CONFUSION BETWEEN PRICE AND VALUE
Two of the most misused and misunderstood words in the art market are price and value. In fact, it is possible for an artwork to have a price, but little or no value. It happens every day in art galleries, online art sales sites and offerings at all levels.
Price is the amount of money that a seller says he’ll accept in exchange for an artwork. It may or may not be negotiable and it may or may not reflect any other actual sales in the art market. That is why, for instance, a single print by Salvador Dali may be offered for sale at $9,500 by an online virtual gallery, $3,500 in an actual art gallery and $1,200 or $600 on an online art brokerage site. What, therefore, is the right price? Whatever a buyer is willing to pay. But, until it is paid, it does not reflect the value of the print.
Value is a concept that must be based on actual sales. That is, the amount of money the art buying public has demonstrated it is willing to pay for a particular artwork or the work of a particular artist. That means that any representations as to future value are nothing but speculation. There may or may not be a future value. Only time will tell.
At the point of sale, there is often “hype” about the value of an artwork and this is usually misleading (intentionally) to a prospective buyer. Whenever someone asks, “What’s it worth?” the answer is the price that is being asked, when in fact the salability of the artwork will drop to almost nothing ourside the original source–be it online site or actual gallery–and then its “worth” (value) is whatever someone is willing to pay.
This is a concept that we apparently fully understand in the automobile market. Everyone knows that when a new car is driven off the dealer’s lot it instantly is worth a whole lot less than was just paid for it. In other words, the price is what was just paid while the value is whatever the car could be resold for.
New York dealer, publisher, authenticator and appraiser Alex Rosenberg told a symposium of the American Society of Appraisers that 98% of contemporary art will never again sell for as much as it did the first time. So what’s the value?
Shortly after the purchase is made, it may be said that the value is the price that was just paid because it confirmed the value at the amount for which the sale was made. If the owner tries to sell it and discovers that: a. there is no venue in which to make the offer; b. no one is willing to pay the full price at which the work had originally been purchased, or c. only a fraction of the purchase price will be paid by anyone, then the value is whatever the artwork sells for at that time. The once-upon-a-time price paid is not the current value.
That’s why the IRS hired me to be an expert in a number of tax shelter cases in Tax Court. I understood that if buyers who purchased a quantity of art (or any other personal property) did so at a deeply discounted wholesale price that was well below the original retail, then the value of that art (and charitable donation) was the price paid by the donor because that is the amount of money for which identical properties could then be purchased. In such a scenario, a tax deduction is disallowed if the art was valued by the taxpayer (donor) at the once-upon-a-time price. That is no longer the value or, as Treasurey Department Regulations require, the Fair Market Value at the time of donation.
Whenever considering the purchase of art, be aware that the price being asked has nothing to do with the value. The only true value is what it’s worth to you to own it.