Fine Art Pricing – 23 Price Drivers for Artworks
Which market forces determine the value of a piece of art? The art market is driven by human behaviour with two conflicting fields: The art field and the capital markets field.
Art centers around the creation of works whose value is difficult to measure in monetary terms. Capital markets, by contrast, deal with the commodification of human behaviour.
Over the years, we have been collecting price drivers and factors that are relevant for artists and art collectors alike.
1. Perception of the Artist
How does the market perceive the artist’s entire body of work and her or his biography? Is the artist part of market relevant networks? Artists at the beginning of their careers will typically have lower price points than established artists. Even if non-academic artists have never had more chances in history than today, the best earning artists are still academic artists.
Some collectors are considered to be market makers and have a big influence on the art market. The value of their newly acquired artwork will rise simply because they convince other peers to buy the artist’s artwork. Other collectors collect art, because they love it, regardless of what others might think. Certain collectors are definitely price drivers for the artists they collect.
3. Art Dealers and Galleries
Renowned gallery representatives have a record of finding and promoting emerging talents to international stardom. A signed contract with one of theses dealers sends prices of an artist upwards. Since the birth of the internet, art enthusiasts no longer need to take the time to visit their local gallery and discover artworks online. It is convenient and the selection is much wider. There are more and more publications that the classic art market model – based on sales in galleries – is increasingly dominated by art fairs. On one hand, this is true and the business model of most galleries could be disrupted over the next years. On the other hand, the most successful galleries have become even more powerful over the last years and have a strong impact on pricing.
4. Museum Purchases
Museum purchases or group shows at prominent institutions do usually have a positive impact on the price level of an artist.
General hype such as a solo exhibit at a major museum may be a mixed blessing. In some cases, collectors start selling as the prices of an artist will stay inflated for a couple of months.
The provenance states a chronology and factual details of the piece of art. Documentary evidence preserves the value of an artwork: Art collectors buying directly from an artist, gallery, art fair or auction need to protect their investment by receiving documentation on the work of art.
Professional provenance reveals the entire history and lineage of custodians who have obtained or passed on the artwork.
6. Art Criticism
The information involved to price artworks is asymmetric. The art buyer is dependent upon curators, experts, gatekeepers and networks to determine which part of the over-supply of art has scarcity and thus economic value. In times of social media, art criticism still plays a relevant role for professional art collectors. Art critics with global following visit many biennales, fairs and galleries. They raise public awareness and increase the reach of an artist.
7. Tax Models
Tax literature on art is lengthy and complicated. As each country has a different tax legislation as well as different art depreciation and valuation models, tax models do matter to artists and professional collectors. Valuation disputes over art pieces are common and not to be underestimated. The main causes for disagreement between the tax authorities of a country and the art buyer are:
– volatile markets and negative real values cause issues for appraisers
– the tax authorities and the art collector disagree over the authenticity of artworks
– unclear provenance or ownership
– blockage discounts of artworks for gift tax purposes
Professional art collectors use frameworks to produce an art portfolio analysis for tax purposes. It is the only method to determine values in a reliable way and thus minimize the potential of a challenge with tax authorities. The unpredictable nature of the art market, as well as volatile price movements, make an agreement on a correct valuation difficult. Understanding the appraisal methodology allows the taxpayer who bought art to make an informed decision that an outsider would never understand. Depending on the tax model used, the same art investment can have completely different returns after taxes. This is another reason why the art market is so attractive to experienced investors willing to do their homework.
8. International Exhibitions
International exhibitions propose precious networking opportunities that a local gallery would not be able to organize. As a result, artworks that make it into international exhibitions meet with potential supply and buying power. Artists that stay local encounter less and less art buyers. International exhibitions contribute to the current widening of the price gap between top international artists and unknown local artists.
9. International Art Fairs
The ongoing globalization of the art market made explode the number of art fairs. Only a couple of years ago, there were 10 established international art fairs. Today, there are over 70 serious international art fairs. Every city in the world is interested to run an art fair. What does this mean for art prices? International art fairs are a crucial platform for artists: They sell their works and forge links with the major art players. At the top fairs of the art industry, artists meet with collectors, art critics, curators, museum directors and art enthusiasts. Industry experts from around the world gather under one roof all at the same time. Art market participants are increasingly rushed and want to see as many works in a minimum amount of time as possible. This is why artists wanting to achieve high market prices need to be present at international art fairs.
10. Conservation Status
The condition of an artwork is an important price driver. There are conservation experts specialized on a handful of artists whose job is to appraise the conservation status of artworks. For old master works, natural decay is the biggest challenge. For contemporary art, the use of mixed media and new materials with complex chemical composition interacting over time is very challenging. If an artwork has been restored its effect on valuation depends on when, how and by whom. Restoration may increase or decrease the value of an artwork. With regard to storage, today’s technical possibilities allow for a wide availability of excellent storage facilities.
