The Fine Art of Determining Value

By Mike Rosser Posted March 29, 2017

THE ART MARKET & UP TO DATE ART APPRAISALS

“An exuberant Gustav Klimt garden scene sold at Sotheby’s on Wednesday night for about $59 million with fees, the third-highest price for any artwork sold at auction in Europe.

“Selling for 48 million pounds after a valuation of at least £35 million, the painting was fought over by four telephone bidders, reflecting newly energized demand for works by the great names of 20th century art.”

That was the New York Times report from London in early March, offering the latest breathless evidence of the trends that have shaped and reshaped the art world since the Great Recession.

Anita Heriot has had a front-row seat to it all for years.

The president of U.S. operations for The Fine Art Group, a London-based firm that advises art owners worldwide, Heriot says most art holders have no idea that valuations have risen so dramatically.

The ascendancy of Asian buyers and technology that allows buyers to bid at auctions from the comfort of their poolside chaise lounges anywhere in the world have helped drive up prices. To an extent, political instability in parts of the world also has helped.

It is, at least for some, perhaps a good time to sell.

Yet whether you’re selling, holding or giving away your art to a museum or hospital, there’s a certain responsibility that comes with owning art that extends beyond doing all you can to preserve it.

It’s the duty to do your due diligence regarding its worth, an obligation to ensure you know the most accurate and up-to-date fair market value of your piece.

That was one of the central points Heriot delivered in a recent presentation to CCIG clients.

All too often, especially after the passing of the last surviving parent, the children who inherit their family’s artwork make at least one big mistake in how they handle the high-value assets they inherit, Heriot said.

They fail to obtain an independent appraisal and instead trust an auction house or dealer to set the price. The problem in doing so, she said, is that those parties’ interests often conflict with an owner’s.

“The art world is one of the most opaque industries there is,” Heriot said. “The value of art has shot up to the sky and a lot of people just have no idea.”

There are many people who do their best to take advantage of that lack of awareness.

To illustrate her point, Heriot recounted the experience of a Seattle family that had relied on an old appraisal of its paintings. Heriot had gone to see the collection herself

“We saw four Rothkos, two Francis Bacons, Pollocks, Clyfford Stills. The list goes on and on. I will never forget that day. … In the end, what surprised me was that this collection, which the trust company was valuing at $2 million, was easily worth $140 million. And there had been almost no estate planning.”

Indeed, families often put off developing a strategy for their valuables until it’s too late to make a rational decision, she said. “We see this practically every single day,” she said.

Sadly, without a recent appraisal, art owners make easy targets for unscrupulous buyers who might tell them that their assets are worth much less than they really are.

Knowing the fair market value of an artwork isn’t important only at the time you might want to sell a piece. It’s also critical when insuring it.

Certain insurance policies will protect you if the market value of your art is greater than the amount for which it’s insured. However, even those policies typically pay only up to 150% of the amount of itemized coverage for that article. In a world in which art valuations have doubled, tripled and gone even higher, that’s a lot of money to leave on the table.

What else should you do if you own either a single work of art or have a collection?

Be sure you create and update detailed records of your collection, including information on the artist, the title, date the work was created, medium, size and condition. It’s also a good idea to keep photographs of the artwork in a safe place.

And, remember, although your policy will cover things such as theft, fire or water damage or damage caused during transit, it will not pay for gradual deterioration, such as fading or cracking caused by natural or artificial light.

Mike Rosser leads the Private Client practice at CCIG. Reach him at MikeR@thinkccig.com or 720-212-2068.

RELATED CONTENT

• Navigating the Art Market
• Estate Planning for Non-Traditional Couples
• Reintroducing The Scoop: The Next Generation Collector

OUR SERVICES

Understanding value is the cornerstone to effectively managing a collection – and at The Fine Art Group, it is this understanding that enables us to work as trusted fiduciaries for our clients, and their objects. We are experienced providing appraisals for a wide range of purposes, and are also specialists in unique and complicated appraisal scenarios.

