IS ART COLLECTING A VALID INVESTMENT?
Seventy-five percent of collectors report buying art with an investment in mind. However, these investments involve more than meets the eye.And when it comes to your finances, you need to make sure you have all the facts before you take the plunge.
Answering these seven questions will help you determine if collecting art is a smart investment for you.
Have you done the research?
Like any investment, you have to do your homework. What research have you done to learn about the artist, their background and the story behind the artwork? Knowing this history can boast better returns on your investment than blindly buying an artwork. Why? The more you know going into a purchase, the better you can assess the value of the piece.
Value can be affected by everything from sales price history and to the condition of a piece to the story and life of the artist. So, ask yourself these questions to educate yourself about an artwork.
Do you have the work’s provenance?
Art collecting can be a valid investment, but again, it comes down to the valuation of your pieces. That’s where provenance comes into play. This documentation of an artwork’s story, ownership history, and accolades provides authentication and context that can point to the long-term value of a piece.
Do you have a good strategy?
There are so many moving parts to art collecting that it can be hard to know where to begin. A well-designed strategy is essential in order to come out in the black.
A successful art investment strategy has:
A well-defined scope
Thorough research and documentation
Strong relationships with other professionals
A set budget
An understanding of activities and trends taking place in the art market
Do you understand this type of investment?
Loving the artwork you buy should always come first, but if you are thinking about acquiring a work by an emerging artist that might increase in value, it is definitely worth spending time
doing research by going to exhibitions and degree shows to see work by recent MFA graduates. The more art you see, the more knowledgeable you will become, which is important for anyone thinking about art as an investment ~ Rebecca Wilson (Art Advisor)
While the art world is changing thanks to technology, traditional gallery-focused systems still play a significant role in art’s valuation. The bigger problem is that the fine art market is highly manipulated by collectors, galleries, and auction houses—and this influence can greatly affect the perceived value of a piece.
Another layer of complexity is the costs associated with buying, maintaining, and selling art. In fact, you may be responsible for a lot more than the purchase price, including a buyer’s premium at auction, sales tax, insurance, travel costs, maintenance, appraisal fees, and so on other incidentals. If you decide to sell, remember to consider the capital gains taxes the Internal Revenue Service will collect when you sell.
UNDERSTANDING THE MARKET
The art market constantly fluctuates, and you must be prepared to see how this reflects on your art investment. For instance, the contemporary art market,which is most popular amongst today’s collectors, is also the most volatile.
High demand for one artist’s work can, and usually will, affect the market for a similar artist.
For this reason, collecting a diverse array of artists and styles is key for your long-term
investment, as well as following the age-old investing motto: “buy low, sell high.”
The riskiest investment is collecting in the primary market, when artwork is sold the first time directly from the artist or their gallery representative. It’s impossible to predict when an artist will gain notoriety, but your early investment will grow along with the artist’s work.
Unlike Warhol and Picasso, the increase in value over time for lesser-known artist’s work
is typically much smaller. However, since you are also buying art at a much lower price, the
return on investment could prove profitable if you find the right artist. When you take the
time to pound the pavement, make connections, and see lots and lots of art, you’ll be ready
to buy the right investment piece.
Learning about art movements and history while staying up-to-date on the latest art trends
will enable you to follow along with the changing market.
Do you have a reputable art advisor?
If the world of art investing seems too complex, you are not alone. That’s why many art collecting experts recommend hiring an art advisor who is not only knowledgeable but also trustworthy. Art advisors can guide you through this complex terrain and assist with a myriad of collecting endeavors. They can guarantee you have the proper insurance, inform you when it’s time to sell, and much more.
Art collecting is like any investment.
Investing wisely takes knowing what goes into your investment, how the art market works, and the people and strategies that will make collecting art worthwhile. Think through these issues carefully to help decide if collecting art is a valid investment for you.
WHERE TO BUY ARTWORK
Similar to other wholesale and retail markets for consumer goods, collectors can buy artworks from two market categories, the primary and secondary art markets. Each have their advantages and unique approaches for negotiating and determining prices.
The more you understand about the market, the better you will be at collecting art.
Let’s begin with the primary art market.
In the primary market, you deal directly with the artist, or a gallerist who represents this artist’s new work. Prices are determined by the artist’s reputation, demand, prices for comparable works, and material and labor costs.
Gallerists can display works straight out of an artist’s studio, or they can choose to bring in artwork from their own collections or other dealers. Experienced gallerists will already have specific interests,aesthetics and focus. They choose works that have compelling stories and techniques, and those which are likely to sell. The gallery earns a commission with each sale.
Retailers who are involved in the wholesale market will buy an artwork directly from the artist, usually at half the retail value. They display the art at their retail shop, priced to make a profit.
