There was a time when the value of a painting or sculpture was believed to be “in the eye of the beholder”. That is no longer the case. The value has to be translated for an art into currency and the monitory value has to be certified by respective authority. Insurances, art dealers, investors and other professionals rely on valuations for their daily activities as prices are rarely observed in the market.
The growth of the global art market and their increasing value of art continue to drive the interest in art as an asset class and wealth management solution. Growth factors of art market.
1. The global art market is continued its expansion in 20142. Increasing confidence in art market.
2. Post-war and contemporary art set new records.
3. Global art auction sales have risen as HNWI’s demand for art increases.
4. Indian art market is emerging from the gloom (in 2013 c.33% higher compare to 2012).
5. Russian modern and contemporary art market grew in London.
6. Chinese art market sales depict growth in 2013.
7. Constant demand of art in Latin American region.
8. Economic uncertainty is increasing demand for alternative investment.
9. Increasing value of art is creating need for new wealth management solutions.
10. Rapid development of online art industry. Online education is set to play an important role.
11. More confidence in online art auction.
There are two types of value use by art appraisers (persons or firm who apprise the value of art), Fair Market Value (FMV) and Replacement Value (RV). FMV is a hypothetical value, yet is the value that art lovers are willing to trade on. RV is known as amount of money that an owner will charge for a desired item.
The valuation process required considerable research skill. The compulsory research steps in art valuation are as follows,
1. Carefully examining the subject work of art
2. Properly identifying the work of art (the artist, art style, medium of art, date of creation and present quality of artwork)
3. Determining which is the relevant market
4. Selecting appropriate comparables
5. Collecting market data on comparables
6. Analyzing the subject work of art and the comparables
7. Built mathematical model for sharpen precision of valuation.
8. Drawing value conclusions according to international accounting standard from analyses6
9. Writing a convincing narrative to defend the conclusion in a report
Secondary Data Source plays an important role in art valuation. Auction indices, art reputation ranking (by exhibition, gallery and museum data) and market sentiment indices are commonly used secondary data.
Major auction houses for secondary data source
Major online auction houses for secondary data
Mel & Moses (www.artasanasset.com)
AMR Art Market Research (www.artmarketresearch.com)
Without interpreting this data effectively, it would be very difficult to derive the value of art. Presently many operators in art market are developing data analytical infrastructure.