We hear about price records after almost every auction sale. While major auction houses set records in hundreds of millions, less active markets, like Latvian, make do with tens of thousands. Nevertheless, the records are there! What makes the price for art go up or down? What are the main "components" of the value?*

*intro by


Maria Boicova-Wynants,

Mediator, Business Writer, Trademark and Patent Attorney

The mysterious world of the value of art

Any price—many millions, a buck fifty—paid for any work of art is absurd. Or call it fiduciary poetry. People keep noting that the value of art is strictly subjective, but that truth sinks in only so far, if at all.” — said the renowned art critic of The New Yorker Peter Schjeldahl.

It might indeed be absurd to pay millions for an artwork, and yet many millions are regularly changing hands in the world of art. The Nathaniel Kahn’s documentary “The Price of Everything” exactly emphasizes this far-reaching speculation mania where art collectors are more obsessed with the classic financial world’s principle of “buy low — sell high” than with the actual art. Greed seems to have become the name of the game.

Truth must be told, the art market is a huge market. One of the highlight titles in the March 08, 2019 newsletter was: “The Global Art Market Reached $67.4 Billion in 2018, up 6%”. Those already are impressive numbers and the market is believed to be further growing (see Clare McAndrew’s report The Art Market 2019). Are there more sales, or have the prices per artwork sold increased significantly? Is it still about the intrinsic appeal of art or art sales are nowadays mainly driven by investment/profit considerations? The results of the survey conducted by Deloitte last year show that indeed “76% of art collectors consider their collections as investments”. Moreover, the same report says that for example, in the US art-secured lending market was estimated to beworth between $17bn and $20bn. Thus, art is more and more seen as a strategic asset (see Deloitte + ArtTactic report, 2018). This does not necessarily mean that the intrinsic value of art is not recognized, however, it does raise a question of whether it is as important as art’s earning potential.

Looking at astronomic auction results, one also cannot but wonder: how is the value of art defined? Where do those numbers come from? Why Pollock was sold for almost the same amount as Klimt? And how come Van Gogh was sold for half of that price? Is it really half as valuable as Pollock?

To begin with, obviously, price does not equal value. The latter is supposed to be a much broader term. Besides, one can buy something at a discounted price X, but it might actually be much more valuable even in pure financial (or market) terms (say, X times 3). For the sake of this article, I will use words “price” and “market value” interchangeably. However, as mentioned, value in general has much more shades to it.

Historical value, personal value — those aspects are close to impossible to put a number to and, yet, it is being done. The chairman of the fine arts division at Sotheby’s, Amy Cappellazzo, in the above mentioned “The Price of Everything”talking about a work of Matisse, admits that it’s “priceless in theory” but adds that in reality, “you start at priceless and then you work your way backward.” In other words, in determining the market value, one has to put a philosophical assertion of “priceless” aside and follow the valuation steps. Sotheby’s experts, for instance, consequently look at the following ten criteria: (1) Author; (2) Condition; (3) Rarity; (4) Provenance; (5) Historical Importance; (6) Size; (7) Fashion; (8) Subject matter; (9) Medium and (10) Quality.

Some of these criteria are easily definable, like for example, size or medium; some others, like historical importance or fashion, are by definition subjective and fluid. Those criteria will also have a different weight in the final estimate. For example, in the primary market such criteria as size usually play a very important role, while in the secondary market, the main driver of value would probably be the supply and demand (thus, rarity and fashion). To note, that there are likewise a lot of nuances to be taken into account for each of the above criteria. For example, in evaluating rarity it is important to assessnot only the quantity and periodicity of the offer of particular artworks on the market, but also look at the ownership of other works by the same author. If most of the artworks are in private hands, they are potentially available (even if an owner claims she will never sell), while if they are in museums — they are likely not (most museums are prohibited from selling and those, who might sell, are limited to deaccessioning duplicate works or works of inferior quality). Then also, if an artwork appears at auction and fails to sell (becomes “bought-in”), it adversely affects its value, irrespective of the initial estimates based on the above criteria. What’s more, it usually matters whether the work is made in editions or it is a unique piece. If you are not Jeff Koons, of course.

