HAPPY NEW YEAR

HAPPY NEW YEAR!

Online Appraisals

Several appraisers have sent me a recent interview with two representatives of on line valuation platforms from Antiques and the Arts. Of course the interview is totally one sided and fails to discuss qualified appraising, qualified appraisals, intended use. The platforms certainly seem to conflate valuations and appraisals, using both terms, and perhaps the driving concept is to then refer the objects valued to an auction house for sale. With that, they seem to be more of a referral for an auction estimate for a fee rather than a qualified appraisal.

For example to the question "Can your appraisals be used for estate planning, insurance or tax purposes?" there is the statement frp, Value My Stuff  sates  they perform "auction value and insurance value" while Mearto states "fair market value or auction estimates" and refers out estate and insurance appraisals to local appraisers. Yet Mearto also stated "If retail or insurance estimates are necessary or requested by the client, we include it in the comment section.

Value My Stuff  states in the interview "Our valuation certificates are accepted by most major insurance providers, and every ValueMyStuff valuation includes an insurance value for this reason. Additionally, many of our users are attorneys looking to value pieces for their clients’ estates and asset management." I wonder about attorneys using these valuations for estates and asset management, where due diligence and qualifies appraisals are required.

Toward the end of the questions, the benefits over a traditional appraisal seem to be convince, valuers with auction house experience, and low fees. Appraisal principles, theory and methodology, and appraisal qualifications all seem to be missing from the discussion. For example, auction house experience does not necessarily make for a quality appraisal and value conclusion.

I am not an alarmists, and we have seen many of these online appraisal platforms come and go. Many times they fade away, or are absorbed by another online presence and then find the profitability of  $15-$40 valuations are not a money maker. Mearto has contacted me several times by email and I have never responded. Have any readers of the AW blog been contacted?

There is much to unpack in this question and answer article from the usefulness of the valuations, liability, to growth of technology in the appraising profession.  I would love to have fellow appraiser thoughts and comments on the content as well as the usefulness of these platforms.

My next The Appraisal Foundation Advisory Council (TAFAC) Personal Property Issues Committee meeting is scheduled for the end of January. I plan on bringing this article/interview up for discussion, as much of what we are involved in is appraisal standards and qualifications. In the meantime, please send me your comments and thoughts.

Art and Antiques reports

As Dylan said, “the times they are a-changin,” and that time has arrived for the appraisal market. Once relegated to in-home visits, the appraisal business has expanded in the age of technology, reaching the digital service industry. ValueMyStuff.com, recently acquired by Barnebys, and Mearto.com are there to answer questions of value and worth, with thousands of inquiries pouring in to knowledgeable appraisers every month, many of whom count top auction houses among their work history. Of course, no art market service is complete without the added benefit of selling, and these two are no different. So Antiques and The Arts Weekly got in touch with Lindsay Simon, head of valuations at Barnebys/ValueMyStuff and Mads Hallas Bjerg, co-founder of Mearto.com, to learn about this new frontier in art and antiques.

A person finds you online and submits an appraisal request. Walk me through the process.

LS (ValueMyStuff): Once a user reaches the ValueMyStuff website, she/he can fill out our step-by-step valuation form, including description, measurements, provenance and space to upload images/documents relating to the piece. From there, click to pay and send your request, and you will receive a response within 24 or 48 hours.

MHB (Mearto): First, the person is guided through a form to provide the necessary information so our specialists can provide them with the best possible appraisal. We ask the customer to upload multiple high-quality images, provide a description, share provenance information and finally ask whether it is for sale or not. The customer can also choose between a public or private appraisal. After we have received relevant information, the relevant appraisers are notified and will answer the request within 24 or 48 hours. A unique part of our service is that you can ask questions and chat with the expert.

Is valuation a conduit to sales? After the appraisals, what options do you offer for people who want to sell?

MHB (Mearto): Yes, we want to help people sell and connect with the right auction house. A big part of our vision is around connecting our customers with the right auction house to sell their items. We ask all our customers if they want to sell or not, so we have decent data on this. More than 90 percent of the items we receive are for sale and our customers actively ask us for selling advice. If someone has indicated that they want to sell and the item is estimated to be worth more than $3,000, we would help people connect with the right auction house. Our consignment services can help a seller match his/her item with the auction house that will realize the fullest potential of the item when the hammer falls. We do all the legwork. We contact the auction houses, compare their terms and fees, analyze the best sale for your item to be in, and then provide you with our assessment. We are paid a small commission from the auction house once the item sells. It is in everyone’s best interest for us to find the best house for the item. If the item is not suitable for auction, we would refer them to eBay or another online marketplace and explain why this would be a better platform to sell.

