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BUSINESS OF APPRAISING
Maintaining the Need for Insurance Appraisals Given the fluctuating economic markets this past year, it's hard to avoid discussions about how this is impacting the fine art marketplace. We are inundated with stories about the subject every day, everywhere we look, as the stock markets ride a scary free-falling roller coaster ride one week only to bounce up the next. As appraisers, we are charged with ultimately reporting the effects of this financial upheaval and evaluating our clients' assets. One particular aspect of our practice that may be greatly affected during this tumultuous period is Insurance Appraisals. However, even in a transitional marketplace, a quick look at the art and business media reminds savvy collectors there are extraordinary buying opportunities available, especially for those who've been shut out of a particular artist's market. As we all know, curators and collectors need to acquire new objects. Even now, many clients have decided to expand their holdings. Others, of course, may be in a very different position. In this financial environment it's inevitable that select artistic assets have depreciated which means that some clients may be looking to cut back on expenses. After all, does it make sense to pay high premiums when they may no longer be necessary? Understandably, clients are generally quite happy to pay for insurance appraisals when the art market is performing robustly. Valuations on fine art photographs may bolster pride in a private collection or, in today's economic environment, provide an added sense of financial security. Insurance appraisals can also, in some instances, serve as a strong basis for future donation appraisals, particularly if retail sales records have been maintained over a period of time and values have been updated every few years. The pertinent question is: in challenging economic times, how do we convince our clients that insurance appraisals are still a good idea? As any appraiser knows, one of the most difficult concepts to explain to clients is the idea of value. For example, a client has received an appraisal for Irving Penn's photograph of Lisa Fonssagrives (Woman with Roses), that was valued for $400,000, in 2007. The photograph was reappraised today at $300,000 due to recent auction sales, where the price dipped, and current economic trends. The question immediately asked is, "Where did the $100,000 go?" The reality is those monies never really existed. Just as in the equities or real estate markets or, for that matter, any commodity, value is relative. A retail or auction sales price is dependent on many factors, all of which are subject to the exigencies of the time. It is fundamental that, as a professional appraiser, you convey to your clients that now is the time to consider having their art or furniture or collectible collections revalued for insurance purposes. There should be an understanding that, while insurance values should be diligently updated every two years (even in the most stable of markets), it is particularly important to evaluate works when there are either rapid increases or decreases in values. Insurance carriers diligently monitor changes in an artist's market, or the rise or fall of appreciation of a particular collectible. As appraisers many of us have had experience with the fact that insurance carriers might rightfully question, and in some cases refuse to reimburse a client on a, what now is perceived to be an overvalued work of art. In addition, the savings a client can derive from paying a lower premium will also save them money in the long run. The role public auctions have played in establishing an artist's market is regularly reported on both the art and financial websites and publications. Unfortunately, a very common challenge we face is that clients are not able to fully interpret auction prices. The excitement associated with auction results often create misconceptions on the part of buyers/collectors, who do not understand how to 'read' and evaluate all the components---artist reputation, condition of artwork, edition size, format, and, most importantly, provenance--have on value. Collectors assume that when a new record is set for a particular image, it means that their photograph is automatically valued at that same level. As appraisers it is increasingly necessary to stay abreast of all the latest developments. Subscribe to the databases, especially those that provide illustrations along with financial information, so that you can explain the impact of these various components to your clients In the case of Penn, this may be an accurate assessment since the gallery representing Penn will generally raise the artist's retail price based on the result of an auction sale. But will a gallerist modify a price when sales results are not continuously rising? If the answer is "no," what value should an appraiser place on a work for insurance purposes? What is the most likely market for replacement? Since auction markets (at least in the photography world) are equal to or, even higher, than retail levels, it is necessary to consider the appropriate market that would result in the highest replacement value. In current economic circumstances, there's an overall concern that many artists' markets are dropping, which is in no way accurate. Indeed, even in a relatively unstable market, specific artists continue to reach higher market levels. Several interesting examples occurred in the Leon and Michaela Constantiner Collection sale, which was conducted at Christie's New York in December 2008. The auction itself set a record for a single-owner auction, grossing a staggering $7,721,875. And, many different photographers' works performed extremely well, setting new auction records. For example, Helmut Newton's Sie Kommen (Dressed and Naiked), 1981, which has consistently been the image that has performed the most aggressively at auction over the past decade, set a new world record for the artist at $662,500. Prior to this sale, the prints had sold for $241,000 in April 2002. In the event you're working with a client who has collection of classical or blue chip artworks, it is extremely important to do your homework and see how a particular print--especially if it's vintage and unique--has been performing. Monitoring auction results, attending trade fairs to evaluate retail activity, recognizing the increasingly global nature of the marketplace and contacting colleagues in Europe and Asia to clarify how these areas of the markets are performing is invaluable. Apprise your clients about positive changes in the marketplace. As any savvy professional knows, there are opportunities even in the most seemingly dire situations and Insurance Appraisals will reflect these latest values. While most of the daily news conveys the usual doom and gloom, the art and photography markets regularly see specialized glimmers of strong activity. Maintaining regular contact with clients who are increasingly on the move is another new millenial challenge. An integral part of our job is to keep clients informed about changes in the markets through various forms of outreach: newsletters, artist specific emails or old school methods, such as telephone calls or letters. As noted above, clients may need to be reminded of the importance of a continuously documented price record to help substantiate values that are used in any future charitable contributions. One of the lessons of the digital age is, never underestimate the importance of personalized service. For clients with high net value, you may want to notify them about changes in the value associated with a particular artist, or emerging trends in the marketplace. For other clients, it may be useful to identify some of the more valuable works in their collection and suggest that they consider having those works reappraised. As art professionals with an interest in protecting our client's assets, this will reflect a more proactive relationship that clients too busy to pay attention to will appreciate. Even in these challenging economic times, your clients' assets are still valuable to their lives today as well as to their financial future. And, as we all know, their love of an artwork hasn't suddenly diminished because of a precipitous drop in the market. Our responsibility is to insure proper coverage of their art. As we are all discovering, it's not that the need for our services has changed. Rather, we need to adjust how we market our services to best reflect the big financial picture.
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