HOW TO BUY ART
THE ART OF BUYING FINE ART
IMAGINE. . . .
. . . . that you are browsing through an
art gallery. Your eye glances from one thing to another as you walk
slowly around the exhibition space. Suddenly, something attracts your
attention, stops you in your tracks.
like that," you murmer to your companion.
forward, taking a closer look.
"This is really quite
beautiful." you say, as you continue to stare at the piece that had
caught your eye.
The artwork, like a little puppy in
a pet shop window, metaphorically wags its tail, warms your heart, and
seems to want to come home with you.
As you stand
there enthralled, the initial attraction slowly flickers into a flame of
serious interest. A moment later, the interest has become a raging
inferno, and you are engulfed in the "desire to acquire". You want to
OK, now what do you do, pull out your credit
card and give it to the nearest available salesperson?
Whoa, wait a minute.
How do you know
whether the price is fair? Is the artwork actually worth what the price
Should you maybe haggle a bit over the
price? It's not really all that much money, but is it a good
OK, tell the truth now . . . have you
ever been in this situation?
Buying art can be great
fun and a delightful adventure. It can also be a bit challenging. There
is (excuse the pun) an art to buying art. Let's see if we
can make the process a little easier for you.
What you are about to read are some
very valuable tips about buying art. This is practical stuff that you
can use to save money the next time you purchase something from an art
We are going to give you a peek behind the curtain, take
away some of the mystery about how "insiders" buy works of art at the
best prices. The secret of success in almost any business is to "buy
low, sell high". So we will also show you a wonderfully easy way to
dispose of artwork that you've bought, usually at far more than you
originally paid for it . . . thanks to a little-known IRS tax loop-hole.
There are some exciting "tricks of the trade" to share with you, so
let's get going.
. . What It's Worth
What most of us want to
know when it comes to buying art is:
Are we paying a fair price
for the art?
How is that price determined?
Can we bargain for a better
Is the art that we are considering going to be a good
OK, I'll admit that a couple of these questions are not
all that easy to answer. For example; there is no established,
agreed-upon price for every painting, print or sculpture. There are no
uniform price standards that are accepted by all art dealers and
appraisers for ANY work of fine art.
However, there are
ways of determining VALUE ranges, and you can become familiar
with what helps to make-up the "fair market value" of almost any work of
"Price is what you pay,
value is what its worth"
In other words, "value" also has to do with why something is
worth what it's worth in the eyes of the beholder.
Now, here is
something that far too many business enterprises don't understand. The
value of an item - in the mind of the buyer - is simply the
difference between the anticipated price and the actual price on
the tag. When the anticipated price is higher than the price on the tag,
it's a "good value". When the anticipated price is lower than the price
tag, it's a "bad value". The question, however, is what is that
"anticipated" value based upon?
The value of art is, for the most
part, based upon some rather indefinable things, such as; quality,
rarity, reputation of the artist, fashion, etc.
However, before we
get into the those value factors let's take a look at how art is priced
AFTER a valuation has been established. It might seem backwards, but it
will help you to better understand the relationship between value and price.
Basically, there are only two ways in which art is sold in
an art gallery:
Art purchased by a gallery and
then given a retail profit markup, or
Art consigned by the
artist with the sale price split equitably between gallery and artist
as determined by overhead.
savvy buyer, you should always ask the art dealer or gallery salesperson
if the piece of art you are interested in is consigned or purchased
Usually, if the artwork has
been consigned there is no extra gallery markup to permit price
negotiation. If, however, the dealer owns the artwork outright and needs
to turn over the inventory, there is sometimes an opportunity to bargain
for a better price. This is not, however, the same thing as a
This idea of bargaining for a discounted price brings
up an important point. Most of us know that there really isn't such a
thing as a "free lunch" in the world today. But everywhere we look in
the retail business world we see signs, banners and advertisement
displays announcing that a "BIG SALE" is taking place. If the truth were
known, most of these sale items are for merchandise that was probably
priced too high (and thus didn't sell) or the merchant simply bought too
many of the items and is stuck with excess inventory. A painting or a
marble sculpture, however, is not the same as a used car or a toaster.