Art dealers stay in tune with trending tastes and latest news of the art world. Most try to remain on the cusp of exciting, new and collectible artworks, keeping a finger on the pulse for both primary and secondary markets. They acquire pieces in a variety of ways—direct from artists, auctions, estate sales and other private dealers and collectors. They’ll resell pieces on the secondary market through a gallery or other consultants once they feel the market is optimal.
Art Fairs and Directly From Artists
Art fairs have had a major impact on how we consume art in general. Whether you are talking about Art Basel or a local art fair, both provide people with the ability to see and experience the art in person and engage on a deeper level. ~ Peter Trippi
Art advisors help clients shop for artwork, meeting with people to learn what styles they prefer and what budget they can afford. By understanding desires and aesthetic tastes for each client, these keen observers find possible matches to present to their clients. Using their relationships, advisors work with other dealers, galleries and other consultants to negotiate prices, taking a percentage of the final sale price to cover their fees.
The secondary art market is full of enticing possibilities, too.
The secondary market focuses on artwork sold beyond its first owner. Sellers usually seek to make a profit with sales, or a family has decided to publicly auction portions of its collection to sustain their estate.
In any case, prices can be affected by the availability of other works by the same artist and how popular their work is. The higher the demand but less available the works are, sale prices will keep going up. Provenance is crucial in the secondary market, which helps deter fraud and theft and validates a work of art’s authenticity and value.
Some of the players on the primary market also cross over to the secondary market, such as experienced dealers and well-established galleries. Auction houses, museums and new online platforms also extend the secondary market’s reach.
Auction houses accept art that they think has a high chance of selling—because they are trying to stay in business, too, and each sale brings them commission. Unless a world-famous name alone beckons collectors, these sellers will review how well art sold in previous auctions or galleries. Many times, collectors can find artists with little auction experience and buy pieces for bargain prices.
While museums don’t typically sell artworks from their collections, they abide by certain rules when deciding to deaccession certain pieces. Museums will have their deaccessioning process outlined in their collection management policy. Most museums keep this process transparent to the public, keeping in mind the integrity of the decision with its operating policies. Acquiring a valued piece from a museum could be an impressive addition to your own collection.
Online Art Vendors
A rising trend in the primary art market, online sales in the secondary market are also increasing. Auction houses have incorporated online bidding capabilities, and some new platforms make it easy for collectors to advertise pieces for sale and find buyers quickly. Even eBay has seen its share of secondary market art sales. This technology is making artwork more widely available to a growing number of collectors, simplifying communications between buyer and seller and securely storing important provenance documentation.
Artists don’t necessarily need a gallery to put them on a pedestal because they can find their own following and be their own face to the world.~ Augusta Morrison
DOCUMENTATION YOU SHOULD GET BEFORE A PURCHASE
The word provenance is derived from the French word provenir, meaning “to come from”. An ideal provenance documents the ownership history of a piece all the way back to the artist’s studio. Collectors and historians depend on these documents to verify a piece and its historical significance.
When acquiring a new piece, carefully review its provenance with the help of an expert. Safeguard these documents, because re-establishing provenance after a loss can be nearly impossible. Storing digital copies in an inventory management system can help protect these documents from loss or damage.
Here’s what you should pay attention to when dealing with provenance documents:
Understand That Provenance Comes in Many Forms
A signed statement of authenticity from the artist or an expert on the artist is ideal. An original gallery sales receipt directly from the artist, or an appraisal from an expert in the era also verify transfer of ownership and authenticity.
Some collectors suggest that a verbal confirmation serves as authentication, but without physical evidence, or at least an audio recording of the statement, it’s not a convincing method and can be risky to use in valuations.
Keep in mind that many documents can be falsified, which is why original documents with original signatures carry so much value. For everything you can, request documentation in writing with an original signature. Keep digital copies stored securely in an inventory management tool like Artwork Archive, and protect original documents in a safety deposit box.
Additionally, a signature on the artwork does not count as provenance. Only physical, certified documents can prove the artwork’s origin.
Never Buy Artwork Without Seeing the Provenance First
This is a case of “I won’t believe it until I see it.” Regardless of what the dealer tells you is available, do not trust the provenance or authentication until you analyze it yourself. Any initial concerns could reveal a lot about the person with whom you’re working. Some gallerists claim that the provenance must be withheld to protect any previous owner’s identity. This is a difficult situation, and purchasing art without any proof of provenance is not advised.
Know That an Appraisal Is Not Considered Provenance
A value appraisal does not authenticate the artist or era. Unless the appraiser is an expert in such artist or era, which is a separate credential, you should not trust their judgment on anything but the work’s value. Generally, appraisers assume the work is authentic, and assign a value based on this assumption. Jump ahead to learn more about professional appraisers.
