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Art Appraising and Valuation

For Legal or Insurance Purposes

Appraising or assessing the value of works of art is necessary in a variety circumstances, many of them legal or insurance related. The job of a good appraiser is to present and explain dollar values of art in understandable terms to non-art people like attorneys, insurance companies, the IRS, mediators, accountants, judges, juries, family members, etc. The most common valuations for legal reasons are those performed for tax purposes where art is either donated or is assessed as part of an estate. Insurance claims or lawsuits over art that is lost, stolen, damaged, or destroyed may also need professional valuations. Divorce, disputes, and family fights over art can require appraisals as well. A less common instance where art appraisals are necessary is when a seller deliberately misrepresents art to a buyer, and the buyer seeks a full refund and/or damages based on what was paid for the art. In all of the above situations, enlisting the services of a professional fine art appraiser is definitely recommended.

With any art appraisal, the greater the number of documented sales records that exist for an artist, the more straightforward the art is to appraise. For example, famous artists like Picasso, Chagall, and Warhol have thousands or sometimes tens of thousands of published sales results for art sold at international auctions over the years. In all, millions of auction sales of art by artists of all time periods and all nationalities are documented matters of public record. These sales results are often available directly from auction houses, websites that host multiple auctions from multiple auction houses, and from large consolidated art auction price databases that charge access fees to users. Art sales at retail galleries are not generally matters of public record and may be provided by gallery owners on a case-by-case basis.

Qualified appraisers generally have little difficulty appraising art by established artists who are either well along in their careers or who are no longer living. Established artists tend to have large numbers of documented sales, both at auctions and through galleries, and valuing their art is usually no more complicated than locating recent selling prices for art similar to the art that needs to be appraised, and using those dollar amounts to determine valuations for the appraisals. Valuing a work of art based on recent selling prices for similar works of art is generally considered sound evidence of current fair market value in the many legal situations.

The less established an artist, the less art an artist has sold, the younger an artist is, or the fewer documented sales results that exist for an artist, the less straightforward the appraisal process becomes. More in-depth research may be necessary in order to determine values. In some cases, supporting final valuations based on limited sales data may require more in the way of explanation than simply citing prices of recently sold works of art. The important point to keep in mind is that any work of art can be appraised, regardless of the artist, and that value can always be supported with facts about the artist and their art combined with facts about the art market in general.

Suppose, for example, that a young artist makes an insurance claim for ten paintings that were destroyed by a fire in a building where they were on display. Suppose also that the artist has made few sales during the course of their career, none for paintings as large as those that were destroyed, and that their sales are mainly for smaller paintings that sold in the lower hundreds of dollars each. The artist claims that the ten paintings, because they were so large, were worth $5,000 each.

To begin with, an artist is not necessarily the best source for valuing their art, especially if there are limited documented records of their sales. Price estimates from the artist are important to consider when determining values for their work, but since almost every artist wants their art to be worth as much as possible, simply expecting third-parties to take their word on prices is usually not enough. Insurance companies know this well and can choose to dispute an artist's valuation of their art if necessary.

When this happens, the artist may be forced to get an objective appraisal from a non-conflicted third-party appraiser (which is usually recommended if not required in advance in order to substantiate or confirm any value claims in the first place). The appraiser must strike a balance between how the artist values their art and how the art community or marketplace values their art. Hint to artists: Always keep detailed records of your sales especially if you sell much of your art directly to buyers. They come in mighty handy in situations like this

Continuing with the fire example, the paintings may be worth $5,000 each to the artist, but that figure is not necessarily what they're worth on the open market, nor what the insurance company might be willing pay in damages. Even if the paintings were for sale priced at $5,000 each before they were destroyed, that is still not adequate proof of their fair market value if none sold. In order for them to be worth that amount of money, they must either be selling at those prices, or the artist or appraiser or both must demonstrate that comparable paintings by other artists regularly sell for comparable dollar amounts in similar art selling situations such as at galleries, art shows, online, through consultants, etc. So to repeat, keeping detailed sales records is essential for artists in order to make any kind of case for how much they consider their art to be worth.

A complicating factor is that sales an artist makes, regardless of dollar amount, cannot necessarily be considered proof of the art's value IF buyers are related to the artist, have personal relationships with the artist, or are otherwise self-interested in seeing the artist's art sell for as much money as possible. The sales that have the most bearing on the fair market value of art are those made to buyers unrelated to the artist in typical situations where art is for sale, such as at galleries, online, at open studios, at auction, or at public exhibitions or events where buyers have multiple choices in terms of what artist's work they ultimately decide to buy, and how much they pay for it when they do.