Ernst & Young (further - EY) and Aura Art report “The Science behind valuing art” gives a seemingly less complicated equation for art valuation:

Value of Art equals the sum of Artistic value, Social value, and Commercial value to the power of Artist’s brand. (If only that would have been so simple…)

Artistic value is further defined as including the quality and significance of an artwork; social value is supposed to reflect the level of influence of the artwork, while the commercial value deals with extrinsic attributes. According to the report, a quantum leap in the price occurs when the artist starts “indulging in concept shows and his or her work starts featuring in auctions”.[1]

Moreover, said EY report gives two distinct approaches to art valuation:

1) Benchmark value, as the most practical, relatively fast and undemanding approach; and

2) Appraisal value, which incorporates the findings of the Benchmark value appraisal and additionally includes “an intensive analysis (historical, stylistic, forensic, scientific, etc.)” to establish the authenticity and provenance, as well as a study of references, details of restoration if any and other “classic” criteria.

Benchmark value, as the name suggests, centers on the comparable artwork (adjusted for size), adding the value enhancers (which can be, for example, a signature style or a creative subject) and subtracting the value dampeners (for example, if the work is very recent). Nevertheless, the report still concludes that the “largest influencer of value is the “perceived value” to a buyer and the charismatic power of artworks on those who would possess them”.

There are, of course, more approaches to art valuation than the ones defined by EY; and notably, all of them have the purpose of valuation as the starting point. Thus, what is the purpose of art valuation? Is it done for tax planning purposes, for estate distribution, for insurance or loan collateral purposes or for charitable contributions? Depending on the purpose, there will be a different approach toward art appraisal. For donations or estate valuations, Fair market value will be established. It is generally calculated lower than Replacement value used for insurance coverage. Liquidation value, which is affected by forced or limiting conditions, as well as time constraints, will probably be the lowest. Thus, knowing the purpose of valuation is, of course, an important first step in the art appraisal. Nonetheless, insurance and taxation aside and coming back to the “Pollock vs. Van Gogh dilemma” — how does one actually pinpoint the number for the market?

Michael Findlay in his book “The Value of Art: Money, Power, Beauty” claims that: “the commercial value of art is based on collective intentionality”. This means that pretty much as with the stock market if collectors (read: investors) believe in the financial potential of the particular artwork, it is likely to fetch a high buck. The stock market uses indices, so by this logic the art market should use them as well. It also does. Probably, the most known of the art market indices is the Mei Moses Index, developed by NYU Stern professors Jianping Mei and David Moses in the early 2000s. Yet, the problem with this particular index is that it uses a repeat sales method, thus obviously only repeat sales are included for the sake of calculation (and which is more, only public ones). Given that public repeat sales account for roughly 1/6 of all sales, this index can only give a very approximate and largely biased data. Good as an add-on, but bad as a basis for estimations.

In his rather critical article “Art Values or Money values?” Donald Kuspit emphasized yet another aspect which affects art valuation: nationality or country of origin. He argues: “The development of art prices follows the development of nations more than it follows the development of art values if they develop.” Furthermore, Kuspit, while talking about Norman Rockwell’s Lincoln the Railsplitter (1965), rightly points out that “there is no escaping the fact that national pride is responsible for the high price”. In other words, it matters where the artwork comes from, but also where it is being sold.

An additional factor influencing the market value mentioned in the EY report is the seller’s reasons for selling a particular work and/or the buyer’s reasons for buying. In this sense, as Tim Schneider concluded in his “The Gray Market” opinion column: “The ultra-wealthy sometimes like to pay as much as possible strictly to show their peers that they can.” To illustrate this point (aside from the sale of the notorious Salvator Mundi), sometimes the large sums of money are paid not because, but in spite of all odds, like for example in the acquisition of Maurizio Cattelan's Him (2001)[2] by Jewish mega-collector Stefan Edlis.

So, Sotheby’s criteria, a range of nuances, EY formula, indices, seller’s and buyer’s reasons, nationality and place of sale, numerous other factors, and yet… whatever the final number — is this a true expression of the art’s value? If we are not evaluating an artwork as a strategic investment, but if we primarily concern ourselves with its, let’s call it, higher value — historical, cultural, personal — how do we ever put a number to it?

I would like to conclude with aquote by the world famous art forger Hans Van Meegeren:

Yesterday, this picture was worth millions of guilders and experts and art lovers would come from all over the world and pay money to see it. Today, it is worth nothing, and nobody would cross the street to see it for free. But the picture has not changed. What has?


Indeed, what has?…


[1] In the beginning of an artist’s career the price is defined much more straightforward, more or less like for a commodity. In this sense, for example the Art league as the advice to artists for pricing suggests to, first give oneself a fair hourly wage and, second, add the cost of materials and other expenses. The final number becomes the initial market value.

[2] Him — is a kneeling statue of the child-size Adolph Hitler…


Comments: 0
We use cookies to help provide you with the best experience we can on our platform. By continuing to browse this site you accept and agree with this practice