Auction Results: When a Loss is Really a Profit

Photo Courtesy of Rehs Galleries, Inc.
I have covered this topic before, but people are always bringing it up so I thought I would go through it once again; especially since it is a very important factor when trying to understand the market for a specific artist-or even the art market in general.

Many people will consult auction result sites and discover that a particular work has appeared on the market a number of times (over a short period of time). In addition, they find that in certain cases a work brings substantially more, or substantially less, the second or third time around. People are usually puzzled, or concerned, by the fact that a work has appeared many times, so quickly. The typical question asked is: Why was the work resold so fast?

At times this happens when the first buyer got a great deal, buying in a less visible market and decided to reoffer the work in a more visible market. This, in turn, generally results in a sharp increase. Other times the work could be returning because of changes in a family's situation (death, debt, divorce, etc.). If the work was bought during a very strong period and is being sold during a weak period then it may bring less the second time around. And then there are those times when a work returns because of a change in its condition. It is this last reason I will explore here.

The fundamental problem when consulting a website, or book, which offers the results from public auctions, is that none of them give you the full picture. Sales take place on a specific day, while the individual works sell at a specific moment and many things can take place that will affect the results-turmoil in the financial markets, war, weather, disrupted telephone lines, or bad placement of the work during the viewing (it was hanging in the wrong location and not everyone saw it).

In addition to all of these, is the possibility that there may have been a change in the work's condition and this can cause a change in its value. What needs to be remembered is that none of the factors are revealed in the after-sale prices and they are all tremendously important when trying to determine the trend for an artist's work.

Getting back to condition-while works of art usually stand up pretty well over time, there are instances when damage does occur. If this happens, and the work was properly insured, you may find that once the claim is settled, the work can come back on the market so that either the insured, or the insurer, can recoup as much money as possible.

The typical comment I hear from someone who sees that a work sold for a lower price the second time around is: "That work was a bad investment." Now maybe they are right. The work may have been bought in a very heated auction battle and the buyer paid way too much, only to be "buried in the picture" (paying so far above market value that it would take years, or decades, before there was any possibility of recouping their cost). However, the work may have sold for a much lower price because of a change in its condition and in the end, the owner actually made money. Now I am sure you are wondering, "how is that possible?"

Well, here is an example (and this comes from many personal experiences): A painting is purchased for $100,000 and insured for that amount. Soon after, the work sustains a fairly major damage and the insurance company offers the owners a couple of options:

1. Take the full insurance value and surrender the painting, or
2. Accept a lower payout (let's say 85 percent or $85,000) and keep the painting

For this example, the owners decide to take option two. They immediately recover 85 percent of the painting's value and then have the work restored (some insurance policies even cover the cost of restoration). The owners then decide to sell the work; this time it is offered at a lower price because of it change in condition. As long as it now sells for $15,000, the owners are at a break-even level and should it make a bit more, they have a profit. And from experience, I will tell you that many times these damaged works will do well since many potential buyers have very little knowledge about condition.

And here is another variation on this story (again from personal experience). A work is bought for $100,000 and the owners obtain a professional appraisal valuing the work at $120,000 and insure it for that amount. Soon after the painting sustains damage and the scenarios above are repeated-only this time when the owners take option two they initially receive $102,000-slightly more than they originally paid for the work (right away they are ahead). After it has been restored they then place it back on the market and no matter what it sells for they are way ahead of the game.

So when looking at the "numbers" on paper, the fact that a work sells for less a few years after it was purchased may not mean that the market for that artist has change, but that the work itself has changed; and those physical changes caused a devaluation, but the owners really did not care because they ended up making money!

I also want to stress that not all damages are equal. There are plenty of times when damage will have little, to no, impact on the value of a work.


Howard L. Rehs

After graduating from New York University in 1981, with a degree in Art History, I moved to London for a year to study and buy 19th century British Victorian art for our gallery. Since then my interests have included all schools of art from the 19th and 20th centuries. Today, I am considered one of the leading art dealers in 19th century French Academic and Realist painting and the world's exp...(Read More)

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