded in turn with prices soaring to new heights, and investment firms took a greater interest in the art market and began to study it in-depth.[17][18] Concurrently, the previously non-transparent art market became more accessible via the increasing availability of indices and online data[8] although researchers discovered biased price estimates in the auction houses.[19]

Art sometimes has transient fashionability that also can affect its value: what sells well for a time may be supplanted in the market by new styles and ideas in short order. For instance, in the spring of 2008 a collector offered over $80 million for Jeff Koons' stainless-steel Rabbit, and yet a year later, of four works in the fall auctions at Christie's and Sotheby's in New York, only two of his pieces sold well and one failed to sell entirely.[6] In 2011, Christie's sold Koons' Balloon Flower sculpture for $16.9 million.[20]

Primary and secondary markets

The art market as a whole is affected by its two main parts: the primary art market, where new art comes to the market for the first time, and the secondary market, for existing art that has been sold at least once before. Once a work is sold on the primary market it enters the secondary market, and the prices for which it sold in the primary market have a direct bearing on the work's value in the secondary market. Supply and demand affect the secondary market more than the primary market because works new to the market, mainly contemporary art, have no market history for predictive analysis and thus valuation of such work is more difficult, and more speculative.[21] Gallery, dealer, consultant, and agent promotion as well as collectors acting as alpha consumers (trend-setters) are the forces at work in valuing primary market works.

Market entry barriers

As with blue-chip stocks, works by "blue-chip" or well-known artists are generally valued more highly than works by unknown artists since it is hard to predict how an unknown artist's work will sell, or whether it will sell at all. High barriers to market entry for artists[2][22] create scarcity in the supply and demand portion of the market, in turn driving up prices and raising questions of efficiency.[23][24] While a high market entry barrier may result in having a smaller pool of artwork producers in the auction-level portion of the market, and in greater market predictability by virtue of that smaller pool and thus more reliable valuation measures, its axiomatic effect is of lesser artistic diversity negatively impacting the size of the buyer pool.[25] For this reason, gallerists and art dealers consider what types of works are currently in vogue before deciding to represent a new artist and are highly selective in those choices in order to maintain a level of quality that is saleable. All these concerns are in play when gallerists set prices for emerging artists at a much lower level than for established artists.

Market transparency

With the 2007–2012 global financial crisis, the art market faced criticism for its lack of transparency, its Byzantine valuation methods, and a perceived lack of ethical behavior enabled by structural inadequacies in the market itself. In response, a 2009 debate occurred between valuation-setting members of the art market on the proposition that "the art market is less ethical than the stock market". At the end of the debate the audience determined that those debating in agreement with the proposition won the debate.[26] Of particular note in the debate was the identification of "chandelier bidding" as a practice perceived as ethically questionable. The debaters described "chandelier bidding" as bids from the chandelier, or bids from an unknown source, meaning both the bidding by the auction houses on behalf of the sellers whose items the houses are auctioning (a conflict of interest), and bidding by unidentified bidders having no intention of buying but bidding in order to drive prices up, all practiced because the auction houses keep secret from bidders a seller's reserve price.

In 2011, also in response to criticism on the lack of market transparency and counterarguments that more transparency would ruin the market,[27] The Art Newspaper in association with the Art Dealers Association of America convened an Art Industry Summit panel discussion between major art market decision makers, where panelists discussed whether there was a need for more transparency.[28] The panelists argued over whether auction houses have built-in conflicts of interest by representing sellers with secret reserves, while at the same time representing to buyers initial valuations on those works at auction time. The debate also included the issue of first and third-party guaranteed bids, and whether sellers' reserve prices should be disclosed so that participants no longer bid on an object they have no chance of buying. In response to criticisms regarding chandelier bidding and unidentified third-party guaranteed bids, Christie's International chairman Edward Dolman countered that, without a secret reserve, illegal cartels of bidders would know in advance information that could facilitate their manipulation of the market and corruption of final valuation by selling price at auction.[29]

With the art market's weaknesses (especially lack of transparency and conflicts of interests) becoming better known, serious external conversations about market regulation have begun among major market players; for example, The Financial Times noted that in early 2015, participants at the January World Economic Forum meeting attended a lunch seminar where the speaker warned that the global art market needs to be regulated because of systemic weaknesses which enable inside information trading, tax evasion, and money laundering.[30]

Valuing Art

An art fair

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.[31] 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.[32]

Market demand

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.[7] 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.[8] 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.[33] 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.[33] 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.[33] 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.[33]

Valuation trends

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.[34][35] 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.[35][36]

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.

