Using Appraisals in Art Investing
Anyone looking put forth a large amount of money in art investing should always consider what they are going to get before any money changes hands. Art is a difficult category of investment because it is often hard to find differences between a priceless masterpiece and a twelve dollar picture in a frame from a closeout store. That is why there are professionals in the art investing industry to help decipher the code. They've gone to school and devoted their lives to artwork and are often much more qualified to speak on its value than your or the seller will ever be.
When contemplating art investing, it is always a good idea to obtain a fair market value appraisal of the piece. Fair market value is not reflective of the dealer's price or the original purchase price the seller paid. Fair market value in art investing refers to the amount that a reasonable and willing buyer will pay a reasonable and willing seller, independent of outside influences. A professional appraisal by a qualified art appraiser will help decide what the fair market value is.
Before purchasing a piece, you will want to obtain the appraisal and carefully read it. There are certain do's and don'ts in art investing, and spending a large amount of money on an artwork without an appraisal is a definite DON'T. However, just because the buyer tells you the piece has been appraised at $5000 does not mean that is a fair market value. There are red flags in art appraisals that should be carefully watched for.
A verbal appraisal is not a valid appraisal and should not be accepted in art investing. Your money is important and you want to see evidence of price in writing. It is not acceptable for a seller to tell you that the piece was looked at by an appraiser who quoted an approximate value. Your response should be that you will consider the piece once you have a written appraisal in hand, until they your art investing will be taken elsewhere.
Accepting an appraisal from the seller is not always the best way to go. A seller can take their piece to several different appraisers and choose the highest appraisal to show you, the potential buyer. If you have a feeling that the appraisal is grossly overpriced, this may not be a seller you want to conduct art investing with. However, should you decide you must have this piece, ask the seller to allow you to have the piece appraised by an independent third party.
When you receive an appraisal from a seller, you should always check the name and credentials of the appraiser. An appraiser should have experience in the matter for the purposes of art investing. An insurance appraiser is different from a standard appraiser, and an appraisal for insurance purposes does not reflect the fair market value. Insurance appraisals, unlike appraisals for art investing, often reflect the retail value of a piece. They may also include taxes and additional expenses associated with replacement of the piece. This is not the fair market value.
It is also important to inspect the appraisal and ensure that it is recent. Art investing is all about increases and decreases in value, so you should never trust an appraisal that is 10 or 20 years old. An appraisal within the last 1-2 years will be much more accurate, but 6 months is optimum. There could be damage that has occurred to the piece that you may not notice, but a discriminating appraiser will see immediately.
Art investing is difficult enough without worrying about dishonest or uneducated people trying to pass their opinions off as fact. Be careful whose advice you accept before making a large investment and protect yourself by insisting on a valid appraisal. It will be a decision you will not regret.
