Given the limitations of auction estimates, Wiener and Wong also caution the use of auction estimates by collectors for insurance purposes. In other words, the collector should be using an qualified appraiser to determine values for insurance purposes and not rely on an auction house estimate.
Wiener and Wong write
Collectors often have difficulty in deciding what type of appraisal to use for insurance purposes. Aggressive marketing by auction houses (in which valuation services are offered, often for free, in the hope that a collector will decide to sell) has led many to believe that auction estimates can be used. However, it may not always be prudent to rely on these, as insurance compensation based on auction estimates may prove insufficient to purchase replacements for lost or damaged works.
There are many reasons for this. Auction houses are in the business of valuing goods for regular sale. They deal in large volumes and have business relationships and obligations to both sellers and buyers, not to mention their own interests. This can affect an estimate. Note, however, that the litigation cases discussed in this article relate to situations auction houses may find themselves in when providing estimates in their usual business; it is conceivable that they may encounter similar challenges when giving estimates for insurance purposes.
Is there such a thing as a free lunch? Auction houses may not have time to conduct proper research.
Consider the case of Guido Ravenna of Buenos Aires. In 1999 he received an offer from a South American dealer for a family heirloom known as the Pieta, conditional on immediate acceptance. Coincidentally, his wife was in New York and showed photographs of the painting to Christie's Old Masters expert who thought the Pieta was by Nuvolone, a minor 17th century Italian artist, and worth between $10,000 to $15,000.
Ravenna then accepted an offer of approximately $40,000 for the picture and some items of furniture. Six months later, the Pieta was consigned to the same branch of Christie's by the dealer who had purchased the painting from Ravenna. After a thorough physical examination, Christie's determined it to be a "highly important" painting by the Italian Baroque painter Ludovico Caracci and, in 2000, sold it at auction for $5,227,500 to the Metropolitan Museum of Art, where it now hangs as The Lamentation.
Ravenna sued Christie's. The federal district court acknowledged that Christie's was aware Ravenna would be relying on their estimate, but found that Christie's did not owe Ravenna a fiduciary duty as the advice was free and there was no previous or other relationship between Ravenna and Christie's. This is an important consideration when relying on a free appraisal. Always consider the legal implications of free advice; if in doubt, obtain reliable legal counsel.
To read the full article in the Chubb Collector, click HERE.
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