Be Sure Your Provenance Is Corroborated
Your documents must be investigated—because they are worth nothing until proven to be authentic. You have to be able to trace the qualified individual’s signature, the artist in question, or previous owners back to real people. When you do, you can ensure the documents are notfallacious. Unqualified experts attribute art all the time, and the documents might be completely trustworthy.
Once you have confirmed that the documents are factual, stated individuals on the documents are real, the final step is knowing who qualifies as a certified expert.
Only Trust Qualified Authorities
A qualified authority is a difficult concept, because it’s more than claiming (or seeming) to be an expert. This individual needs to have significant background and experience with the artist and artwork from the same period, and they have published papers teach courses, or have cataloged essays about this artist. Of course, the artist themselves, relatives, employees and descendants of the artist are all considered qualified authorities.
When all your documentation is verified and certified by the right experts, you can have confidence in your collection and its provenance.
BUYING ART ON A BUDGET
While the arts have a long history of patronage with wealthy individuals who invest in the art world, not every collector is a millionaire.
You can build an impressive collection following these guidelines, even if you’re working with a tight budget.
Let Your Own Tastes Guide Your Purchases
The more years you’re in the collecting game, the better you’ll be able to judge an artwork’s historical significance. With this knowledge, choosing pieces based on their perceived value gets easier.
Let your heart be your guide, and don’t let the fickle art market drive your choices too much. Because the art market can be unpredictable your reason for buying a piece should be rooted in your love for it, and you want to live with it.
Over time, you can refine your tastes and make informed purchases by attending art fairs, galleries, and exhibitions at museums and universities. These places show what the current market looks like—which pieces are selling and for how much.
Take a Risk on Emerging Artists
Sometimes, by attending MFA graduate school exhibitions, you can find artists early in their career and get an opportunity to acquire an investment piece before these artists gain widespread notoriety. Even if you choose not to buy anything, following young emerging artists can give you an edge on emerging trends in the art world.
Find art schools around your area and sign up for newsletters to quickly get an idea of the current class of students, the work being done, and what time of year the exhibitions occur. Gallerists often scout these events for fresh talent, and you’ll know who’s up and coming. You will be taking a risk, but it could pay off in the future—especially considering the significantly lower investment rates.
Make Smart Purchases
The key to building an investment collection when you don’t have millions to spare is to make calculated, informed decisions.
You can sharpen your instincts about new artists by educating yourself on both art history, current trends and what’s happening in the art world. Read up on publications.
Also, make a habit to regularly check on auction prices from market leaders.
Beyond that, build your own personal library of art books.
Look Online for the Next Big Thing
Tech is changing the way we collect art, and more than ever, young collectors are flocking online to discover new work. Platforms like Instagram offer an endless stream of online galleries and artists for collectors to discover.
Another habit of Millennials driving art collection is that they’re not afraid to search on the Internet and discover new things. They use non-traditional ways of discovering art and it’s exciting to find an artist no one has heard about it.~ Thad Mighell(Museum of Contemporary Art Denver)
With more artists online these days, collectors are feeling confident in taking more risks. Oftentimes, collectors can reach out directly to artists, and without gallery representation, an artist’s work may be sold at a more modest prices. The ease in communication makes it easy to do your own searching and build relationships with artists early in their careers.
Buy From Up-and-Coming Galleries
Supporting young galleries, just like working with emerging artists, ensures the future of the arts remains healthy and viable. Buying from these galleries can be a wise investment, too, because you help a community of art professionals continue to prosper.
Beyond your local area galleries, you can find up-and-coming galleries who participate in Art Basel events. This information will give insight to which artists are gaining traction, and you’ll be able to quickly and easily suss out trends and pricing in the art world.
Forge Relationships With Art Professionals
An outside opinion is sometimes the best advice to lean on when making decisions about your collector. Taking the time to find a dependable art advisor can be an invaluable addition to your network of art professionals. Having someone you can turn to—someone you can trust—will help guide your experience.
We recommend starting with The Association of Professional Art Advisors, where you can find advisors in your area. Review each advisor’s fees and the consulting services they offer, and decide if you prefer paying commission or a retainer for their work.
Join a Collectors Group
Many art museums have collectors groups that offer certain perks, especially for young or new collectors. These groups allow you to make connections, open conversations and pool together information. Check out your local art museum’s programs, join groups on Facebook, and search for Meetup groups that meet frequently.
You don’t have to be a millionaire to build an impressive art collection. By investing in emerging artists, educating yourself before making a purchase and seeking out opportunities online and in smaller galleries, you can accrue the art collection of your dreams.