THE VALUE OF A VISUAL INVENTORY WHEN FACING DAMAGE & LOSS

Not a week goes by when we don’t receive a call from a panicked client, but one client’s plight was especially memorable. With frustration in their tone, they began to shed light on the months of turmoil and headache that had ultimately lead them to us. After discovering a major leak in the ceiling that had saturated the walls and flooded the floors, they called their insurance company who referred them to a restoration service. 

They explained, “As a preventative measure, the restoration company cleared everything out of the first floor and placed the contents into their storage facility. Our insurance company assured us that the restoration company was the best in the business and that our treasured items would be safe with them at a secure facility.”

No one could foresee that weeks later the storage facility would have its own major water catastrophe, resulting in a total loss of our client’s contents.

In situations like these we often provide a valuation based on an inventory and photographs taken prior to moving. The restoration company had compiled a list, however what were purported to be of high value were described with vague terms like “sofa”, “boxes” and “lamp”.

There were no photos of the objects taken by neither the client nor the restoration company. The client assured us that many of the items lost to water damage were inherited from her father and were valuable objects ranging from antiques and collectibles to fine art and prints. Without photos of the pieces and an accurate inventory list, there was no basis for us to provide an accurate appraisal of the damaged pieces.

To make matters worse, our client was working with a direct insurer whose policy stated that items not scheduled individually would only be compensated for their market value, which is significantly lower than the retail value that would realistically make our client whole.

As much as we could identify and empathize with our client’s frustrations, we understood that our client’s unfortunate circumstances could have been avoided had they taken preventative measures. One of the most efficient and cost effective ways to prevent this scenario is to have a video inventory conducted by a professional appraiser and shared with your insurance company. While you may have some of your treasured art and antiques individually scheduled, the majority of your contents vaguely fall under blanket coverage. In the event of loss, the task to “establish value” is your responsibility. A video inventory produced by a professional will facilitate the appraiser in appropriately determining each object’s replacement value. Without an image, it is difficult for an appraiser to place a value on any object and it is less likely the insurer will compensate you for the full retail value.

The Fine Art Group conducts hundreds of professionally produced visual inventories each year.  For more information or to schedule an appointment contact us at 610-254-8400 or mail@fineartgroup.com.

The Fine Art Group will conduct a Visual Inventory of your assets to provide a photographic record of the residence including the exterior, individual rooms and its remaining contents.

The Visual Inventory is conducted by a seasoned appraisal professional and professionally edited.

INSURANCE VALUATIONS

When dealing with the inconvenience of loss or damage, adding a Visual Inventory to your risk management strategy offers peace of mind and assurance that the claims process will be handled appropriately.

TAXATION & ESTATE VALUATIONS

Theft is more likely to occur in an unoccupied home, and burglars are known to target the elderly. The Visual Inventory provides an accurate account of home contents and can be used when dividing an estate between members of the family.

FAMILY DIVISION & DIVORCE VALUATIONS

When faced with the challenges of a divorce, the Visual Inventory provides an accurate account of marital property and is a necessary, date-stamped tool that facilitates the division of assets.

RELATED CONTENT

• Watch Art, Cars & Collectibles: How to Mitigate Risk before a Disaster Hits
• Estate Planning for Non-Traditional Couples

OUR SERVICES

Understanding value is the cornerstone to effectively managing a collection – and at The Fine Art Group, it is this understanding that enables us to work as trusted fiduciaries for our clients, and their objects. We are experienced providing appraisals for a wide range of purposes, and are also specialists in unique and complicated appraisal scenarios.

JOIN US THURSDAY, MARCH 30, 2017 – 3:30PM EST

Please join us for a presentation educating CPAs and financial advisors on the state of the art and collectible markets. Anita Heriot, President of The Fine Art Group, will help CPAs and financial advisors develop an understanding of the importance of planning for and insuring a client’s valuable tangible assets.

The major themes of the course include:

• How the expanding global art market affects the value of tangible assets
• Understanding the appraisal process and how value is determined
• Using art as collateral
• IRS guidelines and tax implications for tangible assets
• How to monetize tangible assets and increase assets under management
• Understanding risk management strategies for tangible assets
• Unlocking the Potential of Hidden Wealth: Managing Tangible Assets
• When are valuable objects considered appreciating assets?
• How does the expanding global art market affect the value of fine art, collector cars, memorabilia, wine, silver, jewelry, and other collectibles owned by clients?
• What factors influence the value of objects?

During the past several years, fine art and collectible markets have been in a continuous state of evolution, expanding into new countries and to new purchasers across the globe. Due to the increased number of international buyers, tastes and desires have broadened. Due to changes in consumer demand, the value of fine art, jewelry, vintage cars, and collectibles have fluctuated tremendously over the past decade. Many personal collectors remain unaware of the value changes and as a result, their personal assets are not adequately protected or managed.

Choose from one of three great locations around Northeast Florida

Session 1 – Breakfast at The River Club
1 Independent Drive, #3500, Jacksonville, Florida 32202
Registration: 8:00AM – 8:30AM
Presentation: 8:30AM. – 9:30AM

Session 2 – Lunch at The Golf Club of Amelia Island
4700 Amelia Island Parkway, Amelia Island, Florida 32034
Registration: 12:00PM – 12:30PM
Presentation: 12:30PM – 1:30PM

Session 3 – Cocktail Reception at Deerwood Country Club
10239 Golf Club Drive, Jacksonville, Florida 32256
Registration: 3:30PM – 4:00PM
Presentation: 4:00PM – 5:00PM
Cocktail Reception: 5:00PM – 6:00PM

Regularly, I meet with family office advisors and their clients to discuss the disposition of their collections. Most recently, I met with a client, wealth advisor and attorney to discuss a valuable collection of art, silver, manuscripts and furniture.

The patriarch requested that several paintings stay in the family and be dispersed between the four siblings. However, these multi-million dollar paintings currently lack the appropriate risk management.

IMPORTANT QUESTIONS TO ASK ABOUT TANGIBLE ASSETS

How much should they be insured for? Who should pack and ship these paintings to the multiple family members located in cities across the United States and in London?

The patriarch would also like to donate a significant manuscript to an historical society. Is the historical society interested in acquiring the object? Does the institution want to incur the cost of insuring and preserving a document of significant historical and financial value?

Finally, the client would like to sell a substantial collection of silver, period furniture, historical documents and several multi-million dollar paintings. Is this the appropriate time to sell all of these items? Should the client sell with one auction house? With multiple houses? In a private sale?

Clients face many issues related to managing a varied collection and the disposition of these valuable objects. However, high-net-worth individuals rarely apply the same rigor to these items as they do when making financial investments or business decisions. I educate clients and their advisors on the importance of developing and implementing a strategic tangible asset management plan that will allow for a detailed understanding of what assets are currently held, their value, future value, and costs associated with maintaining or disposing of them

VALUATION IS THE FOUNDATION  

The valuation is the foundation for almost every decision made with tangible assets. Examining the current value of art, jewelry, wine, furniture and other collectibles, along with their future costs, allows clients to make better decisions regarding the appropriate disposition of these objects. Some clients may have items partially documented on their insurance policy but never review the values, which can change substantially over time. In recent recessionary times, many values can be much lower than previously listed, permitting cost savings by appropriately adjusting values. If inflation increases significantly in the future, current insurance values could prove woefully inadequate.

Too many families wait to develop a strategy for their valuables until it is too late to make a rational decision about an effective plan. The market may have shifted or legislative changes enacted which can impact the net monetary gain via a sale or donation of an asset.  It is never too early to begin planning and discussing the various ideas with your key advisors. Correct documentation enables proper planning and ensures that the appropriate tax basis is reflected, which can save family members thousands of dollars.

OUR SERVICES

From detailed provenance research to uncover the history behind a collection, to the robust inventory management, security consultation and conservation planning to protect its future, our specialist teams treat every collection as if it were their own.

DELAWARE MAY BE A LITTLE STATE, BUT IT HAS BIG PACKAGES

Delaware offers a Complete Package of Incorporation Services:
Modern and Flexible Corporate Laws, a Highly-Respected Court of Chancery, and a Business-Friendly State Government.

DELAWARE ADVANTAGE

I am constantly asked, “Why Delaware?”, what is the “Delaware Advantage” and how does it apply to fine arts? Fine arts can create challenging tax issues, but with proper planning, artists, collectors, investors and dealers can minimize income, sales and estate tax consequences.

Delaware has long been known as the jurisdiction to settle trusts. Specifically, the Delaware “advantage” comes from its longstanding favorable laws, consistent rulings by the Court of Chancery and a legislature and bar that work closely to keep Delaware in the forefront of trust construction and administration. Such advantages include providing for asset protection, confidentiality, non-judicial settlements, creation of perpetual trusts, non-judicial accounting, creation of total return trusts and state tax exclusions for accumulation of income for non-Delaware beneficiaries of certain trusts, just to name a few.

Although not for everyone, fine arts can be a valuable asset class making up a balanced portfolio within a Delaware trust. In many cases, corporate trustees will not take possession of tangible assets such as fine arts or real estate, but this can be resolved by having the trust form an LLC to hold the asset, thereby allowing the custodian to take possession of the interest in the LLC. There are ample storage facilities in Delaware that cater to fine art collections and the cost of storage in Delaware can be less than that in other parts of the country. There can also be a significant sales tax savings on the purchase and sale of fine arts since Delaware does not have a sales or use tax. Furthermore, in the case where the trust beneficiary is not a Delaware resident, an income tax savings may be achieved in some cases where the LLC interest (which holds the fine art) is sold and the profit is not distributed to the beneficiary. This could be a significant savings if the beneficiary lives in a high income tax state such as California or Illinois.

Careful planning and the advice of a Delaware CPA, tax attorney and corporate trustee should be sought before implementing any of the above strategies.

The author, Jordon Rosen is a CPA and the head of the Estate & Trust Section at the Wilmington, Delaware CPA firm of Belfint, Lyons & Shuman and can be reached for questions at jrosen@belfint.com or at 302.573.3911.

OUR SERVICES

Offering expert Advisory across sectors, our dedicated Advisory and Sales Agency teams combine strategic insight with transparent advice to guide our clients seamlessly through the market. We always welcome the opportunity to discuss our strategies and services in depth.

ACQUIRING EMERGING ARTISTS

Last year there was talk that the bubble for Emerging and Contemporary Art market was about to burst, if it hadn’t already. Our favorite sensationalized headlines included That $100,000 Painting Bought to Flip Is Now Worth About $20,000 and Collectors Abandon Emerging Art. But we continue to work with clients who have established collections ripe with emerging art that continues to demonstrate that the market is still thriving. And the success of emerging art exhibitions and sections at some of the most influential international art fairs also paints a different picture.

“I made a blanket in 1996 and it sold for £3,500 in 1997. Recently it sold for £720,000 at Christie’s. There is nothing in the world that can give you a return like that.“
– Tracey Emin

OUR BEST TRIED-AND-TRUE ADVICE FOR COLLECTORS

With Emerging Artists on our mind, here is a summary of our best tried-and-true advice for collectors—taken from conversations our team of advisors have all had, and are preparing to have, while assisting clients with acquisitions at The Armory Show.

• Define and refine your tastes. The first thing we do with a collector, fresh or seasoned to the market, is establish a clear picture of tastes and interests. Many new collectors are often surprised at what ultimately pulls their attention and draws their emotions.
• Establish a budget. Begin acquiring the best with what you have and don’t rule out the large fairs like The Armory Show or Art Basel Miami Beach. Even these fairs have great offerings at entry-level price points. Some of the most discerning collectors focus solely on prints, multiples and works on paper. And when it comes to prints, there are some dynamic trends and techniques emerging artist are exploring to push the medium to new heights.
• Do your due diligence. Here is a little case study: While at Art Miami in December, two galleries each had works by the same artist. They were comparable pieces of art, similar in size, composition, color and condition. One gallery listed their piece at $250,000; the neighboring gallery had theirs listed at $175,000. It always pays to do a little research before you purchase. As we said earlier this month, no one buys a new car or house without first delving into the market, comparing reports, consulting experts and doing their homework. However collectors will drop large sums on a work of art without seeking a second opinion. Connect with fellow collectors, the artist, other dealers who represent the artist, and as it should go without saying—call your art advisor!
• Understand how the markets work. When you acquire a work of art from a gallery or dealer, you are paying a retail price. When you are ready to sell the artwork, let’s say the market remained stable for that particular artist. Even if able to return to the original dealer you acquired it from, you will likely not get what you paid for it, because the dealer now needs to invest his time in reselling the piece, time and resources not at your disposal, and that comes at a cost. Which leads us to our next point.
• Buy what you love. “I deduct 10% annually for adding to my life enjoyment, everything else is a gain or loss on investment” are words to live by from a private collector who spent three decades building a collection of artwork he loved. What’s most memorable about this client isn’t his collection, but his attitude. And while not everything had a return on investment, it was his appreciation of the collection that put everything into perspective.
• Stay connected and get involved. Collecting art is a lifestyle and process, so follow the careers of the artists you add to your collection, go to museum exhibitions, check out gallery openings, meet collectors and artists at clubs related to your collecting interests, and be open to discovering a passion for something you hadn’t discovered before.

OUR SERVICES

Offering expert Advisory across sectors, our dedicated Advisory and Sales Agency teams combine strategic insight with transparent advice to guide our clients seamlessly through the market. We always welcome the opportunity to discuss our strategies and services in depth.

OUR SERVICES

Offering expert Advisory across sectors, our dedicated Advisory and Sales Agency teams combine strategic insight with transparent advice to guide our clients seamlessly through the market. We always welcome the opportunity to discuss our strategies and services in depth.

2017 Agenda: Personal Use of Business Autos, Millennials at Work + More

What’s on the agenda for the Personal Lines Practice Group in 2017?

Suggestions ranged from personal use of business autos to hiring, handling and keeping millennials at this month’s teleconference, chaired by George Pester of Johnson Kendall Johnson.

THESE WERE AMONG THE TOPICS

• Training new producers
• Social media campaigns that keep the agency’s name in front of clients and prospects
• Social media’s role in client retention
• How your agency can increase visibility through volunteer days, networking groups and other efforts
• Improvements in the claims process
• Risk management techniques that lower risks
• Technology and risks, such as helping clients in geographic areas where alarm systems are required
• Segmenting clients and the use of service center
• How to hire, handle and keep millennials
• Time management
• Client retention strategies
• Motivating service teams to offer additional products to clients
• Community events that draw business to the agency
• Personal use of business vehicles and insurance pitfalls
• Encouraging referrals from commercial lines
• Structuring service teams

The next teleconference will be Dec. 14 with Colleen Boyle, senior vice president-national sales director of The Fine Art Group, as a guest speaker. Her topic will “Completing the Picture of Wealth: Managing Tangible Assets.”

PROTECTING YOUR CLOSETS

Following Hurricane Sandy clean up, The Fine Art Group recognized that all too often closets were an overlooked entity of the risk management portfolio. Entire collections of custom suits, evening gowns, handmade leather handbags and luxury apparel, often highly prized by our clients, were left in ruins with few avenues to rectify the situation.

As a direct result of our clients’ increased demands to appraise their wearable collections, we have developed the Wearable Collection Inventory and Valuation Service. As with our other appraisal services, the The Fine Art Group team will document and photograph the collection on-site. The wearable assets will be appropriately catalogued, photographed, researched and valued, and clients will be presented with a detailed appraisal report containing the retail replacement values for each item.

As part of the report, The Fine Art Group will also provide market data on couture items that are rapidly appreciating –– arming clients with the necessary information to better bolster their risk management portfolio as well as provide necessary metrics for monetization strategies in wealth management.

FURTHER INFORMATION

• Watch The Educated Eye: Understanding the Hermès Luxury Handbag Market

DUE DILIGENCE IN BUILDING OUR COLLECTION OF CONTEMPORARY ART

With prices high and artist’s incorporating a vast array of media, collectors must be hyper-vigilant when selecting works of contemporary art. Not sure what to look for? Here is a quick overview that every collector should consider before committing to a purchase.

• Investigate the value: With respect to valuation, do not rely on the seller’s representations. Instead, research the value of the work yourself, and consult with an independent professional such as an appraiser or art advisor familiar with the artist’s market.
• Evaluate the condition: Always physically inspect the work in person (and for significant purchases, obtain a condition report) to ensure the work is not damaged and free of obvious condition issues.
• Consider the materials used: For works with non-traditional or ephemeral materials, investigate the risk that the work will deteriorate, and learn the best methods to preserve the work. No one wants to purchase an expensive work of art that is not made to withhold  the test of time.
• Research the history of the work: For previously-owned works, conduct some background research to verify the authenticity of the work and the provenance information provided by the seller. The Art Loss Register and Art Claim are great resources to find out whether the work has been reported as stolen, looted or missing, and searching state Uniform Commercial Code databases will confirm that the work is not subject to a third-party’s security interest.
• Seek advice: The Fine Art Group is equipped with the necessary expertise to guide you in building your collection. We work with collectors every step of the way, from defining tastes and negotiating list prices, to delivery, storage and conservation.

*With information provided by Amelia K. Brankov, Attorney, Frankfurt KurnitKlein + Selz PC

OUR SERVICES

Understanding value is the cornerstone to effectively managing a collection – and at The Fine Art Group, it is this understanding that enables us to work as trusted fiduciaries for our clients, and their objects. We are experienced providing appraisals for a wide range of purposes, and are also specialists in unique and complicated appraisal scenarios.

The exhibition brings together a selection of artworks realized between 1959 to 1994 by Edward Kienholz and Nancy Reddin Kienholz, including the well-known installation ‘Five Car Stud’ that gives the show its title.
A life-sized reproduction of a scene of racial violence, Five Car Stud is considered one of the American artist’s most significant works. Despite the controversy and attention that it earned from critics right from its debut, the piece remained hidden from view in the storage of a Japanese collector for almost forty years.
‘Five Car Stud” is now part of the Prada Collection, and is being shown for the first time ever in Italy, where it forms the central nucleus of an exhibition path that runs from the Sud gallery to the Deposito, and extends into an external space, presenting 25 artworks including sculpture, assemblages and tableaux realized by the Kienholzes from 1959 to 1994, as well as documentation material on the history and making of Five Car Stud.
The exhibition  offers what Peter Aspden in the Financial Times, calls “ withering critiques of US society”.  It  includes representations of violent situations that the Foundation warns may disturb or offend some visitors. The Foundation advises minors to avoid visiting the exhibition, and in any case may do so only when accompanied by an adult who assumes full responsibility for the visit.
For further information about the exhibition click here
For a review of the exhibition by Peter Aspden in the Financial Times click here

OUR SERVICES

Offering expert Advisory across sectors, our dedicated Advisory and Sales Agency teams combine strategic insight with transparent advice to guide our clients seamlessly through the market. We always welcome the opportunity to discuss our strategies and services in depth.