The art market is an economic model with more variants than just supply and demand. In this hybrid prediction market, numerous different cultural parameters, people, and institutions determine an artwork’s price. Like money, art has a very small intrinsic value. Human stipulation and declaration create and sustain its commercial value. Understanding how the value of art is translated into price would help the buyer to make an educated and smart decision.

The methodology that an art expert uses to determine an estimated price is a combination of comparative analysis and hedonic modeling.

Comparative analysis:

The expert compares the piece with other pieces of the same artist, with similar attributions that have sold in the market.

What is important here is finding the recent auction prices realized for similar works by the same artist. You can find this information by looking at public sales records. Mearto’s art auction results database is an efficient art database to use. There are a few things to consider when conducting a comparative analysis of artworks with auction results.

1. Relevance:

Pay attention to works within the same medium as your anchor object (painting, sculpture, watercolors, drawing, collages, prints). For example, oil paintings tend to sell for higher prices than drawings and the print market is usually independent with somewhat fixed prices.

2. Recency:

Since the art market is quite volatile, it is important to check the prices from the last five years only. Recent sales present the most reliable data for a price estimation.

3. Frequency:

In case an artist is new to the auction market and has only ten public sales in total, in different media and from different years, the expert would have to consider all realized prices.

Hedonic Modeling:

The hedonic pricing method breaks down the artwork into its integral characteristics and derives estimates of the contributory value of each characteristic. These characteristics are:

1. Artist:

This first attribute is possibly the most influential.

2. Dimensions:

Usually bigger the work is, more expensive it would sell, however, this rule does not always apply.

3. Year of Production:

It determines the historical value or a specific period of an artist’s oeuvre. For example, the Still Life by Picasso (shown below) from 1937 is special because it is from the same year Picasso painted his ambitious and celebrated work Guernica. Sometimes the place of production can also be important. For example, a Dutch still life would be worth more if it belongs to the Haarlem school, even if the master is unknown.

4. Medium:

Oil paintings are usually more valuable than drawings or prints, however, there are always exceptions, such as the silkscreen prints by Andy Warhol.

5. Provenance:

Provenance is the history of ownership, in order words the sales and acquisition history. For example, if a piece is from a royal collection, it would be worth more than the same piece from a random private collection. Moreover, the previous place in an important private collection could also make the price climb.

6. Exhibition History:

If the work was ever exhibited in a museum, had a solo show at a gallery, or was a part of an exhibition at a notable gallery, it’s price would increase. The reason behind this is the exposure of the work to the society and the validation obtained through art world institutions (museum, gallery, art fair) and actors (curator, critic, journalist).

7. Condition:

If there is any damage to the artwork, the value would naturally decrease. (e.g.: if the oil painting is cracked or the lithography is folded in half)

8. Authenticity:

If there is any doubt about the authenticity of a work, it would result in a decrease in price. However, it is also a risk some collectors are willing to take if they buy high-risk, high-yield.

9. Impact:

If an artwork is seen as an influencer of later work by the same artist or as an early example of an art movement or prevailing ideology, it would have a higher value. (e.g.: Gauguin’s Tahiti period which influenced later avant-garde, including Matisse and Picasso)

10. Narrative:

Subject matter, i.e. the image depicted in a figurative work, may bear the key point of trends within certain genres. (e.g.: Still life vs. landscape or portrait paintings by the same artist from the same period)

The best example of this category would be the works by Pablo Picasso between 1908-1914. Shifting between figurative and abstract, experiencing with geometric elements and eventually inventing Cubism, these works hold different values, depending on their subject.

11. Rarity:

Rarity is determined by the frequency of a work by an artist appears on the market, or the number of a specific type of work that is currently available from a particular period in an artist’s career. Rarity is the “Supply” variant of the art market.

12. Demand:

Demand in the art market is the same as any other market, however, it depends very much on very fluid trends.

When demand is combined with rarity, the value will increase greatly. If we were to give an example from Picasso’s career again, a figurative painting by the maestro from the fin de siécle (turn of the twentieth century), also called his Blue Period, is extremely rare, compared to a similar subject matter and style from the 1920s. Moreover, works from Picasso’s Blue Period is especially in demand by museums and important collections. As a result, when these works ever go on the auction market, they achieve extremely high results. For example, in November 2015, a newly discovered Picasso, La Gommeuse or “Nightclub Singer” (1901) sold for $ 67.5 million at Sotheby’s.

When we turn the diagram the other way around, a work that is usual and plentiful in auctions would naturally sell for lower prices, usually as a result of a fallen trend, causing less demand. A unique work, such as a painting, sculpture or original drawing, which has appeared at auction more than once is labeled “not fresh” and often sells for much less than a “fresh” work. A work that goes under the hammer, but fails to sell is stamped “Bought-In“, which would affect the work’s value negatively.

Bonus: Color

Color is the last and disputed attribute of art valuation. Fabian Bocart, art investment expert and founder of the Brussels-based Tutela Capital, found in a study of more than 20,000 artworks, that blue is possibly the preferred color and it would sell for more. But can we list a hypothetical most expensive artwork? According to Bogart, theoretically, of course, a large-format, predominantly blue Picasso from 1905 or 1906, held by a museum, or with a subject matter similar to a painting held by a museum, would fetch more than $ 150 million. However, this theory is invalidated by the simple example of Andy Warhol’s Marilyn series. Again according to Bogart’s research, pink Marilyns tend to sell for prices above all other colors. Another disagreeing party is this informing Forbes article written by art appraiser Daniella Rahm, arguing that “red-colored art is red hot right now”. Ultimately, there is no telling for sure how the color would affect artworks.

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All photos courtesy of the Phillips and Ketterer Kunst websites.