THE ART MARKET, REDUX

Here’s what’s been going on in the Picasso market, in broad brushstrokes, and as I see it.  A number of collectors have sat on the sidelines while waiting for the art market to crash and compelling bargains to appear.  Well, many prices have come down, and there have been occasional bargains.  But the bottom hasn’t yet fallen out of the market.  Instead, the major change that has occurred has been on the seller’s side.  Sellers with whom I regularly jawbone have held their prices steady or have modestly reduced them, on the theory that it would be a mistake to let wonderful things go for nothing when the economy is sure to turn around.

The effect of the market upon the auctions has been a bit different.  Auction houses are naturally applying downward pressure on their estimates and reserves, because for them, a “bought in” (unsold lot) is a worse fate than a lot that sells for a lower price than had been hoped.  Yet consignors are holding back, so that the auctions are very thin.  Since I blogged about the London print sales, the upcoming NY sales have come online (all but the Christie’s evening sale at the time of this writing) and seem rather unexciting, with very few paintings and drawings, most of them lackluster, and not many more prints.

By this point, buyers have come to realize that there are very few real bargains and they shouldn’t sit on the sidelines waiting for them to appear while letting great works slip through their hands.  After all, the limiting factor today as in recent decades is the availability of great works, not their price.  So buyers are once again looking for compelling works at reasonable prices.  At least that’s what a number of them have told me.  And my inbox is once again full of inquiries, which had all but stopped for several months.  As the Dow goes, so goes the art market?  Only up to a point, I believe, but let’s hope for everyone’s sake that both continue to rebound!

IN THE FLESH

After talking with a prospective client yesterday, it occurred to me that he was nearing a decision between three or more Picasso linocuts and aquatints without the benefit of viewing any of them in the flesh.  And that, despite the fact that all or nearly all of the art was in the inventory of dealers (myself included) within several miles of his home.  Mulling this over after our conversation, I felt that I should encourage him, and, while I’m at it, the rest of you Picasso lovers and collectors out there to actually see the art.  It tends to be much more powerful when seen in person than when viewing photographs of it.  I shop at a distance all the time and am very familiar with most Picasso prints and many of his drawings and paintings, yet I am usually thunderstruck by the power and beauty of the art when I see it up close, much more so than looking at its photographs.  Even the art on our walls is striking to me every time I stop and look at it, which is many times a day, despite the fact that I have stared at each piece thousands of times by now.  The photos are useful, because they reproduce the design and sometimes the color of the art reasonably well, but they fail to provide the scale, resolution, texture, depth, and perhaps other factors that make direct viewing so much more powerful.  You’d think that a photo of an original print should pretty much convey the same impact, since both are two-dimensional, but, either paradoxically or for the reasons I’ve listed above, that’s just not the case.  In the end, looking at photos of art should serve as but a guide, a first step.

If the geographic circumstances of your prospective acquisition are not as favorable as my client’s, make sure your dealer of choice offers you the opportunity to receive the art “on approval” following prepayment.  Terms vary from dealer to dealer.  Some offer to refund your money if you return the art within a 7-day grace period.  We offer 30 days, more than enough time to get an independent appraisal and to make sure it “goes” with your proverbial red couch.

The Turnaround?

What, the Dow’s up a lousy 20% and suddenly everyone’s buying art again?  In the past investors usually behaved as if they consider art more as a hedge to the securities market, or so it has usually seemed to me.   (Of course for a collector, the investment potential of art is mostly a rationalization—we collectors know the main reason to acquire art is for love!)  I suppose the correct answer is both yes and no.  Art serves as an investment hedge up to a point, but when spending has frozen across the board in times of uncertainty such as these, then very little of anything gets sold.  Prior to last week, the Picasso print market had seemed to have lost more steam than the drawings and paintings market.  This makes sense, since prints generally attract a clientele of lesser means than collectors of Picasso paintings.  Much has already been written about the fact paintings sales have continued to be very strong throughout this recession, at least as far as the most important and prized paintings are concerned.    A number of modern and contemporary artists have set world’s records with these choice works.  (By contrast, many mediocre and even more poor works went unsold.)

But the tide may be turning, if last week’s print sales are any indication. Sotheby’s London sale sold 78% of its Picasso lots, and at Christie’s London, Picasso fared even better, with 87% of the lots sold.  Perhaps these stats are less meaningful because of the small size of the sales: only 23 Picassos in each of them (not counting the afters, which don’t really count, as far as I’m concerned).  Even I bid on a print. (And didn’t get it!)  Well, let’s hope these sales augur well for the economy at large.

THE AUCTION RECORD: WHAT IS IT GOOD FOR?

When clients ask me to appraise their Picassos, I first explain that the auction record is a more useful guide for valuation than gallery prices. There are a number of reasons for this. A gallery can mark a piece up just as high as it wants, but that doesn’t necessarily mean that the piece will sell at that list price, or that it will even sell at all. On the other hand, the auction record clearly represents the achieved price and reflects a market consensus as to the value of the work. Second, if you want to sell the work back to the gallery from which you bought it, you can be sure that the owner would want to pay no more than the current auction record would support, which of course may be nothing like what you paid him originally. My question of the day, however, is just how meaningful is the auction record? Is it the end-all and be-all of value determination as I’ve seen argued at times? Let’s take a look.

