This article is my contribution to the Journal. I have always been interested in value and how both the social sciences and appraisers analyze, process and explain values which far exceed exceptions. These auction price anomalies are not just values above the high auction estimate, but multiples. Within the article I look at definitions, price/cost versus value, rationalizations of value such as the veblen effect, nostalgia and market trends, efficient market hypothesis, buy and hold strategies for wealth and five examples, including Philadelphia tea tables, Philadelphia stools, NY silver punch bowl, dragon chair and the Walking Man.
All proceeds from the sale of the Journal support the educational initiatives and scholarships of the Foundation for Appraisal Education. The cost of the journal is only $55.00, a bargain for the amount of content supplied, and for a short time shipping is free. For more information visit www.appraisaljournal.org to order your copy.
Next week attorney Mark Gold looks at museum deaccessioning. This is a very timely article, as many museums and historical societies debate on how best to raise funds for operations and still fulfill their public mission and responsibilities.
An anomaly is usually defined as a deviation or departure from the
normal or common order, form, or rule. A market anomaly can be defined as a price distortion within a financial or economic market. Price anomalies are sizable sale differences realized between what an item is expected to sell for at a specific point in time versus the final sales results. This may include items selling for far more or far less than what is typically considered to be within a fair value range for the object. Theses anomalies are observable by reviewing databases of past auction property performance and pre-sale estimates and comparing the difference to the normal or pre-sale auction range. A price anomaly is not a cataloging or identification error but a seismic shift in price over what was previously considered a fair value range by many experts, appraisers, auction house specialists and connoisseurs.
As appraisers, we are taught to be skeptical and cautious when looking at auction pre-sale estimates, and with good cause. Auction houses have a tendency to adjust estimates to manipulate market interest. In manipulating pre-sale price estimates an auction house can increase or reduce sale interest while maximizing and refining expectations. By definition, a price anomaly goes beyond the normal range of expected or desired fluctuations and potential auction house manipulations. I am not referring to relatively small price fluctuations over a single standard deviation or two or a simple divergence from an expected value range based upon a few additional bid increments but fluctuations on a large and dynamic scale. Price anomalies are also not influenced over time where tastes, collecting habits and the economy might change and have an impact on value. These anomalies occur with no real substantive explanation for the sudden spike in price. For instance, what causes fine or decorative arts to sell at auction by millions or tens of millions of dollars and at multiples over legitimate pre-sale estimates? This phenomenon occurs with knowledgeable buyers and experienced collectors, all holding commonly known and referenced information. This includes connoisseurship for quality, scientific testing opportunities, quality/condition evaluations, provenance, and past sales results for similar items. As appraisers, we look to assign value to property based upon research of the pertinent market and comparable property. When price anomalies occur, it not only complicates proper appraisal development but might at times have a tendency to potentially obscure and add ambiguities to what represents true value. The appraiser, therefore, needs to know when to consider, properly identify and how or even if to effectively use the price anomaly when developing an appraisal value conclusion.
As appraisers, how do we explain these price anomalies and how do we attempt to justify the differences in price, value, expected price estimates and consummated price? I will try to address these questions even though at times there are no conclusive answers. Before getting into the specific cases, a brief discussion of value and effects on value is necessary.
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