Participant activity

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.[37][38]

Research data

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.[39] There are also companies such as ArtTactic utilizing art auction data as providers of art market research analysis.[40] Information available from internet-based art sale history databases generally does not include the condition of a work, a very important factor,[7] therefore the prices quoted in those databases reflect auction hammer price 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.[8]

General valuation factors

Valuation estimates are 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,[41] 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.

Also factored into a valuation are the seller's reasons for selling a particular work and 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.[42] 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.[43]

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

Valuation for tax and other law-related purposes

In the United States, art bought and sold by collectors is treated as a capital asset for tax purposes,[44] 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.

Important U.S. cases

  • Crispo Gallery v. Commissioner (need to produce credible documentary evidence of valuation as taxpayer has ultimate burden of persuasion),[45]
  • Angell v. Commissioner (fraud perpetuated upon the IRS through inflated appraisals),[46]
  • Drummond v. Commissioner (cannot claim gain from art sale as income from business unless actually in the business),[47]
  • Estate of Querbach v. A & B Appraisal Serv. (appraiser's liability for misidentifying a painting),[48]
  • 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),[49]
  • 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),[50]
  • Williford v. Commissioner (the Williford Factors test: eight factors to determine whether property is held for investment or held for sale).[51]

See also


  1. 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.
  2. 1 2 Jeffri, Joan, Philanthropy and the American artist: A historical overview, The European Journal of Cultural Policy, 3(2), 2009, pp. 207-233.
  3. Kuspit, Donald, Art Values or Money Values?,, 2007-03-06.
  4. 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.
  5. Littlejohn, David, Who is Jeff Koons and Why Are People Saying Such Terrible Things About Him? Artnews, April 1993, p. 94.
  6. 1 2 Inflatable investments, The volatile art of Jeff Koons, The Economist, 2009-11-28.
  7. 1 2 3 How to Value Art,, retrieved 2011-11-21.
  8. 1 2 3 4 Campbell, R.A.J., Art as a Financial Investment, Erasmus Univ., Rotterdam, Maastricht Univ., 2007.
  9. Plattner, Stuart, A Most Ingenious Paradox: The Market for Contemporary Fine Art, American Anthropologist 100(2):482-493, 1998.
  10. The art market sees itself as a microcosm: it lists its collectors in the hundreds, as opposed to the securities market which has millions of participants. ARTnews: The Top Ten Archived October 16, 2009, at the Wayback Machine., The ARTnews 200 Top Collectors Archived October 16, 2009, at the Wayback Machine.. One art writer, however, answered the question: "Do you see the art world as a microcosm of other broader, power communities?" with the following observation: "I'm not sure if it's a microcosm or the shape of things to come. Its manic internationalism...." Insider Art, V Magazine, 2008-11-12, Accessed 2012-6-20.
  11. Lindsay, Ivan, Go Figure, Spear's,, 21 January 2011; free archived version. Accessed 2015-11-17. The article also mentions that British Rail Pension realized an annualized return of 11.3%, but because of a number of factors particular to the market at the time.
  12. Baumol, William J., Unnatural Value: Or Art Investment as Floating Crap Game Archived April 25, 2012, at the Wayback Machine., The American Economic Review, 76:2 (May, 1986), pp. 10-14, Papers and Proceedings of the Ninety-Eighth Annual Meeting of the American Economic Association,; Journal of Arts Management and Law (now The Journal of Arts Management, Law, and Society), 15:3, 1985, pp. 47-60. doi:10.1080/07335113.1985.9942162.
  13. 1 2 3 Art Market Cycles,, retrieved 2011-11-20.
  14. For more on the economic background causing the market contraction, see also the 2008–2009 Keynesian resurgence.
  15. Esterow, How to Buy in 2009 Archived October 15, 2009, at the Wayback Machine., ARTnews, March 2009.
  16. Gerber, Manuel, Primary Art Market Investments - A Safe Haven when All Else Suddenly Correlates?, Prime Art Management Ltd., published in Art Fund Tracker, Nov. 2008.
