The Value of Art: Understanding What Your Artwork is Worth
As an art appraiser the most common question my clients ask is: how much is my work of art worth? The answer is not so simple as a single value. Consider this example: you inherited a 19th century painting from a great-aunt. Your great-aunt had to pay estate taxes, and you have a copy of the appraisal which valued it at $50,000. Is this work $50,000? Well, if you decide to sell the work you might go to an auction house. The work sells for $50,000 hammer, but when you get your settlement statement you realize you have commission fees, photograph fees, and online fees plus shipping and insurance, among other additional fees. This brings your take-home to around $40,000. So, is the painting worth $40,000?
Or, say you decide to keep it in your collection. Unfortunately a pipe bursts and water has ruined the work of art. You want to replace it with something similar, and there are no paintings by that artist coming up for auction. You turn to a gallery. They want to sell a similar work to you for $100,000.
So, what is the “correct” value for this work? Well, each is correct in their own sense, because a work of art has multiples values. The three values I describe here are used by appraisers and defined as: retail replacement value, fair market value and marketable cash value.
Retail replacement value is defined as: The highest amount in terms of U.S. dollars that would be required to replace the property with another of similar age, quality, origin, appearance, provenance, and condition within a reasonable length of time in an appropriate and relevant market. When applicable, sales and/or import tax, commissions, and/or premiums are included in this amount. Generally understood to be the value at which the items sells for in a gallery setting, although this depends on the specific market.
Fair market value is defined as: The price at which the property would change hands between willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Generally understood to be the value at which an item sells at auction.
Marketable cash value is defined as: the value realized, net of expenses, by a willing seller disposing of property in a competitive and open market to a willing buyer, both reasonably knowledgeable of all relevant facts and neither being under constraint to buy or sell.
Liquidation value is defined as: the price realized in a sale situation under forced or limiting conditions and under time constraints. This action may be initiated by the property owner or a crediting institution.
The value of your work of art depends on your current situation and needs as well are your timeframe. If you want to consider insuring your art it will be valued using retail replacement value, if you want to donate it or is part of your estate it will be valued using fair market value, and if you want to resell your work it will be valued using marketable cash value. A professional art appraiser has the experience to know just what value should be used for your needs.