11. Supply and Demand
Over-production of artworks lead to the fact that most artworks do not even level out inflation rates, whereas a small market segment with limited supply and extremely high global demand drives price records at auctions. In general, if an artist produces large numbers of artworks and is constantly creating new work it is more unlikely that demand keeps up with supply. However, if an artist is popular, her or his artworks will still be priced higher than the ones of an unknown artist producing just a few artworks every year.
A particularity of the art world is that it depends on taste and trends rather than objective values. Supply can thus be triggered by educating market participants on new art forms whenever supply is low on specific artworks in a certain moment in time.
12. Past Auction Results
Around one quarter of the total art market belongs to the art auction houses and their omnipotent forms of stagecraft. Three quarters of the art market are still transacted outside of auction houses. With these high trading volumes it is obvious that auction results are studied closely by art collectors and have a deep impact on the measurement of artworks’ fair market value. Tax authorities in most countries accept auction results as fair market value benchmark for an artwork, simply because of the free determination of the public auction price. It is inbuilt in our DNA to compete for scarce resources to survive. Subconsciously and to a certain degree, this inbuilt behaviour influences the competitive forces in an auction house. So even if some market participants see the secondary auction market separate from the primary gallery market, we do observe a strong reciprocal relationship.
13. Overall Economic Situation
Most participants agree that the overall economic situation has an impact on price levels in art. The more money is printed by central banks and the more other assets rise in price, the more art is considered by investors who usually would not buy art.
However, in economic academia, opinions differ. Mei & Moses (2002) and Ginsburgh & Jeanfils (1995) concluded that the performance of artworks is weakly correlated to stocks. Chanel (1995) found some positive correlation, but only in the short-run. Hasan Alpagu (2014) found evidence for close links between art and economy. According to Goetzmann (1993), booming equity markets lead to a growth in investors’ perceived and real wealth, which in turn leads to an increase in the demand for art.
14. Intrinsic Value
The costs of producing an oil paintings are higher than sketching on paper. A bronze or stainless steel sculpture usually is more expensive than a clay sculpture.
Big paintings are often more expensive than small ones, but if we are assessing a labour intense miniature painting, a small format can surpass the price of a big, abstract painting. There is no general rule, but manufacturing costs, material and format set the minimum value of an artwork, also known as intrinsic value.
It is tempting to think that a piece of art from the end of an artist’s career would be priced higher than that one from earlier years. It really depends on different factors and has to be analyzed on an individual basis. The period of an artwork in the context of the entire body of work is definitely a pricing factor to be considered.
Putting a price tag on a work’s aesthetic or conceptual worth requires knowledge about art history and experience in order to sharpen the eye. Art is priced beyond universally agreed principles. Art is shaped by society and art shapes society.
How original is the artist and the specific artwork? In practice, considering originality when evaluating a work’s price is quite subjective.
Innovating with a new medium or technique may drive up the price of an artist. There are curators specialized in finding these innovative artists before they are widely known.
19. Speculation Object
Have you ever wondered about the real value of all artworks sold every year for billions in hard currencies? Yes, the real value of a work is the price that a buyer is willing to pay. And yes, the intrinsic value is nothing but material and labour and everything else is a speculative factor. If the biggest portion of pricing valuation of expensive artworks is related to the value of the creator’s signature, we can conclude that a buyer expects that signature value to increase even more in the future. Important drivers here are hype around an artist or death.
A certification by the right expert can mean the difference between a piece of art having no value and being very valuable. Whenever art has documented provenance it is no guarantee of authenticity. Highly skilled art forgers are able to fake purchase receipts and inventory records. As a consequence, authentication experts play a major role in the art market even today. For some artists, collectors can use authentication committees. An essential part of an expertise is technical analysis by using X-ray, ultraviolet light, chemical composition footprint or carbon-dating.
21. Art Awards Received
Winning awards at noteworthy competitions is a relevant price factor for art pricing. The UK collector Christian Levett once summarized the important of art prizes: “It definitely adds to the provenance of an artist to have won the Turner Prize or represented a country at the Venice Biennale”. At the same time he added that the work itself outweighs any related awards. A number of dealers agree that up and coming artists require some kind of third-party validation. Once the artist is established, those credentials disappears from the resume.
22. Prestige Function
Socially-created demand for art does exist: Some buyers want to impress their friends or business partners at home or in the corporate world. Outsiders are reminded by this part of the art market of a trophy hunt.
23. Trends and Sujet
Art is a product of its age. What many collectors are looking for, is to find a series of artworks which are a game breaker and redefine art for decades to come. A collector that always buys into hypes will overpay on average. The art market, with its ever-changing tastes, sujets and styles, is difficult to understand for outsiders. At the same time, these market inefficiencies allow for above average profits for professional art collectors.
If you would like to comment on this list with price factors or propose a new price driver, please leave a comment below.