  17. Campbell, The Art of Portfolio Diversification, Maastricht University, March 2004. (art as an asset class)
  18. Goetzmann, William N., Accounting for Taste: Art and the Financial Markets Over Three Centuries, The American Economic Review, 83(5), Dec. 1993, pp. 1370-1376.
  19. Mei, J. and Moses, M., Vested Interest and Biased Price Estimates: Evidence from an Auction Market, The Journal of Finance, 60(5), 2005, pp. 2409-2435.
  20. Christie's, Auction result, Sale 2355 / Lot 23,, retrieved 2011-11-21.
  21. Gerard and Louis, On pricing the priceless: Comments on the economics of the visual art market, European Economic Review, Elsevier, vol. 39(3-4), April 1995, pp. 509-518. (membership required).
  22. Jackson, M.R., et al, Investing in Creativity: A study of the support structure for US artists, The Journal of Arts Management, Law, and Society, 2004. PDF from Urban Institute,
  23. Bonus, H., Ronte, D., Credibility and economic value in the visual arts, Journal of Cultural Economics 21, 1997 103–118.
  24. Adler, M., Stardom and Talent, in Handbook of the Economics of Art and Culture, Vol. 1, Chap. 25, 2006, pp. 895-906.
  25. Schönfeld and Reinstaller, The effects of gallery and artist reputation on prices in the primary market for art, Working Paper, Department of Economics, Vienna University of Economics & B.A., May 2005.
  26. Saltz, Jerry, Morality Play,, 2009-03-06, discussing the debate and its outcome. Participants included art dealers Richard Feigen and Michael Hue-Williams, collector Adam Lindemann on the "pro" side, and artist Chuck Close, critic Jerry Saltz, and auctioneer Amy Cappellazzo opposing. The debate video is available on YouTube.
  27. Art Dealers Association of America (ADAA), Art Industry Summit Archived December 16, 2011, at the Wayback Machine., Transparency in the market: can we have more of it?, 2011-03-03.
  28. ADAA and The Art Newspaper, Transparency in the market...can we have more of it?, videos Part 1, Part 2, and Part 3, Host Anna Somers Cocks, The Art Newpapaper, 2011-03-11.
  29. ADAA, video 3 at 22:05 min, et seq..
  30. Gapper, John, Art world’s shady dealings under scrutiny at Davos, The Financial Times, January 22, 2015. Accessed 2015-11-17.
  31. See's Market Trends FAQ.
  32. Kendzulak, Susan, definition of "Bought-In", See also: Buying in, Accessed 2012-6-20.
  33. 1 2 3 4 Armstrong, Ken, The art of divorce: She gets the Monet, he gets the Renoir Archived July 31, 2012, at the Wayback Machine., Local News | The Seattle Times,, 2012-7-28. Accessed 2012-7-30.
  34. Higgs, H. and Worthington, A., 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
  35. 1 2 Worthington, AC and Higgs, H, 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.
  36. Kendzulak, Susan, Top 11 Fine Art Auction Houses, 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)
  37. Castlestone Management, Major Structural Themes Influencing the Art Market, April 2009.
  38. Thornton, Sarah, The reinvention of artist Damien Hirst, The Sunday Times, 2009-10-04, Retrieved 2011-11-23.
  39. For an example see's sample report: Market Performance Report for Piet Mondian.
  40. For example, arttactic's monthly Rawfacts newsletter Archived July 8, 2009, at the Wayback Machine..
  41. de Pury, Simon, FAQ #13.
  42. Cornish, Audie, Wealthy Use Art Collections As Way To A Better Loan, NPR,, 2012-10-3. Accessed 2013-1-29.
  43. Why A Dead Shark Costs $12 Million, NPR,, 2010-06-25. Accessed 2010-07-27. Archived from the original at
  44. Capital asset defined: 26 U.S.C. § 1221, Legal Information Institute, Accessed 2015-11-14.
  45. Andrew Crispo Gallery, Inc. v. Commissioner, 86 F.3d 42 1996 affg. T.C. Memo. 1992-106.
  46. Angell v. CommissionerDOC, T.C. Memo 1986-528, aff'd 861 F.2d 723 (7th Cir. 1988).
  47. Drummond v. Commissioner, T.C. Memo. 94-16958; and appeal, 155 F.3d 558, (4th Cir. 1998), affg. in part & rev. in part (via Both accessed 2015-11-17.
  48. Estate of Querbach v. A & B Appraisal Serv., No.L-089362-85 Supr. Ct N.J., Bergen County, 1987, in Orenstein, Show Me the Monet: the Suitability of Product Disparagement to Art Experts, George Mason Law Review, 13(4), Summer 2005, pp. 905934 at 912913 & fn. 66.
  49. 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).
  50. Nataros v. Fine Arts Gallery of Scottsdale, 126 Ariz. 44, 612 P.2d 500 (Ct.App.1980). See also Dufy, Raoul, When Ishmael Called, Artinfo, April 28, 2009. Accessed 2015-11-17.
  51. 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.

Further reading

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