Determining the value of a piece of art can be a notoriously difficult exercise.
What makes one artwork sell for millions and another for thousands? Unlike more tangible assets like houses or luxury cars, which alongside their beauty also provide a practical purpose that contributes to their obvious value, art is so tantalisingly esoteric.
Valuing a piece of art is an inherently subjective practice. Alongside the comparison to the value of other pieces of work found on public record by the artist, is the harder to determine factor of desirability amongst the top echelons of the art world.
For it is the big players that determine the real value of a piece in the secondary market.
At the same time, which galleries have represented artists and the museums they’ve hung
in will go a considerable distance in contributing to a rising value.
As will the scarcity of the works on offer for sale and the provenance of the other buyers in the market who also wish to acquire them.
Not to mention the artists standing in the art world and their unique impact in the art movement of their time.
All these elements contributed to a Jeff Koons reflective Rabbit selling for $91.1 million at auction at Christies last month. Beating the previously held record for the highest price ever paid for a work by a living artist of David Hockney’s Portrait of an Artist (Pool With Two Figures) for $90.3 million, sold six months earlier.
Valuing art for tax purposes
Valuing art becomes professionally important to estate planners and financial advisers when providing advice on matters of taxable income, gift and estate tax planning.
Yet they are difficult waters to navigate when the onus on substantiating the value of the art rests on the taxpayer’s shoulders. Coupled with the fact tax laws incentivise taxpayers to choose a lower value in the case of estate tax and a higher one when claiming charitable contributions. Valuations become intrinsically troublesome.
So what is fair market value?
Part of the valuation process looks at public sales of comparable works of art by the same artists. However, before this can be assessed, one must first clarify that the work in question was actually created by the stated artist.
n this respect, appraisal and authenticity are two distinct factors in valuing a piece of art. Everything rests on the authenticity of the work of art.
However this is complicated by each of the key players in this equation – the appraisers, art experts, the IRS and the courts – all having their own hurdles to overcome in deciding on authenticity.
The art experts or historians are the specialists in the work of the artist in question. Yet they are concerned about being sued for their opinions on authenticity. It has famously happened before and it makes art experts understandably twitchy about giving opinions.
The appraisers are not experts in the particular artist under review, so they must look to the reluctant art expert for an opinion.
The IRS is unclear what supportive proof is actually required to prove authenticity, and the courts are ill-equipped to interpret the art experts explanation and make a judgement on the final value of a piece.