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Determining the value of a business, though complicated, can be turned into a mathematical equation. The same is true for most commercial real estate transactions.
Typically, the value of a business is based on the revenue and profits generated, and real estate is valued based on the monthly cash-flow the rental income provides.
Artwork, on the other hand, can be significantly more difficult to determine a valuation for.
That is largely due to the fact that artwork is a non-yield bearing asset, meaning it doesn’t pay any dividends, rental income or profits.
The only way to make money with artwork is to buy it for a low price and sell it for a higher one later on.
In this article, we take a look into the factors that determine the value of a piece of work, since it isn’t based on the income generated from the asset.
What Determines The Value Of Art?
When someone looks at a timeless work of art, they may be tempted to say the work is overpriced, or that the price doesn’t make any sense.
The truth is that pricing a piece of art is very complicated. That is because it is very subjective, or based largely on opinion.
- In many instances, artists set the price themselves
- If not, professional appraisers can set the price based on art trends, technique, novelty, and visual appeal
For example, if an artist wanted to sell their artwork using Sotheby’s platform, then they would upload images and provide some history of the piece.
Wonder how much your art or object might be worth and how to sell it? Simply follow the steps below and our specialists will review your submission at no cost and provide preliminary estimates for items that can be included in one of our sales channels in 5 to 7 business days. – Sotheby’s Website
So what subjective factors determine the value of art?
Let’s take a closer look. The factors listed below certainly do not cover all possible things to consider when evaluating art, but do provide a great start.
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1. Aesthetic Appeal
The first factor (though not most important) is the aesthetic appeal of the piece. In other words, does it capture someone’s attention?
At art galleries, it is not uncommon to hear someone rattle off a comment such as “this is art?” or “look at that price tag, it doesn’t even look that good.”
What you can see with your eyes is only part of the story. When looking at a piece of work, consider the period of time in which it was created. What themes or elements does the artwork portray? Is there any historical significance behind a the piece?
As you ask yourself these questions, what you see in the work of art may change.
The artist’s experience plays a major role. Does the artist have a strong reputation? Have they created a brand for themself? How well-known are they?
Consider some of the great artists throughout history. Of course, an individual piece of artwork may be beautiful, but what was the impact on history? Artists like Picasso, Da Vinci, Monet and others impacted the world of art and changed the way it was perceived.
Today, artists often gain notoriety for displays of humanity or when the inspiration for a work touches others as well. With the proliferation of social media, many artists may find it easier to gain momentum online.
In addition to who the artist was/is, another important question is how much did the artist produce.
Generally speaking, an artist who produced more may see higher values for their work.
Artwork unfortunately is no stranger to fraud.
When purchasing a piece of artwork, it is critical that it comes with a certificate of authenticity. Depending on how the piece is sold, this authenticity may be incredibly easy to prove.
However, when buying from an auction, be sure to understand where the piece came from.
Like baseball cards, the condition of a piece of art can vary dramatically. In turn, this can alter the value.
During a formal appraisal process, the condition of a piece of artwork is determined and disclosed. This is similar to how rare coins have different values based on condition.
The better the condition is, the more valuable.
What was physically painted onto the canvas?
While the topic or subject for a work of art may not be as important, it certainly plays a role when determining the value of art.
For example, the nude female motif is both common and incredibly popular. Conversely, a painting of an animal may be of less interest to prospective buyers.
Another important factor to consider is the time a piece of work took to complete.
How long did the artist immerse themselves in a particular piece of work? Consider the physical size of a piece of work. Or the intricacies and level of detail included.
Consider for example The Journey of Humanity by Sacha Jafri in 2020, pictured below.
The piece is a whopping 17,000 square feet and took six months to complete.
It sold for $62 million in 2021.
7. The Market
The perceived value of something vs what someone will actually pay do not always align.
If you ask someone about the value of something, a common response will be “what someone is willing to pay for it.” That is very much the case with artwork.
A piece of artwork may have an estimated price, but if no one is willing to purchase the piece, then the value may be inflated.
We see this in the market all the time. Sometimes there is simply no buyer in the market for a given piece. It’s similar to owning a very specific classic car. It may be in perfect condition, but if there’s no buyer, you won’t get top dollar. At lower prices, new buyers become interested.
This factor alone can make pricing a piece of work incredibly difficult. It’s also a moving target because the artwork market changes all the time. For example, in 2020, there were significant declines in artwork values based on auction houses being closed. However, that led to a growth-boom in 2021.
8. Other Factors
In addition to what has been discussed, there are also many other factors to consider. A piece of artwork may be priced higher or lower due to its medium or technique, provenance and scarcity.
Oil on a canvas is likely worth more than prints on paper.
Similarly, works that have been displayed in museums or previously owned by someone particularly noteworthy will immediately command a higher price.
Oftentimes, when purchasing a piece of art, you as the beholder will have to determine what a fair price is. Now, in the instance of buying a piece from an auction house, you will likely receive some information.
But when purchasing from a local art gallery or fair, the only information you may receive is the price itself.
Determining the value of a piece of art is easier said than done. Every piece of work is completely unique and that poses a unique challenge in pricing. There are a number of factors to consider when determining the value of art such as the visual appeal, artist, market, provenance, style, and more.
In many instances, when purchasing artwork from an auction house, investors are given estimates of price from professional appraisers.
However, in other instances, determining the value of art is up to the beholder.
Be sure to check out our full guide to artwork investing here to learn more!