Of course, with art, just as with the real estate maxim, that too is an oversimplification. Factors such as the condition of the property, size of the property, and the quality of the workmanship (artistry) are also important. A little Picasso usually sells for less than a BIG Picasso; a good Picasso sells for more than a bad Picasso (yes, they do exist); and in either case, clean and undamaged wins out over marred and dirty every time. Up to this point, the art market seems very logical. Dead artists no longer paint; the supply is limited; and only matters of authentication make for sticky wickets. It's when we move into the realm of living artists that things get screwy. Here the correlation is not with the very logical real estate market but more accurately with the highly volatile stock market. Everyone is looking for a hot stock (artist) likely to increase in value. Emotions, politics, trends, hunches, hype, history, the economy, and (here's that word again) prestige rule the playing field.
Which is not to say that there are not quantifiable factors. Investing in living artists is like building a stock portfolio. Questions arise. How productive is the company (artist)? Is he or she innovative? Does the artist possess a good reputation? Is the artist's product politically correct? Is it well made? Does the artist mass-market or specialty market his or her work? Does the artist measure up to his or her hype? Is there any hype? Does the artist produce an attractive product? How many other artists produce a similar product? Is (or was) the artist the first to produce such a product (something like owning a patent). Does the price reflect a great deal of speculation? Is the artist a fad or a fact of life? And finally there comes our favorite word, prestige. Here the living artist market suddenly departs from the stock market completely.
No one claims prestige in owning a stock (except perhaps in owning all of a given stock). But art is to be admired, and through it, the owner gains admiration. His or her tastes are on display along with the name of the prestigious artist. And when that living artist dies, then there's the different set of rules (as in real estate) which kick in. Name begins to mean more and more, all else, less and less. There are exceptions, of course (van Gogh for instance), but in general, a relatively unknown artist will remain so after death--in fact, usually becoming even more unknown (except for relatives). However, the artist with a prestigious, established name, his or her work seldom decreases in value and almost always increases as that name goes down in more and more art history books. And that is what makes artwork valuable.