Value Differences Between Great and Good

In an recent Wall Street Journal article by Alexandria Peers (to read the AW Post on the article click HERE) there is a quote by Sotheby's Vice Chairman Tobias Meyer that I found very interesting. Tobias stated "The price disparity between good and great has widened to humongous." Peers then makes the statement "The problem for the trillion-dollar global art industry is that most of the art it has for sale is, by definition, just average."

This poses a very interesting dilemma for the appraiser as an evaluator of property. How much of premium is there for an item which is considered great over one that is good or very good. Many times it is difficult to find the right comps for property that falls into the evaluation category of a masterpiece. There just are too few of masterpieces available, and they rarely come up for public sale.

I have seen excellent examples of property sell for high dollar amounts, and rightfully so, but then there are the items which have that extra sense of style and technique, are very rare, perhaps even iconic, or may include a unique and desirable provenance. These are the properties which are even more difficult to come by and perhaps more difficult to properly and fairly value and appraise. With no or few comps to use as guides, these extraordinary items require value adjustments over and above average and above average property, and the amount of a value premium may only be based upon the expertise, opinions and connoisseurship of the appraiser. That is what we do as professional appraisers, but justifying and explaining the premium can be difficult.

Personal property appraising is subjective and has not yet developed into a repeatable science. This is where documentation of the value conclusion and narrative report writing becomes useful. As an appraiser when working on difficult or an assignment with potential for challenge, make sure to cover all bases by reviewing potential comps, explaining and justifying methodologies and value adjustments. The value conclusion may still be challenged, but defending it when due diligence has been done will reduce your exposure and risk. Remember, we are dealing with opinions based upon research, so there will usually be differences of opinion, and thus, difference in value. An attorney may challenge just about anything within an appraisal report, yet if crafted correctly can be defended. An ill conceived report or value conclusion can not.

What the Sotheby's Vice Chairman is saying is the price differential between above average and excellent/masterpiece category is growing at an enormous rate. The big auction houses are always chasing the big money client, that is why the important sales are in New York, London, Hong Kong and now moving into the Middle East. It appears there is more and more separation between clients with assets to trade at the upper most levels of the fine and decorative arts trade and those that are only a step or two below.

There have been many occasions on the AW Blog where an auction or sales review reveals only the very upper levels of property doing well. Typically the extraordinary/masterpiece categories of property out perform estimates and expectations. While the above average or average category of property does as expected or in today's declining economy, worse that expected. As appraisers, we need to be ready to evaluate and properly value this type of property, and be prepared to defend evaluation of the property as a masterpiece and our value conclusions. This is especially true when there is little data available to support the value conclusion, or the property appears to be very similar. A recent example of this was the Philadelphia Tea Tables that October, 2007 for a record price of $6.7 million at Christies breaking the previous record of $2.4 million. Several months in later in January 2008 a similar tea table was selling at Sotheby's, dubbed the "acme of perfection", created in part by the same carver and carried a $2-6 million estimate. It sold for only $1.83 million.

If you attended the ISA Conference in Baltimore, Lita Solis-Cohen explained the differences between the two similar tea tables. The Christies table having just a relatively few, and hard to notice embellishments and techniques that separated it from the Sotheby's table. Now of course other considerations may have come into play for the price difference, but it does show the enormous differences in value between excellent examples at the masterpiece category level, and perhaps even different sub-levels within the masterpiece category. Could an appraiser have arrived at the $6.7 million dollar figure, when the previous highest comp was $2.4 million. Probably not. As appraisers we also have to be aware of the difference between cost and value.

As I mentioned a few weeks back, the Appraiser Workshops is developing a new valuation workshop, and some of these difficult questions will be discussed and debated within that program. Stay tuned to the AW Blog for information on the valuation workshop.