LS (ValueMyStuff): This is one of the most exciting aspects of Barnebys’ recent acquisition of ValueMyStuff. Barnebys benefits from a large network of affiliates, representing the top auction houses and dealers worldwide, all of whom are eager to consign objects submitted through the valuation service. Every ValueMyStuff user has the option to mark their interest in selling an item after she/he has received the valuation. Once we know there is an interest in a sale, we send those objects out to our affiliate network to match each user to the right auction house or dealer. Some of our recent sales include the auction of a signed Beatles photograph, a woman’s Bulgari watch and a set of Russian silver at Christie’s – which fetched more than $50,000.

Fees?

LS (ValueMyStuff): There are many valuation options available to our users. Our standard valuations are $20 with a 48-hour response time, and express valuations, with 24-hour response times, are $40. Many of our users, however, prefer to purchase valuation credits in bulk, which allows them to save money on each valuation, in addition to being able to easily submit multiple requests.

MHB (Mearto): We charge $15 to assign an appraiser to review an item online within 48 hours and $25 if it needs to be within 24 hours. There is an additional $2 if the customer wants it to be private.

What experience do you look for in appraisers? Are you looking for more of them?

MHB (Mearto): We are always looking for new additions to our team. We want appraisers with experience from the best auction houses, though we prefer experts that are looking for additional freelance work. At the moment, we are looking for specialists in the rugs and jewelry.

LS (ValueMyStuff): We are always open to adding new specialists to our network, and we encourage qualified candidates to reach out to us. All of our experts have significant auction house and art market experience, and are all current or former specialists for top auction houses, including Christie’s, Sotheby’s, Phillips or Bonhams.

Is demand growing?

LS (ValueMyStuff): Everything starts with a valuation in our industry, whether you’re buying or selling, so the possibilities are endless. For many people it can be difficult to receive a valuation of this caliber from their local antique shop or dealer – especially in niche categories – and our experts are able to value more than 40 categories of fine and decorative art, antiques and collectibles with the click of a button.

MHB (Mearto): We feel a lot is happening in this industry and we enjoy our position in the market. I expect 2019 to be a year with an increased focus on online appraisals.

Any feel-good stories you can share?

MHB (Mearto): We have had so many interesting things through the appraisal system this year and many happy and surprised customers. One woman had a $1 thrift find valued at more than $4,000. We have helped appraise and consign items from major artists, including Francis Bacon, Jean Michel Basquiat, Jeff Koons, Yayoi Kusama, Roy Lichtenstein, Egill Jacobsen and Andy Warhol.

LS (ValueMyStuff): Too many to count! We recently had a submission from three brothers who inherited a painting from their father. It was a piece they had grown up with, and one that was much beloved by their parents, but they knew little about it or its origin. After submitting the piece for valuation through ValueMyStuff, they learned that the painting was an original work by Scottish landscape painter Robert Gemmell Hutchison, and worth more than $10,000.

What kind of appraisals do you offer? What is your benchmark value that you appraise against?

LS (ValueMyStuff): All ValueMyStuff valuations include an attribution, detailed description of the object, auction value and insurance value. There are many factors that are taken into account when valuing any item, including comparable auction records, condition of the piece, provenance, as well as literature and exhibition history.

MHB (Mearto): All estimates are fair market value or auction estimates. If retail or insurance estimates are necessary or requested by the client, we include it in the comment section.

Can your appraisals be used for estate planning, insurance or tax purposes?

MHB (Mearto): In these cases, we generally refer people to find a local appraiser. We have a simple directory to do exactly that – it is free for appraisers to be listed in and for our clients to use: https://mearto.com/appraisers.

LS (ValueMyStuff): Our valuation certificates are accepted by most major insurance providers, and every ValueMyStuff valuation includes an insurance value for this reason. Additionally, many of our users are attorneys looking to value pieces for their clients’ estates and asset management.

Being online means you have requests from people all over the world, which is significantly different than how the regional appraisal business has functioned in the past. What challenges does this present that we might not know about?