In this young artist's case, because they've sold no large paintings comparable to those that were destroyed, that art most likely has to be appraised according to facts about the art market in general in combination with facts about the artist and their history. For example, a qualified appraiser might study asking and selling prices for works of art in similar markets that are comparable in size, medium, subject matter, quality, and other particulars, AND that are produced by artists similar in age, credentials, and accomplishments to the artist in question. These selling prices may more reasonably reflect the fair market value of the art than what the artist personally thinks it's worth. If, for example, if comparable art by similar artists in similar markets regularly sells for between $1000 and $1500 per painting, then those dollar values might make more sense as estimates of the value of the destroyed art than the $5000 values provided by the artist.

When art is merely damaged, not lost or destroyed, a different appraisal approach may be necessary. The extent of the damage and condition of the art must also be considered. Continuing with the building fire example, if the art is only smoke damaged and can be returned to its original pre-fire condition with a professional cleaning, then the insurance payout might be equal to the cost of the cleaning only, assuming that cost is less than the value of the art. If the art cannot be restored to its pre-fire condition, however, or can only be restored at a cost greater than the value of the art itself, then the claim would be for the appraised value of the art. Lastly, if the art can be restored, but it's value when restored is less than what it would have been worth in perfect condition, then the damage claim should be equal to either the cost of restoration plus the dollar amount that value is diminished, or to the total value of the art in perfect condition, whichever is less.

In cases where substantial losses occur, on the order of twenty percent or greater of an artist's total output, the value of all works of art remaining in the artist's possession may also be affected. For example, when an artist is established and their art is highly salable, the loss of a substantial percentage of the total body of work may actually increase the values of any surviving works (assuming demand remains the same or even increases due to the reduced supply). For appraisal purposes, only the values of the destroyed art would be considered in cases where the remaining art would likely hold its value.

On the other hand, when an artist is less established, has little or no track record of shows or sales, a substantial percentage loss of the total body of work might negatively impact the values of any remaining pieces. The reasoning is that the fewer works of art a less established artist has available for sale, the less interested a dealer, gallery, or consultant would be in representing or showing the artist. In general, the less art a minor artist has for sale, the more difficult that art is to sell, and the less money it generally ends up selling for. For appraisal purposes, the values of the destroyed art as well as the possible reduction in values or desirability of the surviving works would have to be considered.

Depending on the quality of the art that is lost or destroyed, an appraiser may also have to consider a certain coattail effect where the best art by an artist positively impacts the values of all of the artist's art. In other words, sometimes the best art helps to sell the not-so-best art. When an artist loses many or all of their best pieces, values of the remaining pieces may be reduced below what they would have been had the best works not been destroyed. This type of a situation may warrant an increase in the amount of an insurance damage claim beyond that of the destroyed works as the surviving works may also be negatively impacted.

Suppose an artist making an insurance claim sells little art, but instead receives income from commissions, grants, teaching, residencies, or other art-related forms of employment? Even though the destroyed art might not be selling, may be non-commercial in nature, or the artist might not have gallery representation, the art still indirectly generates income for the artist based on their reputation for producing quality work. Here, the appraiser's job would be to piece together as much art-related income information as possible other than through sales in order to determine a reasonable damage claim for the art.

This information might include types and dollar amounts of grants that the artist has received, shows the artist has participated in, prizes or awards that the artist has won, news coverage or reviews mentioning the artist, jobs the artist has gotten, and any other career accomplishments or distinctions relating directly to their art. The appraiser must take this data and construct what almost amounts to hypothetical yet reasonable market values even though the art does not sell.

Even when an artist makes art totally in private, has never sold a single piece, has no identifiable market or career history, the art may still have value and a reasonable insurance claim might still be made. In these uncommon cases, the opinion of an expert with a critical eye such as a dealer, art consultant, or curator may be necessary, in addition to that of an appraiser, to establish whether the art has value. Previously unknown artists are "discovered" from time to time, their art is determined to have merit and value, and once introduced to the public in gallery settings, strong markets, collector bases, and selling prices evolve. Never assume that a work of art is worthless simply because the artist has never sold a work of art.

In all cases where art must be valued for legal or insurance reasons, enlisting the services of an appraiser and/or additional fine arts professionals as required is highly advisable. Determining art values and evaluating art business transactions are complex processes that take years for fine art specialists and professionals to learn, understand, and apply to real life situations. Having an appraiser on your side in any situation where art and money come together in your life is always far better than trying to go it alone.

Disclaimer: I am not an attorney and this article is in no way to be taken as legal advice. If you have legal questions, always consult an attorney.

(art by Markus Linnenbrink)