Taste, Style, & Substance- The Economics of Visual Art
by Lindsay Glatz
When Sotheby’s, Christie’s, and highly capitalized galleries report sales on individual pieces as upwards of $100 million it can be easy to dismiss these substantial prices as out of control. How are works of art valued? How do artists and galleries price their work? This process can seem complicated to an outsider, but the value of art actually has a strict formula that can help both artists and collectors understand the economics of art.
Prices are determined by markets. Worldwide, there are 10.9 million high net worth individuals with investable assets over $1 million. These individuals control $42.7 trillion dollars. While not all of these individuals have an interest in art, a significant amount of the population does. 44 million people attended an art museum in 2009 and 28% of the population purchased a work of art in the last 12 months.
Locally, New Orleans also offers significant potential for art sales. In cultural districts like the French Quarter, Warehouse District, and Magazine Street, over $7 million in original art sales was reported in 2010. Smaller pop-up markets also contribute to the art economy; for example the Arts Council’s Arts Market of New Orleans held in Palmer Park on the last Saturday of each month results in $800,000 in sales annually.
Yet how do we reach those prices through individual sales? It may seem that a gallery has no rhyme or reason to its pricing system, but in fact there are several consistent factors by which both expensive and inexpensive artwork is valued. Size matters, as do materials used.
After that, art assessment – especially of historical works (as opposed to contemporary, where speculation becomes a greater factor) – is largely determined by provenance, condition, authenticity, exposure, and quality. Provenance is the history of ownership. If an artwork was previously owned by a noteworthy individual, this may add notoriety and value to the piece. Condition is of important consideration, as the difference between good and excellent condition may be a 15% to 20% price difference. The value of authenticity is obvious, especially given recent cases of high-profile forgeries; the more evidence of authenticity, the higher the price. Exposure is somewhat similar to provenance, but has to do more with where the work has been viewed. Notable gallery or museum exhibitions can directly increase the price of the work. Also, reproduction of an artwork on everything from prints to handbags can also increase its value. “Quality,” historically speaking, has reflected the artist’s mastery of the medium, clarity of execution, and authority of expression. Once again, with contemporary work, indicators of “quality” have become subjective and less of a determining factor of value that issues like social significance, how the artwork situates itself into contemporary dialogues and debates, and the level of an artist’s profile.
“A collector has one of three motives for collecting- a genuine love of art, the investment possibilities, or a social promise. I have never known a collector who was not motivated by all three,” Emily Hall Tremaine.
Taking these factors into consideration, original art is priced by the market. For direct-to-consumer sales at pop-up arts markets and street fairs the art must appeal to the buyer. Pricing at noted and established galleries is significantly higher because the collector is also relying on the gallery as an arbiter of taste, knowing that the gallery has reviewed countless artists and selected a small few as worthy of their audience’s time and attention. In either scenario, pricing must be relative to the market – undercutting or overpricing works draws a red flag to experienced collectors and denotes an artist’s or gallery’s inexperience in the marketplace.
The final major factor in pricing art comes back to basic supply vs. demand. There are a reported 2,000 Monets, 864 Van Goghs, and 382 Pollock paintings in existence today. So it makes sense that Pollock’s works are listed among the top three valued in the modern artist category.
To demonstrate how the five factors of valuing work alongside supply vs. demand, let’s use Monet as an example. Art historians and critics generally agree that Monet’s water lily paintings from Giverny (1904 – 1908) are recognized as the crème de la crème of his work. Monet painted 79 works on that subject matter during that period. Of those 79, 27 are in museums, 3 have disappeared, and 49 remain in private hands. The beauty, continual appreciation, prefiguration of total abstraction, and prestige of Monet’s Giverny paintings cover the trifecta of art collecting impulses. These are the types of paintings people hold on to.
However, on the off-chance that a Monet of this period becomes available and you are a high net worth individual with the means to invest $100 million, you are competing against the worldwide art market for something that may never again become available in your lifetime. At that point, cost becomes irrelevant and the value of a priceless work of art is set only by pocketbook of the highest bidder.
Sources: Louisiana Office of Cultural Development, National Endowment for the Arts, Arts Council New Orleans, Michael Findlay’s The Value of Art.