America’s No. 1 Art Advisor Unveils Secrets of Art Valuation and Investing

By Sissi Cao • 05/21/19 7:00am

Elizabeth von Habsburg, managing director of Winston Art Group.

Earlier this month, a dazzling sculpture of the “Rabbit” by Jeff Koons was sold for $91 million at a Christie’s auction, creating a new world record for the most expensive work by a living artist ever sold. At the same auction, a painting entitled Buffalo II by Robert Rauschenberg fetched $88 million, and a terrifying “Spider” sculpture by Louise Bourgeois changed hands for $32 million, both wildly exceeding their pre-auction estimates.

Who were these obscure contemporary artworks sold to? Who put an (estimated) price tag on them in the first place? And did the buyers really purchase them as lifelong collectibles or merely because everyone said they would keep going up in value?

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Of course, it’s unlikely Christie’s would ever disclose the identities of these unimaginably deep-pocketed buyers. But to find the closest answers possible to these questions and the truth about the broader art market, we consulted Elizabeth von Habsburg, managing director of Winston Art Group, the largest independent art appraisal and collection management firm in the U.S. working with thousands of clients globally.

In this interview, von Habsburg shares insider secrets of art valuation, how the stock market, political instabilities and the entry of new buyers drive up (or down) art values, and to what extent art has become an investment vehicle as opposed to, well, art.

What’s the typical process of appraising an artwork?
The first thing we do is ask a client for what purpose an appraisal is being prepared.

The art market consists of two levels of most commonly accepted values: retail replacement value, which we usually provide for insurance coverage, and fair market value, which is most often used for tax purposes including estate, estate planning, donation and gift appraisals.

If we were appraising for fair market value, we would primarily look at auction records or, if the artist has minimal or no secondary or auction records, we would look at dealer and private sale records as a reference. For retail replacement valuation, we generally look at dealer and private sale records.

We would then examine the object, detailing such aspects as medium, size, provenance, literature citations, exhibition history, condition, date, subject and the period within an artist’s work, as well as trends in the market for that particular artist.

How accurate are appraisals usually? We often see auction news about certain pieces being sold for way more than their pre-sale estimates, such as the Jeff Koons “Rabbit” that was sold last week. Is it something that only applies to extremely rare artworks or just a common thing at auctions?
Auction estimates are not a prediction of sale price. Rather, they should be seen as a guide to potential buyers and are generally based on how much a work was sold for in the past. These estimates are also used as a means to encourage interested buyers to participate in the auction.

Generally speaking, when you see works in the top-end of the range, whether by David HockneyRobert RauschenbergLeonardo, or Jeff Koons, to name a few, they have a better chance of greatly exceeding pre-sale estimates, because they are one-of-a-kind pieces that become trophy collectibles.

On a high level, what factors—be it economic trends or big events within the art industry—affect art valuation the most?
Certainly, there are macro factors like market volatility and world instability. For example, the 2008 Financial Crisis and 9/11 had a strong impact on many collecting fields within the art market.

And then, there are more subtle factors like new platforms—such as art-backed loans and third-party guarantees—that bring a host of new buyers into the market. Statistics have shown that for each new bidder you bring for an artwork, its final price increases by 30 percent, therefore new collectors jumping in to the market can have a strong impact [on] the overall values for certain artists.

"Rabbit" by Jeff Koons

It seems as if we are seeing more and more “trophy collectibles” coming to the market after a really long time in private hands as a result of their owners (often prominent art-collecting families) passing away. From your experience of working with art collectors at Winston, who are the new generation of art collectors? Are they the “new money” from Silicon Valley, heirs to high-worth families, big institutions, or someone else?
I think it’s all of the above. What we are seeing now is that art is increasingly viewed as an asset class of its own. So, many new buyers are high-net-worth individuals who are looking for a diversification strategy from the standard equities and real estate assets.

We’ve also seen clients who have just had a liquidity event, such as selling a business or inheriting a large amount of money. They are buying art that they love, both as an investment and as a diversification strategy.

Have you seen more people buying art as an investment then, say, 20 or 30 years ago?
Absolutely, especially in the contemporary and, to some extent, post-impressionism and modern art markets.

I’ve been assisting clients with purchasing art for so many years, and virtually every client asks, “Do you think this will go up in value?”

Talking about art as an investment used to be frowned upon. But it is an investment and can result in a very successful return. We say to our clients repeatedly, and I can’t emphasize this enough, that it takes a tremendous amount of due diligence to invest wisely in art, just as in any other asset. You can’t just jump into the market and buy something expecting that it will increase in value; you have to do all the due diligence behind the purchase the same way you would if you were buying real estate or a company.

How good is art as an investment compared to traditional assets like bonds or stock?
If you look at statistics, art is a better investment than real estate and is somewhere in line with the stock market. But really, it depends on each individual work of art. As I mentioned before, if you do proper due diligence (condition checks, title and provenance research, comparables in the market, knowing if the work has been on the market recently, and other factors that affect long term value), you have a better chance of seeing your art going up in value over time.

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