Investing in art can bring rewards, monetary as well as esthetic and personal, if you know the ins and outs of collecting. That was one of the key messages art expert and appraiser Nancy Harrison shared with advisors at the recent Women Advisors Forum in New York.
One of the “chestnuts of collecting,” she said, is being able to discern “what is good, better and best from any school or artist” as well as “careful stewardship of those assets.”
According to Harrison, a fine art specialist at Emigrant Bank Fine Art Finance and Fine Art Asset Management, investors are jumping into the art market worldwide, with steady growth in the U.S., the U.K, Europe, Asia and the Middle East. The growth, she said, is driven by “new wealth pouring in from all continents,” an “insatiable appetite for iconic, trophy or blue-chip paintings and sculptures,” and the “aspirational desires of a much larger pool of affluent, primarily younger, people who see collecting art as an experience and form of self-expression.” Many of the new collectors, she added, are from the startup world and are hoping to make “hefty returns on their investment.”
But that can be tricky. Investors often make mistakes when buying and selling art. The “kneejerk reaction” of most novice art buyers is to call auction houses, which are “not necessarily unbiased in their program,” Harrison said. Buyers often overpay for art, do little research and lack the expertise to know whether the art is fake, stolen, in good condition or reasonably priced.
Sellers make similar mistakes. The often do not know whether art should be sold at auction, privately or through a dealer. Nor do they know which auction houses or galleries are best or where their art will sell for the highest price.
Having that knowledge is critical. “The art world is very byzantine, very opaque and very manipulated,” Harrison cautioned advisors. “One can make huge mistakes.”
She used a Corot 19th century landscape painting to drive home the point. The painting sold at New York Gallery for $375,000 whereas it sold for only $170,000 at Christie’s just a few years earlier. “There’s an enormous disparity between retail prices and auction prices,” Harrison said.
Harrison noted that investors can use art as more than an investment that hopefully will appreciate over time. They can leverage their art as collateral to borrow money to make investments or expand a business, she said. Investors can also use art assets to pay estate taxes and administration costs, and high-net-worth individuals who are asset-rich but cash-poor can convert their art assets to cash without triggering capital gains tax or sales costs.
Whichever way they use their art, it’s critical that they have a qualified appraisal and adequate insurance coverage to protect their assets. “It’s certainly worthless to the IRS if it’s an estate matter, or if they’re donating the property, if they don’t have a good appraisal,” Harrison said.