It’s tax time in the United States, which means many art collectors are trying to determine the value of their donated artwork, because the Internal Revenue Service wants an accurate number when a taxpayer claims a charitable deduction for donated artwork valued at more than $5,000. He describes this figure as “the price that would be agreed upon between a willing buyer and a willing seller, without either being required to act, and both having reasonable knowledge of the relevant facts” – also known as fair market value.
However, knowing this price is not always easy. Ralph E. said: “You can’t always find a willing buyer,” Lerner, an attorney and owner of Art World Advisors, told the Observer, adding that he has been representing clients competing for appraisals “for 30 years.” The IRS suggests that tax filers look at “like-like” sales, preferably sales close to the donation date, but artworks can be very unique, and “not every Picasso is the same.”
There seems to be no single way to evaluate an object. In fact, the New York City-based Society of American Appraisers identifies nine ways to determine the value of anything: auction replacement value, fair market value, forced liquidation value, marketable cash value, market value, regulated liquidation value, retail replacement value, retail value, and salvage value. On top of that, there are agreed-upon values (set in a policy by the insurance company and updated periodically), damage and loss assessments, auction house estimates, records of auction sales, as well as what dealers say an item is worth. In short, the value of any work of art is circumstantial.
normal Antiques campaign Observers are accustomed to seeing two sets of numbers — one is the insurance appraisal, and the other is what the lot might fetch at auction. There is almost always a difference. The insurance value is always higher, and is usually based on the retail replacement value. “You have something that’s been destroyed, and you want to replace it in a timely manner,” Deborah Spanierman, a Manhattan art consultant and appraiser, told the Observer. “You won’t be waiting for a good deal. There will be no discounts. The painting may need to be framed and shipped to you.” The cost of all of these things is part of this type of insurance settlement. She added that retail replacement value is often more expensive than fair market value or marketable cash value, which is fair market value minus the costs of buying (the auctioneer’s buyer’s premium) or selling (the dealer’s or auction house’s commission and other fees).
An auction house’s high and low estimates are, at best, a guide to the value of something — especially the low estimate, which is closer to the “reserve,” or the lowest undisclosed bid that a seller will accept — but they are essentially a form of marketing to potential bidders. “Low estimates could spur a lot of bidding,” technical consultant Todd Levine told the Observer. “People think, ‘Oh my God, I can get it for this little money.’” Otherwise, auction estimates represent inducements to bidders, but may have only a tangential relationship to the value of the item.
Auction houses get a lot of media attention when works of art sell for millions of dollars, but according to appraiser Sandra Tropper, “dealers often charge more for art than the auction houses can charge.” They do this because they have a greater investment in the business they are selling, she noted. “Dealers provide more information about artworks to buyers; they pay to have the paintings cleaned and reframed, they offer more guarantees to buyers, and they offer to take the piece back if you’re not satisfied with it. Auction houses won’t take things back.”
Records of auction sales are available to the public and provide hard facts about the prices buyers paid for works of art, but these prices may not be typical of the artist’s market—again, not every Picasso is the same—and many artists do not yet have auction records. In some cases, primary and secondary market dealers may be the best sources of information about artist prices, although these sales and prices are not advertised and are usually well guarded. When gathering information on artist prices, Trooper and Spanierman ask dealers who represent the artist what their works sell for historically and currently. And then they hope they will be told the truth.
“This is a relationship business, and I have good relationships with the dealers. They have to tell me the truth,” Spanierman said. When preparing appraisals for works of art in a client’s possession or donated to a museum, she expects dealers to provide correct information on prices and sales, “because my client may be their client.” Inflated prices may cause heirs to pay a higher estate tax, while artificially low prices will reduce the amount the grantor can deduct on the tax return.
Fair market value is not a single number but an analysis that takes into account several factors. Is the piece important to the artist’s body of work? Is this work from the most sought-after period in the artist’s career? Is this work in good condition or does it need some preservation? Have there been public sales of works like this? Has there been much interest in the artist’s work in recent years? Does the owner of the artwork need to sell it now (forced liquidation value) or does he have time to sell it (regulated liquidation value)? If the work is damaged, can it be repaired? If so, what was its fair market value before the damage, and what would it sell for now (damage and loss valuation)? If a work is damaged and the insurance company declares it a total loss but it may still have some value to the buyer – a damaged Picasso is still a Picasso, after all – what is that value (salvage value)? Is the work used as collateral for a loan, at which point the costs of selling the lot, such as commission, insurance, and transportation, are deducted from its marketable cash value?
“A particular challenge arises when there are no similar works on the market — which is what happens when collectors are trying to complete a series or replace a rare piece,” William Fleischer, president of insurance brokerage Bernard Fleischer & Sons in New York City, told the Observer. “In those cases, appraisers often increase the insurance value by 20-40 percent to reflect rarity and difficulty of replacement. Without active sales, it becomes difficult to know what the buyer and seller will agree on today.”
It should be noted that appraiser fees can vary widely, from $100 to $550 (based on location and experience), with an experienced appraiser averaging $300 to $400 to appraise individual objects or small groups of pieces. Valuing a larger number of items may require different, negotiated fees. The two largest appraiser associations—the American Society of Appraisers and the American Society of Appraisers—include in their codes of ethics for members that fees not be based on the value of the items appraised, because that could skew the appraiser’s determination of the value of the item. If the artwork has provenance issues, this may also mean contacting not only an appraiser, but an attorney who will also charge the fee.
It can be “very confusing,” said Sharon Crust, an appraiser in Brooklyn, New York, “because most people don’t understand why there are all these different possible values for the same thing.” She recalled the surprise of a recent client who donated graphic art prints by nine different postwar and contemporary artists to her alma mater, Wake Forest University, and learned that the value of the donation was less than the amount she had insured for the artworks. “My client thought she could deduct more, and she wasn’t happy about it.”
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