Most legitimate, long-established art galleries do NOT play the game
of hiking up a price in anticipation of marking it down, or offering
so-called "discounts" from an already artificially high
selling price. Successful art dealers know the curent market value of
their stock, and price the artwork accordingly. This is particularly
true if the dealer expects repeat business from the customers who
acquire art from that gallery. Price-gouging doesn't work for very long
in ANY business.
Establishing The Value of
What most collectors
really want to know is whether or not the prices are fairly appraised
market values, not if they can "get it for less." So what are
some of the other value factors that help to establish the prices that
you will see listed on art gallery title cards?
The reputation of the artist is
considered to be most important of all. The value of art most often
comes down to WHO did it, WHAT was done, and WHEN. An oil painting by
Rembrandt done in 1642 is usually worth LOTS of money. The watercolor
done last year by your aunt Emily is valued at . . . well, far less.
The quality of a particular work in
relation to the entire output of the artist is important. On a scale of
1 to 10, where does THIS work stand? Is it from an important period,
does it show increased technical or compositional excellence? Always ask
to see a biographical writeup on the artist whose work you are
interested in acquiring . . . this will often provide tips on where
the artist is in his or her career (where they are, where they have
been, and where they seem to be headed in their creative careers).
If most of the better work of the artist is already in museums or
private collections, then his or her remaining artwork will fetch a
higher price. Is the artist working in a medium that takes a prolonged
time to create (such as stone or metal sculpting), so that less work is
available? Does the collector demand for the work of the particular
artist exceed the available supply? And is the artist still living, and
thus able to produce more work, or deceased so that no further work will
be created for the marketplace.
Naturally, what is in demand is
worth more. However, market hype does not constitute a reliable measure
OK, so now you know a
few of the factors that can contribute to the "worth" of a work of art.
An oil painting that is of museum-quality is obviously worth more than a
mass-produced poster print. And most often the more famous the artist,
the higher the price. Do remember, however, that good artists can also
produce bad art. So you should not buy art solely on the basis of
If you think about it, assigning a value to a work of
art is not as difficult as some of the academic "Art Experts" would have
Collecting art can be great fun, it can also be a grand
adventure. The bottom line is to buy what you love, what appeals to your
own personal sense of taste and aesthetics. So, does this mean that we
should never think of art as an "investment".
The policy of the
majority of reputable galleries is to never claim that any piece
of art will make a "profitable investment"! Maybe YOU have a
wonderful crystal ball that shows the future, but I sure don't. None of
us can fortell exactly what will happen in the art market. Thus, we
simply can't tell a collector that a particular work of art will yield
them a guaranteed "profit"
However, having said that, in
this particular economic climate it sometimes makes better sense to
switch from having too many dollar denominated assets into "things"
which have their own "worth".
In other words, rather than hold onto
a depreciating asset like the $US dollar, it might be much better to
invest in a "store of value" like certain fine art.
Once again, the
collector must always be careful to ONLY buy what he or she likes, what
is appreciated. Ah-hhh, But have you ever though about the fact that the
word appreciate has two meanings; one is
"to enjoy", the other definition
is "to increase in value". And it
is quite obvious that the value of the artwork of many artists has
indeed APPRECIATED over the years, sometime quite dramatically.
So let's talk for a moment about the "investment" aspect of fine
First, let's nail
down a couple of terms. An "art investor" is simply a collector who buys
art with the anticipation of an eventual increase in the value of that
art . . . if he or she acquires the right kind of art and holds onto it
for a sufficient length of time.
A "collector" is anyone who
acquires art. There are different levels of involvement as a collector,
ranging from the more serious collector who specializes in a specific
kind of art object to the casual and infrequent buyer ... who doesn't
seem to know much about art, and buys only what he or she likes.
This last type of collector does not purchase artwork with the idea of
"making money." However, like most of us, this kind of art
buyer secretly hopes that what they acquire will prove to be a winner
and perhaps skyrocket upward in value over the years. After all, in this
crazy ecomony it's nice to know that a few things we purchase won't lose
all of its value in a few years.
