Excerpt from the Journal of Advanced Appraisal Studies

Jianping Mei and Michael Moses of the Mei Moses Art Index wrote the following journal article on how the index was developed and how it works. Order your copy of the Journal at www.appraisaljournal.org.


The material value of any object is usually set by a transaction be-tween a willing buyer and a willing seller. Market prices for objects that trade often, such as stocks, commodities, and household items, are derived from an accumulation of these individual transactions taking place at a particular time. We may determine the “value,” or current market price, of an object from its closing or average price. Owners of this type of property can determine the change in its value over time by simply comparing the original with the current market price, (called “Marking to Market”) and may expect, with some confidence, to be able to sell the object on the following day and recover a price approximating today’s market price, less any transaction costs.

A different approach is required to determine the current market value for objects that have long time intervals between transactions and are individually unique, such as art, housing, and natural resource leases. Average price indexes do not provide appropriate guidance for these products because they do not take into account the uniqueness of the objects that came to market in any particular time period. Consider the example of New York City apartments. If in one period the majority of the units that sell face a park and in another time period the majority of apartments that sell face a busy street, the average price in the first period may be twice the average price in the second. But the market for each type of property might not have changed at all. Instead, the change in the average price reflected a change in the mix of objects in each period. Thus average price series are not appropriate for valuing works of art.

Repeat sale indexes are a more appropriate tool for valuing works of art. A repeat sale index is based on the returns determined from known purchase and resale prices of each of the individual items sold in each period. For example, the Case Shiller S&P index describes changes in the residential housing market in the U.S. To handle the uniqueness of each house they use a repeat sale technology that is based on the change in value of houses with both a known prior purchase price and current sale price. These are called repeat sale pairs. Similarly for art, the Mei Moses® Family of fine art indexes, which became available in 2001, is based on a proprietary database of over 12,000 repeat sale pairs. The Case Shiller Index is updated monthly and the Mei Moses® all art index is updated semi-annually.

Use of a repeat sale index provides the best approximation of the potential current price for infrequently traded items, such as art. However, it assumes that an individual item’s value changes in accordance with the overall market. A final valuation of a particular work of art may require an appraiser to consider the strength of this relationship based on the object’s qualitative characteristics. (Such as artist for art, location for real estate or the percent hardwood for forest land) These types of appraisals are developed by an auction house, dealer or professional appraiser. The balance between market and qualitative factors will differ from appraiser to appraiser. And there may be vested interests by either the owner or the appraiser that affect the process.

Art auction houses engage in a valuation process when they publish in their pre-sale catalogs low and high estimates on the likely sale price of the art objects offered for sale. Auctions are the only venues where purchase and sale prices are transparent and readily available. However, the valuation process is difficult due to the variety of individual works of art and the pronounced infrequency of transactions involving an individual object. In the Mei Moses® repeat sale database the average time between auction appearances is over 25 years. In addition, the English outcry system employed by all major art auction houses permits bidding wars that may drive sale prices above levels that might otherwise prevail. Unconfirmed rumors about the condition or authenticity of works of art may depress prices or result in no sale at all.