The beauty of art is subjective, to some extent anyway. If you value a work higher than the market does, it’s certainly theoretically possible that you are “right”. In the strictest sense, that’s how all purchases of art occur: at auction, the successful bidder is willing to pay one bid increment more than any other bidder. Similarly, in a gallery, the successful buyer is willing to pay the required price, which earlier shoppers did not. The question really boils down to this: can the market price and the value of the art be wide apart, by more, or even much more, than a single bid increment? After all, it could be argued that many buyers seem to lack taste, and those with arguably better taste may not have the wherewithal to buy.  But it is the highest bidder, not the sophisticate with the best taste, who sets the market price.

For practical purposes, the answer has to be “no”. Fundamentally, it takes two people to determine the value of a work of art, namely the buyer and the seller in a completed sale. An owner of an artwork can proclaim its value and be unwilling to part with it for less, but that’s not a meaningful proclamation unless someone agrees to meet his price.

To some extent, the auction price is influenced by the auction estimate.  In general, the auctioneer and the consignor have a conflict of interest: the auctioneer wants a low estimate, and the consignor naturally leans in the opposite direction.  A high estimate may scare bidders away and therefore be bad for everybody.  But it is particularly bad for the auction house.  If the lot fails to sell, the consignor has lost little.  He may not have succeeded in liquidating his asset, much less in making a handsome profit, but still he owns the art and gets to take it home with him.  On the other hand, the auctioneer has nothing to show for it except a few dollars in fees, small compensation for bringing down the percentage of sold lots.  The percentage of the lots that were sold is one of the most pivotal measures of the success of an auction and is one of the primary factors an informed consignor considers when deciding where to consign.  The auction house therefore eyes it closely and does everything possible to minimize the number of lots that get bought in.  Clearly, its most powerful tool in accomplishing this is by keeping down the estimate and the reserve.  (The reserve is the lowest price the consignor has agreed to sell the art for.  It cannot be higher than the low estimate, but it can be considerably lower, depending on how desperate the consignor is to sell.)  Though the auctioneer may try to nudge the estimate down, he does so at the risk of losing the consignment, because the consignor is likely to shop his piece around for the highest estimate.

The auction record however has its limitations. The price achieved at auction may to some extent reflect the careful calculation of collectors and dealers who have done their due diligence, but it may in part also be the product of split-second decisions made by frenzied, ill-informed or just passionate bidders. The price of a given work is set in a matter of seconds by those who happen to be flush at the time and who had the time and inclination to arrange for bidding. Yet their budgets may be limited, and their bidding may be following complex algorithms in which acquiring one piece limits the amount of funds left for another. Other people around the world, who may value a piece differently, may not have involved themselves in the auction and therefore had no effect on the prices achieved.

In fact, in many instances it seems that there’s very little sense in the auction record. Some things sell for “wholesale” prices, some for wildly inflated prices way above retail. Examples abound, but let’s just mention two. An example of a wildly inflated price was the 2005 sale of an impression of Minotaure caressant une dormeuse (Bloch 201), one of the nicer etchings of The Vollard Suite, for $186,000. There were probably half a dozen dealers seated in the room who would have lined up to sell the same print to the winning bidder and the underbidder for half that price. The opposite occurred recently with the wonderful and very important 1937 drawing, Au bout de la jetée:

1937 Au bout de la jetée480h.jpg

(yes, I know it’s not for everyone…), which first sold at Christie’s NY for $408,000 in November, 2005, way above the silly pre-auction estimate of $60-80,000. In the same room exactly two years later, however, it went for $241,000. Does that mean that the drawing declined in value, in a market of skyrocketing prices for Picasso works on paper that had essentially doubled in value in the interim? I don’t think so.

Equally irrational is the herd mentality one encounters, particularly with respect to original prints, since there is usually ample auction precedent for any given sale.  The price of a print is usually well established by the auction record.  Once a relative price for a print has been set by one or more auction sale, it’s hard to nudge its standing relative to the general Picasso print market.  Yet, the demand for certain Picasso prints is, in my estimation, greatly exaggerated whereas some gems are quite undervalued.

Still, the auction record has an important influence on the prices that anyone apart from a frenzied collector is willing to pay. Those who choose to ignore it do so at their own peril. Like me, for example. I recently paid a hefty premium to the dealers who had bought a work on paper less than a year before at auction. Am I insane? Am I really a frenzied collector in art dealer’s clothing? My rationale was that the dealers had gotten a huge bargain at auction, and I thought their price was reasonable. But I knew at the time of my purchase that surely every informed buyer would wave the auction record in my face. In this purchase decision I also accepted the absence of color in the work, despite the knowledge that most folks desire color. But I stepped up to the plate because I felt the piece triumphed along all the other parameters by which one judges a work: beauty power, and also importance, rarity, size, condition, visibility at a distance, and the presence and prominence of the signature. It’s hard to get this entire checklist to read “yes” without the price going through the roof. Speaking of color, a lot of it doubles or triples the value of a Picasso, roughly speaking. Clearly, the more positive your mental checklist is, whether or not it is conscious, the more likely it is that you will end up taking the art home with you. In the face of ever-diminishing choices, it’s hard to get all of one’s ducks in a row, so I’m willing to settle for a few wayward ducks, especially if I don’t at all compromise on the ultimate standard, the beauty and power of the art.

And as a prominent dealer once confided to me, if the work is exceptional, she never hesitates to overpay, because exceptional works are hard to come by. The market will catch up, and, even if not, eventually at least one buyer will realize that it’s worth the price, with your surcharge.

In the final analysis, the auction record is just one factor, albeit an important one, that must enter the calculus of whether or not to buy a work of art at a given price. In a way, it’s like Churchill’s take on democracy as the worst possible form of government, except for all the rest. So is it time to break free of the auction price stranglehold?  Well maybe…at times…judiciously…and at your own risk!