In the next two weeks, over $1 billion of art will be sold in New York. Starting on Thursday, several art fairs will take place simultaneously around the city, anchored by Frieze New York on Randall’s Island. Next week, the major auction houses will hold their contemporary art sales. Prices will range from several thousand to tens of millions of dollars; so how do you know if you’re paying the right price for a work of art? There is no public exchange to reference, no financials to peruse and no cash flow to analyze. And if buying for investment is even one factor in a purchase, the right price can be critical.
Who sets primary market prices? When buying a new work of art from a gallery (the primary market), you can either accept the price or move on. Galleries will sometimes give discounts, but once the prices are set, those are the prices. And while there’s no precise formula, there are a number of factors that galleries review with their artists to establish prices. If an artist is new to the market, prices reflect the age of the artist, where he/she went to school and what similar works by artists with similar backgrounds sell for. The quality, size and location of the gallery are also considerations, as are the size of the works, production costs, shipping and insurance. If the artist has an established market, the question becomes when and by how much to increase prices. Factors include:
- gallery exhibitions;
- museum exhibitions;
- museum acquisitions;
- other institutional or prominent individual collection acquisitions; and
- performance at auction.
The timing of price increases can be tricky because galleries don’t want to alienate existing collectors or new buyers. The amount of work an artist produces and how quickly the work sells are also considerations. Although at times, when prices increase, an artist may respond by producing less work.
Effects of auction prices on primary market prices. If a work sells at auction (the secondary market) for more than primary market prices, the gallery and artist have to decide whether the result should affect primary market pricing and if so, by how much. Auction bidding can be very emotional and competitive, and the circumstances driving up prices at auction often don’t exist in the primary market. Consequently, raising prices too much can ruin an artist’s market. Also, most galleries are interested in building an artist’s career – taking a long-term view – and raising prices too much or too quickly based upon auction performance can be counterproductive. However, don’t get too excited about a discrepancy between primary and secondary market prices. Typically, if an artist is “hot” at auction, it’s extremely difficult to find the artist’s works in the primary market. Galleries will have long waiting lists, which sellers will argue justifies higher secondary market prices.
Who sets secondary market prices? In the secondary market (resales of art at auction or through private sales), prices are set by the owners of the works. If a sale takes place at auction, the estimates are suggested by the auction house and agreed to by the owner. The estimates are predominantly based upon prior auction results (similar works by the same or similar artists) because those are the only prices publically available, despite comprising less than 50% of the secondary market. If a sale takes place through a private dealer or directly between a buyer and seller, the price is also commonly based upon auction records for the same reason. Even if one party has knowledge of a comparable private sale, it can be difficult to substantiate. Other factors in determining a sale price include the quality and condition of the work. The latter is often evidenced by a condition report that becomes fact. However, the quality is subjective and often depends on one’s position in a transaction. Most sellers argue that the work they own is better than the comparable works that have sold at auction, while prospective buyers argue the opposite. Hence, the prices in these situations often come down to what someone is willing to pay for a particular work.
As always, please contact me directly with any art-related questions, including inquiries about pricing, art fairs or auctions.
Upcoming art fairs:
- Frieze: May 9th – 13th, http://friezenewyork.com
- PULSE: May 9th – 12th, http://pulse-art.com
- NADA: May 10th – 12th, http://www.newartdealers.org
Frieze is a very prominent, international fair with about 180 participating galleries showing a mix of well-established and emerging artists. PULSE and NADA are smaller fairs, each composed of approximately 60 galleries showing mostly younger, up-and-coming artists.
For a review of my tips for attending an art fair, please visit: https://elementsinplay.com/category/newsletter/
Upcoming contemporary auctions:
- Sotheby’s: Evening Sale, May 14th; Day Sale, May 15th
- Christie’s: Evening Sale, May 15th; Day Sale, May 16th
- Phillips: Evening Sale, May 16th; Day Sale, May 17th
The Evening Sales are ticketed events during which the more significant and expensive works are sold (large Warhol paintings, for example). The Day Sales are open to the public and offer less expensive works (for example, small Warhol paintings, drawings and prints).
5/7/13