LS (ValueMyStuff): One of the highlights of our service is our global reach, and I know that our experts are always thrilled to see pieces from so many countries and continents being submitted. As a tech company, we are not limited to a particular area – we have experts operating in many countries – and luckily, the markets for art and antiques are significantly less fractured than in years past. This is a reason why the merging of ValueMyStuff into the Barnebys group was such a natural progression. Barnebys affiliates and users truly span the globe, and ValueMyStuff is dedicated to delivering the best valuations regardless of where our users are located.

MHB (Mearto): I see a huge opportunity for our company because we are global. Accurate estimates need to have a local as well as a global view! For example, a sofa we looked into consigning was valued at $10,000 in Europe and $25,000 in the United States.

Are there any antiques or art that you won’t attempt to value?

MHB (Mearto): There are items where we sometimes need a significant proof of authenticity, and if that it is not there, we would say, “Presumably not genuine.”

LS (ValueMyStuff): We are able to value just about anything, but that does not mean that we will. Naturally, if an object is clearly a forgery, of questionable provenance or legality, we will decline the valuation request and offer a refund. Maintaining an ethical business practice is paramount to our users’ interest as well as our own. Additionally, there are pieces that can only be authenticated and/or valued by an artist’s foundation, so in those cases we offer a preliminary value and suggest the user contact the relevant foundation for more information.

Sell me on how this is better than an in-person appraisal.

LS (ValueMyStuff): I think many of the benefits speak for themselves. Professional valuations from specialists with decades of auction house and art market experience with the click of a button – check; Quick turnaround time – check; Access to a network of more than 1,500 affiliate auction houses and dealers – check. The benefits seem pretty clear to us.

MHB (Mearto): You save time. A lot of time. If you compare it to driving down to the local auction house, transporting the item and arranging a physical meeting, you will save time and money – even though you paid us $15. Also, we would guarantee a thorough independent answer plus selling advice. In many cases, auction houses do not give estimates if they are not interested in selling. More importantly, if you have something valuable, why not get a second opinion and ask more than one auction house? We can help you with that.

Source: Antiques and the Arts 

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Happy Holidays and Merry Christmas

Continuing with our AW Blog annual holiday tradition of featuring a Thomas Kinkade Holiday scene,  enjoy 😀......

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2018 Art Lawsuit Decisions

Several appraisers and readers of the AW Blog have sent me the recent Artsy post on the 7 important lawsuit decisions from 2018.

The seven decisions include

1.  Jeff Koons works, Tananbaum vs Gagosian Gallery
2. Sotheby's and the Greek Horse
3. Robert Indiana's estate
4. Holocaust restitution and two Egon Schiele works
5. Resale Royalties in California
6. 5Pointz
7. Animal Photos and Copyrights

All very interesting to read.

Artsy reports

In 2018, millions of dollars and significant precedents hung in the balance in a slew of major lawsuits—ranging from feuds over blue-chip artworks to restitution cases of Nazi-looted art to fights over recently deceased artists’ estates. Some of the seven most significant cases of the year, broken down below, are ongoing and warrant keeping an eye on for updates in the new year; others that concluded this year will continue to shape the art law landscape well into 2019 and beyond.

Overdue Koons
Filed on April 19, 2018

The most verbose art lawsuit of the year may well have been the one filed by hedge fund manager, collector, and Museum of Modern Art trustee Steven Tananbaum against artist Jeff Koons’s studio and Gagosian Gallery in April. In it, Tananbaum accused Koons and Larry Gagosian of colluding in an elaborate scheme—described in the complaint as “Ponzi meets The Producers”—to squeeze collectors for millions of dollars with the promise of delivering technically complex sculptures at later dates; Tananbaum said that these delivery dates were perpetually and unreasonably pushed back. “At heart, this interest-free loan System—unbeknownst to the collectors—is less about creating timeless works of art and more about creating an ouroboros by which [Koons and Gagosian] maintain a never-depleting source of funds at the expense of eager and trusting collectors,” the complaint stated.

Why it matters
Beyond its flowery language, erudite analogies, and conspiratorial accusations, Tananbaum’s lawsuit offered a rare glimpse into the inner workings of the very top echelons of the contemporary art market, revealing exactly how Koons finances the production of his largest works by pre-selling editions and using payments in installments to fund the production process. At the time the lawsuit was filed, Tananbaum had paid the artist and Gagosian upwards of $13 million over the course of five years for three stainless-steel sculptures, none of which had been completed. In October, Gagosian filed a motion to have the case dismissed, claiming that because Tananbaum is a “sophisticated art collector,” he should have known that this might happen. In November, Tananbaum and Gagosian filed competing memos, suggesting that this feud is unlikely to end amicably—or anytime soon.