Not everyone, however, agrees with
using art to turn a profit. There are museum curators, media art
critics, and art history scholars - the elitist portion of the art world
- who totally debunk art ownership for investment. "One should
collect art only for one's intellectual and sensual enjoyment . . .
Spiritual enrichment should be the true goal of collecting
Hm-mmmm! Tell THAT to the savvy thirty-year-old
collector who picked up a couple of Andy Warhol's "Marilyn
Monroe" prints a few years ago (when Warhol was just some
weird-looking NY guy wearing a cheap blonde wig, who mostly painted soup
Hey, would YOU turn down a 3,400% return on your investment,
just because the artwork you acquired didn't "spiritually enrich"
you? You liked it and it was affordable, so you purchased it. The fact
that it turned out to be a superb investment was simply iceing on the
The single most important thing for us to remember about
discussing the subject of "investment" is that no one can
ever promise an increase in value! You simply cannot
guarantee the down-line value of any work of art. No one can!
So-oooo, does this mean that artwork never be discussed as a "good
investment?"? Well of course not!
The question you have to ask
yourself is whether you are discussing art investment as a:
Investment: (betting that the artwork will yield
a profit in the immediate future),
or if you mean "investment" as a:
Capital: (expecting the artwork to maintain its
value in the forseeable future with a potential profit
What Is Investment-grade
Let me ask you as question:
"Have you ever considered the benefits of collecting the kind of artwork
that yields pleasure AND profit?" Have you thought about
selecting your next art aquisition not merely as a 'decorative'
expenditure, but as something that provides beauty and enjoyment in your
life at the same time as the artwork is serving as an appreciating asset
in your investment portfolio?"
Ah-hhhh, but what kind of art offers this kind of
solid investment potential? Where can you find it? How would you pay for
it? And then, later on, how could you sell your investment to realize a
On the following pages, I've tried to cover some of these
questions. You'll find strategies that are used by professional
collectors and investors . . . the people who buy art that THEY can
appreciate, even while the art itself is appreciating in value. Is'nt
that really what we would all like to do?
How Do You Select The "Right" Art For
Art dealers and collectors use
several buying strategies. Some advise purchasing paintings and prints
of established masters, such as; Rembrandt, Raphael, Vermeer, Renoir,
Matisse, Picasso, Chagall, etc. Other experts suggest that you will get
"more bang for your art-buck" by investing in young emerging artists.
Occasionally, you can find very fine work being created by young,
relatively unknown regional artists. Buyers will thus have the
opportunity to obtain good value at bargain prices . . . if the art
buyer invests in the work of exceptional artists BEFORE they reach the
peak of their career potential.
Whatever your strategy, most art
professionals agree (as do I) that you should purchase only what YOU
like. If the value goes up, well then you've made an intelligent
investment. If it does not, then you and your family can still enjoy the
aesthetic pleasure that prompted you to buy the art in the first place.
And the icing on the cake is that in either case you will still have
something valuable to show for your money.
Tell me, have you ever
framed and hung a stock certificate on your wall, and treated THAT as a
piece of valuable art?
Our US government has established a tax
"loophole" that actually encourages donations of art to museums and
non-profits. The only requirement is that you hold onto the artwork for
a year and a day, and that it be donated to a qualified entity. This
little gem of an investment vehicle is based upon a widely used tax law
that permits an art "collector" to purchase the art at a very low price,
hold the art for an appropriate length of time, then donate it at the
higher retail "fair market" value.
In our often hyper-inflated art
market, you can pick up a piece of art from a newly emerging artist,
hold it for five or six years, then when that artist's retail prices
have appreciated to much higher levels you can donate the artwork for
the currently appraised retail value to a qualifying non-profit . . .
walking away with more in tax savings than you could probably derive
with an outright sale of the artwork.
Individuals, corporations and
estates can use charitable donations of art as part of their tax
planning. The main difference is the limitation on how much one can
give. Individuals can deduct 20, 30 even 50% of their adjusted gross
income in the year of their donation, and may carry any excess forward
or backward. Corporations, on the other hand, are limited to 10%, and
estates have no limits at all. Of course, each situation is different,
and the collector must rely upon the advise of his or her CPA or tax
As you can see, there are several ways to realize a
profit from an art investment. However, one of the best uses of art is
as a "store of value", a preservation of capital . . . even as you are
enjoying the artwork in your home or office.
How To Hold
Onto What You've Worked So Hard To Make
Let me ask you a question. Do you
actually believe that there will NOT be continued dramatic changes in
our economy in the days ahead? With the Dow and the NASDAQ girating
madly up and down, so much of our hard-earned savings already lost to
rampant inflation, and a full-blown recession and probably a depression staring us in the face,
there is good reason for doubts about our economy.
Howard Rehs, of the Rehs Galleries in New York City,
recently put it this way: "when it comes to the art many of us own, we
can all agree it is very comforting to know that when we wake up in the
morning and turn on the television, nobody is telling us that one, or
some, of our paintings missed their "whisper number" by a penny or two
and are going to take a pounding that day. We can just sit back and
enjoy our art without hearing about its impending decrease in value, or
the possibility that someone is going to make a hostile takeover
attempt, or 'take it private', and we will lose one of our prized
possessions to some private equity firm.
"Over the long run a diversified portfolio of high
quality stocks and/or art will bring its owner a good return ...
however, the ability to visually enjoy your art is a benefit you can
almost never derive from your stocks - unless you decide to frame and
hang the certificates in your living room; but who even gets their
certificates today? All I get is a statement from my broker with a
bunch of symbols and dollar amounts -- which are as predictable as the
I rather like the part about hanging stock
certificates on your wall. However, there is a far more serious aspect
to all of this . . . the preservation of your personal net worth.
Do you find yourself worrying a bit about the
future; not so much about how you are going to MAKE money, but how
you're going to KEEP what you have worked so hard to earn? Well, that's
exactly what most of us are thinking about when we consider whether or
not to purchase artwork. In other words, do we really want to spend the
dollars in our purses and billfolds for a piece of art . . . or hold on
Hm-mmmm? What about those dollar bills we
are carrying around, the ones that we worry so much about spending, the
dollars we value so highly. Well, the U.S. dollar bill is undoubtedly
one of the most liquid forms of wealth in existence. It is, as you know,
the Reserve Currency of the world! But hold onto a paper dollar for any
length of time these days and you will wind up with a depreciating
For this you can blame world-wide
economic fluctuations, currency speculation, our grotesque trade
deficits, Mr. Greenspan's (and now Dr. Bernake's) Federal reserve
interventions, and cyclical inflation. It may appear to be under
control, but inflation is very much with us. One and a half percent
here, two percent there . . . and before you know it that dollar bill of
yours is worth a lot less today than it was a few years ago.
It is really amazing when you stop to think about it.
In the past
twenty-five years or so, our dollar has DETERIORATED in value by some
EIGHTY-FIVE PERCENT! Today's dollar retains just 15% of its 1975 buying
power. Since 1900? The Federal Reserve "dollar" has lost almost ALL of its value!
If someone had told you in 1975 that gasoline
would rise some 1,450% (remember, in the 1975's gasoline cost us only 25
to 30 cents a gallon) or that the cost of a single family home would
increase 1,785% (back in 1975 the average new home sold for less than
$25,000) .... or that a Volkswagon that originally cost only $1,800 in
1975, would be selling for $25,000 in 2000 (the price of a brand new
HOME in 1975!) .... well, you would have written them off as a lunatic,
wouldn't you? But that's just exactly what has happened.
Despite what our government statistics tell us, our
inflation has actually gotten worse! You don't need to look far for the
real truth. As recently as 2000, you paid only $273 for an ounce of
gold. Today, you're paying more than $900. Back then, you also paid only
a little over $1 for a gallon of gas. Today, we are already paying more
than $4 here in Hawaii. Back then, even a barrel of oil cost only $22.
