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Tuesday, May 17, 2011

The affect of recent market trends on valuation

No one can predict the future or we would all become rich in the stock market. Likewise, appraisals are not predictions; they are valuations of specific objects at a given point in time. Just like auctions and the stock market, actual values are market driven by supply and demand, and by popularity and trends, economic factors, weather, time of year, and for lots of other intangible and intangible reasons. The market is always changing.

Auctioneers know what happens when an object we are selling turns out to be a rare example of a work done by an artist, or a work by an artist that rarely comes on the market. Consider the Picasso that turned up in an attic in the UK in 2008 and brought $200,000 at auction!!! Another Picasso set a record at $106.5 Million in 2010. Putting all physical attributes of the works aside for another discussion, the fine art market and the auction market fluctuated and declined in the same way that the Real Estate market skyrocketed and changed direction. In 2008-2009 it seems to have reached a low. In New York, experts say that high end art is shining. Middle of the road art, they say, is still in an auction slump.

Chinese art has been the big surprise and bonus for auctioneers with online visibility. The Chinese art market took off in 2007-2008. The Chinese are knowledgeable buyers and seek out fine examples of their heritage. Some are wealthy and have extra money to buy. Consider the vase that was auctioned at Sotheby’s NY, recently, with a pre-auction estimate of approximately $800 sold for $18,002,500! Or the Qianlong vase found in a London attic that sold at Christie’s in November for $69.5 Million plus buyer’s premium!

I don’t know anyone at this point in time who does not worry about undervaluing Chinese art and artifacts. There is so much money in China, even auction sales of late 20th century art by living artists are off the charts! Yet, with so much knowledge destroyed in the Chinese Cultural Revolution, some of the purchases of antiquities could be considered to border on whimsical or speculative buying. It can be an appraiser’s nightmare, especially when an object sells in the millions because it is a nice color! So if you appraise Chinese art, call a specialist. If you sell quality Chinese art and antiques, make sure you have online visibility with competitive bidding, or send the objects to someone who does!

There are many examples, and it’s important for appraisers to research objects to verify values for a given point in time. Was the vase that sold for $18, 002,500 in 2011, worth $18 Million in 2006? Even in a current market valuation, the value is hypothetical because it is derived using past sales comparisons and trends. We cannot predict the future. We have to consider past sales. Those sales are listed chronologically on archived auction databases. Then we can use the most common trends to extrapolate values when there are not an abundance of comparisons available, if we know what we are looking at, and it’s a normal market, which we have not seen in a while.

Some of us work with estates that contain multiple types of objects, and frequently not all objects are appropriate for one type of auction or sale. That holds true in the appraisal report as well. Therefore, the appraiser needs to have a broader range of research opportunities available. We work with experts and dealers (many of whom we have met at ISA conferences), who can authenticate objects and conservators can verify conditions of objects. Sometimes auctioneers can assist and some will provide names of dealers who specialize in a given type of object! No one person can know everything, and even if we network, appraisers have to brush up knowledge too, learning new information about objects and market evaluation, developing an “eye” for details. Fortunately, most appraisal problems can be minimized with outside help and training and research.

In the auction world, if something sells for more than what it was appraised for, the auctioneer looks like a hero. Not the appraiser. So ISA recommends that an appraiser research past sales for almost everything they appraise. Appraising is not an accurate science. It basically involves finding the most likely value at a given time that is supportable by facts. Facts keep appraisers out of trouble; avoid law suits and embarrassment in a changing market.

It’s all in the details. Using physical attributes, market trends and actual sales, the appraiser can discern the most likely value of an object based on actual sales by known and unknown makers. These completed auction sales can be found listed on archived databases of auction results and include photographs for reference.

Some objects might normally, or most commonly, be sold on the national or international market place. If you go to Christie’s website or to, you can find the “Garvan Carver” Philadelphia Tea Table that sold at Christie’s NY in October for $6.7 Million. It was found in a garage of a suburban Philadelphia house that was being prepared for sale. Never know what one might find! It could be any of us! The photograph and article in Maine Antiques Digest show that it was pretty much “in the rough” or “as found”.

Amazingly, the actual auction record for a Chippendale Tea Table still stands at $8.4 Million. It was auctioned at Sotheby’s in 2005, and was a Goddard Newport Table. This was before that real estate market trend re-adjustment, or setback, that happened in 2006. Once again, changing market trends need to be considered when an appraiser values a similar object. We need to be leery of earlier record breaking sale results and explain why in our reports. Note also that these actual sale results include a buyer’s premium. Archived auctions also tell you if the value derived includes a buyer’s premium. An expectant client might then be prepared for that differential in their potential market return of an object sold.

It’s a double edge sword. You value too high, your seller may not be able to attain the value given in an auction sale. You value too low, the executor may not have a realistic value for estate probate. You call it the wrong thing, and it later sells at a big auction house for an astronomical record price, your client won’t like reading about it in the news either! That’s happened too, and fortunately we have not heard about any recent snafus in that area. You’ll still probably want to check out extended research databases when you find something unusual in your next appraisal project.

If the appraiser can justify valuation decisions, and even if the market changes, the client understands the rational used in making the appraisal value decision. Appraisers therefore not only need to belong to appraisal associations, like ISA, they need to attend seminars where appraisers are taught to describe in their reports why they chose a particular value. Appraiser’s need continuing education that is provided at conferences, to have credentials, to network with peers, learn new report writing techniques, study specific objects, study market trends, and attend seminars. They learn to discern good-better-and best examples of quality objects. They meet other appraisers and experts who can advise on appraisal projects. They learn how to write reports that keep them out of trouble in an ever-changing market. It’s a win-win situation not only for the appraiser, for clients as well.

Christine Corbin, ISA CAPP

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