Sotheby’s and the Greek horse
Filed on June 5, 2018
On May 11th, as Sotheby’s was preparing to auction a sculpture of a small bronze horse from the 8th century B.C.E., it received a letter from the Greek Ministry of Culture and Sports raising serious doubts about the object’s provenance. The letter suggested that the sculpture may have been illegally exported from Greece, and called on the auction house to remove the artifact from its May 14th sale. Sotheby’s reluctantly acquiesced, saying that the Greek claims were “without any basis in law or fact,” but had “placed a cloud on the marketability of the item.”
The following month, while the Greek agency was still gathering information about the object’s provenance, Sotheby’s and the sculpture’s consignors, the estate of Howard and Saretta Barnet, sued Greece. The auction house’s legal move, commonly known as declaratory judgment, inverted the dynamic of the case, making the original claimant, Greece, the defendant because of financial losses Sotheby’s incurred as a result of what it alleges was an unjustified claim. In November, attorneys for Greece filed a motion to have the lawsuit thrown out, arguing that the U.S. District Court where Sotheby’s filed its suit doesn’t have the jurisdiction to hear a case involving a foreign nation, per the terms of the Foreign Sovereign Immunities Act.

Why it matters
Declaratory judgment is a legal tactic that has been used recently by U.S. museums to preempt and prevent Nazi loot restitution claims. However, in this instance, Sotheby’s is pursuing it to not only avoid a possible restitution, but also to clear the way for a sale. It could set a startling precedent, discouraging foreign governments from raising the alarm about sales of potentially ill-gotten artifacts for fear of reprisal at a time when a great deal of attention is nonetheless trained on the trade in looted objects and efforts for repatriation.

Love lost over Robert Indiana’s estate
Filed on May 18, 2018
The day before Pop artist Robert Indiana died, the foundation that controls the copyright to his iconic “LOVE” works filed a lawsuit against the artist’s longtime assistant and caretaker, Jamie Thomas, and the art publisher Michael McKenzie, accusing them of taking advantage of the “bedridden and infirm” artist. Their complaint alleged that Thomas—to whom Indiana had given power of attorney in 2016—and McKenzie had “isolated Indiana from his friends and supporters, forged some of Indiana’s most recognizable works, exhibited the fraudulent works in museums, and sold the fraudulent works to unsuspecting collectors for millions of dollars.” Since Indiana’s death on May 19th, the fate of his $60 million estate—as well as his wish for his longtime home on the Maine island of Vinalhaven to become a museum—have been mired in legal limbo that could last for upwards of two years. Already, two works from his estate have been sold at auction to help cover the rapidly mounting legal fees.

Why it matters
Regardless of the validity of the claims, this case highlights the potential vulnerability of older artists to people looking to take advantage of their deteriorating health in order to eventually profit from their legacies and estates. The prospect of years of litigation has cast doubt over the likelihood that Indiana’s home and studio of 40 years, which is on the National Register of Historic Places, will be turned into a museum, per his wishes. And the outcome of the lawsuit could leave the authenticity of a number of works currently attributed to Indiana and sold in the last years of his life in a gray zone; according to the lawsuit, McKenzie’s publishing house produced a number of “derivative” editions in 2016 based on Indiana’s work, which the suit dismisses as forgeries.

Hear, HEAR
Filed in 2015, decided in April 2018
A complicated restitution case involving two Egon Schiele watercolors tested the Holocaust Expropriated Art Recovery (HEAR) Act, which President Barack Obama signed into law in December 2016. Acting on the claims of three heirs of Franz Friedrich “Fritz” Grünbaum—a Viennese cabaret singer who was killed by the Nazis in 1941 at the Dachau concentration camp—authorities had seized the two Schieles, Woman In a Black Pinafore (1911) and Woman Hiding Her Face (1912), collectively estimated at $5 million to $7 million, from the booth of London-based dealer Richard Nagy at the Salon of Art + Design fair in November 2015. In April of this year, a New York judge found in favor of the Grünbaum heirs.

Why it matters
The case proved the significance of the HEAR Act, which changed the statute of limitations requirements surrounding Nazi loot restitution claims. Indeed, a 2005 claim by two of Grünbaum’s heirs seeking the return of a Schiele work from a Boston collector was tossed because the court deemed that the heirs had waited too long to file their claim. The HEAR Act gives heirs six years from the moment they become aware of a work’s location, or their possible claim to it, to take action. