Art Now and Then: How Art is Priced

The Piano Lesson, 1923, Henri Matisse

In 2011, The Piano Lesson (1923 version, above) by Henri Matisse sold at auction for $10.8-million. It was expected to sell for more than $12-million. Just over a year ago I wrote as to why certain painted masterpieces of the past became famous while similar works did not. Today I'm going to discuss a related question, not from a historic point of view, but from an economic one. How do gallery owners set prices for their high-end fine art? And, moreover, how do the wealthy buyers of such art decide the prices they are willing to pay? And beyond that, we take a glimpse into the workings of today's art market.

The Stolen Mirror, 1941, Max Ernst

Max Ernst's The Stolen Mirror (above)from 1941 is a dream-like landscape which sold for £10.3million in 2011, (a record for the surrealist artist). The European collector who bought it accepted a loss, offloading the work for just £8m at Christie’s in February. Although there may seem, in some cases, to be no "rhyme nor reason" in the astronomical sums paid for paintings by artists such as Matisse, Picasso, Max Ernst, and Alberto Giacometti, there is a certain basic logic involved. In nearly all cases, to varying degrees, the following nine factors come into play--

       1. The name of the artist.
       2. The size of the artwork.
       3. The medium employed.
       4. The date created.
       5. The content.
       6. The provenance.
       7. Recognizability.
       8. The condition of the work.
       9. The rarity of the work.

Les-femmes d Alger (Version "O"), 1955, Pablo Picasso

Picasso’s 1955 oil painting Les-femmes d Alger (above) sold for $179,365,000 at Sotheby's last month. Perhaps most important of all these criteria is the name of the artist. A billionaire art collector would be unlikely to bid the same price for a Jim Lane painting as one by Picasso. Picasso is internationally famous, a major mover and shaker in several groups of artists during his era. I can barely move much less shake. Any art group I've ever headed has had little or no impact on the overall history of art. The impact of Picasso's work on the history of art is nearly inestimable. Picasso's work, from time to time, comes up for auction. So far as I know, my work has yet to be sold at auction.

Nymphéas en fleur, 1914-17, Claude Monet

The other price determining factors all involve characteristics of the work itself. For example, damaged work obviously bring lower prices. But also, evidence of restoration likewise lowers price.
,As to size, in general, the larger the work the higher the price, but only up to a point at which size influence becomes less and less important. The break point as to sizes for collectors involves dimensions they can comfortably display in their homes. Larger works are purchased for corporate and institutional collections. Works such as Monet's Nymphéas en fleur series from the Peggy and David Rockefeller collections, are often measured in feet or meters. Nympheas en Fleur (above) sold for $84.6-million. Even some museums would be hard-pressed to display canvases of such size.

Picasso's Tete de Femme, (1935), sold for £18.9-millon at a Sotheby's last month, a far cry from the £28m which the seller paid for the work at the auction house’s 2013 sale.

Oil paintings tend to bring a higher price than works on paper. An artist's primary medium will bring the highest prices. Mixed media prices tend to fall somewhere between those for paper and canvas, depending on the artist's style, size and content. Speaking of content, content--male buyers tend to prefer female figures with nudes fetching the highest prices. Portraits of unknown figures bring lower prices, and today religious are quite out of fashion for individual collectors. They thus bring lower prices. The date of a given work must be correlated with the various developmental stages most artists go through during their careers--early, transitional, and mature. An artist's mature work is usually priced higher than his or her earlier pieces when they are struggling to "find" themselves.

Typical Certificate of Provenance provided by the artist. Where art history begins. Some are less "fancy" than this, some far more so.

Bust of a Man, plaster, 1965.
Alberto Giacometti .

The term "provenance" (above) comes to us from the French and might best be equated to an animal's pedigree. It begins with the artist's signature and the date completed, usually rendered on the work itself, but also includes what amounts to a written history of the work from the time the piece is first sold by the artist (or his estate) to the current owner offering it for sale. It is a legal document, often coming to the fore in court cases. Works without provenance are little more that wall decorations.