Now we pay well over $100 per barrel.
Rising fuel, wheat and soybean oil prices have caused
the cost of food production to spike, and product prices are expected to
jump another 15 percent in 2008 after they rose nearly 5 percent in 2007,
according to U.S. Department of Agriculture data. And now we find that
flooding in the Mid-West will destroy some 15% (o more!) of the corn
production for the 2008-2009 growing season. What do you think THAT is
going to do with the already inflated cost of food?
Hey, you can see where I'm going
with this. These dollar bills in our wallets and purses are depreciating
in value every single day. Even more to the point, it means that we
should be looking around for better "stores of value" than pieces of
paper with pictures of dead presidents! Is the Federal Reserve fiat currency going to be DEAD in a few years, as many are predicting? I don't know. Or how about the predicted hyper-inflation that will reduce the value of your purchasing power even further ... dramatically further.
And this raises an interesting question:
"If the U.S. dollar
declined by 85% (or more!) in the last twenty-five years or so, what will it do in
the NEXT 25? ... or even the next 5 years?"
So do you really want to hold a wallet full of
dollar bills, or would it be more prudent for you to place some of those
dollars in a good, solid, store of value . . . a preservation of
capital, such as certain kinds of artwork offer?
Obviously, not every work of art is going to qualify as a means of
capital preservation. What specific kinds of art ARE considered to be
heirloom-quality investments? Well, that's the subject of another
commentary. However, if you visit us at our Hana Coast Gallery, we will
be happy to discuss this subject with you at greater
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I would hope that all this attention
to the investment aspect of collecting doesn't obscure the true value of
fine art. Art concerns beauty, passion, drama, memory, and other
intangibles. You buy a work of art because of how it makes you feel,
what it means to you on a personal level. The appreciation of art should
always be a very personal and emotional experience.
But this doesn't
mean that you shouldn't also know the "insider" tricks of being able to
understand the marketplace value of a work of art that attracts you. And
it certainly doesn't mean that you shouldn't invest wisely in the kinds
of art that can serve you as a preservation of the capital that went
into the purchase. I hope that you understand this a little better for
having read our brief commentary.
If you feel that you don't know
enough about art, then start visiting galleries and museums so that you
can develop your own "eye" for quality. Ask questions. Start right here
with our Web pages and the information you'll find, click your way
around the Internet. Read books. Engage art dealers and gallery art
consultants in conversation about the type of art that you are
interested in acquiring.
The "Art Dealer"
and "Art Consultant" usually work with a smaller number of collectors
than does the gallery salesperson, and represents fine art that can be
in a much higher price range. The Art Dealer/Consultant may not have his
or her own gallery, and those who work outside of a gallery affiation
are called "Private Dealers". They all have one thing in common: their
job is to consult with you about your needs and desires, help you
acquire the artwork at a fair market price, and make sure you get all of
the necessary documentation (Bill of Sale, Certificate of Authenticity,
Disclosure of the Edition for prints, Insurance Valuation, and a
Biography of the Artist which helps an appraiser determine the downline
re-evaluation of your artwork).
In these unsettled economic times, it's vital for you to know the
true worth of your financial "Store Of Value" investments . . .
before you spend your money to buy something. This is especially
true with the acquisition of fine art.
You do NOT need some "expert" to educate your personal taste when it
comes to art. You already know what you like. But perhaps you don't feel
comfortable about knowing if you are paying the "right" price for what
delights your eye. What's usually needed in this case is a trusted
advisor to help you with the necessary due diligence of
valuation. And that's where The Hana Coast Gallery comes into the
If you visit our gallery in Hana on the Island of Maui, Hawaii, we
would be delighted to discuss this subject of how to buy art with you in
more detail. If you have a specific question about something you have
read in this commentary, please feel free to contact us by e-mail
through the link below.
(NOTE: This commentary was written by Patrick Robinson, the now
retired founding partner and former managing director of Hana Coast Gallery.)
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