And finally, art history comes into play as prices are often determined by the impact the artist's following or that of the individual work on the overall art scene A .Giacometti painting similar to the plaster sculpture at left was bought just before the credit crunch for £1.6 million . The price was estimated at £1.8-2.5 million at Christie’s but failed to find a buyer. Apparently Gia-cometti's stature in the history of art has suffered in recent years. Works by artists who have created a relatively small amount of work brings higher prices. Giacometti does not fit into that category. The 17th-century Dutch painter, Jan Vermeer does.

The dominant forces of the fine art market today.

High-end art is one of the most manipulated markets in the world. Who are these manipulators? Major gallery owners you've probably never heard of, and the two giant auction houses, Sotheby's and their rival,Christie's (above). Both are venerable, ancient institutions, Christie's dating from 1766, Sotheby's from a few years later in 1774. Both houses no longer sell only art but high end real estate, cars, jewelry and other expensive knick-knacks for the terminally wealthy. moreover both behemoths have auction floors in all the many centers of sophisticated wealth around the world. They cater to a clientele of art collectors different than consumers or investors in any other market. High-power art collecting is both time consuming and expensive, so collectors tend to be very wealthy. Art collecting is often more of an avocation than a utilitarian pursuit. Although there's joy in collecting beautiful things, the social benefits are a large part of that enjoyment. The high-end art collector is part of community of collectors who go to fairs together and enjoy a friendly rivalry in acquiring the work of certain artists. He’s spent his life in the company of major collectors, dealers, and artists. At the same time many collectors are skeptical of the industry. They see prices that are often bogus; Bad art often sells for too much. Some question the integrity of many dealers. Yet these same avid collectors each, believe they are well informed, rarely overpay and enjoy what they’ve acquired.

Auction Room, Christie's, circa 1808.

Price manipulation occurs at the elite end of the primary market. There exists a lower tier art market, full of small unknown, local galleries outside of large urban areas where prices are listed, transactions occur at that price, and the work is sold to whomever wants to buy it off the street. These collectors buy art simply because they love the work, Artists who sell at these types of galleries probably can’t support themselves selling their work. Galleries must invest many costly resources in the artists they represent. They mentor them by visiting their studios, fostering their relationship with collectors and plot their career. But they’ll probably only represent a rising artist for a short time as the artist progresses they’ll move on to a higher tier gallery. Galleries promote the artist by presenting their art at an exhibition or at an art fair like Basel. Before new work is shown, the gallery has already offered it to their preferred clients, which include museums as well as major public and private collections. Their motivation to select buyers is inclusion in a major collection that signals that an artist’s work has been endorsed by the art world. This can increase the value of the artist’s portfolio and catapult him into another tier of prestige. Galleries also want to know the buyer in order to keep track of the work. That way they can ensure it’s available for exhibitions in the future and that it won’t be sold on the secondary auction market.

How the art market works.

Many art experts today feel that we have finally reached a peak in art sales? Works by Matisse and Picasso are going for a song as the world’s leading auction houses report a slump in sales. It’s less than a year since Pablo Picasso’s Women of Algiers (Version O) set a new world record for the most expensive artwork to be sold at auction after reaching $179m (£115m) in New York. Now even Picassos are falling in price after a run of disappointing sales which has forced the leading auction houses to take radical action. When Sotheby’s and Christie’s held a series of impressionist and modern art sales not long ago, they collectively sold $210-million worth, a dramatic 45 per cent decline from the $381m total for similar sales the year before. Christie’s International, the world’s leading auction house by revenue, reported a 5 per cent decline in annual sales, ending five years of growth. Sales of postwar and contemporary art, Old Masters, 19th century and Russian art were among those in decline. In further sign that collectors are becoming more selective, Sotheby’s sold just 67 per cent of its 37 offered lots at one recent sale, for a total of $114 million, below its own expectations of a $123m return.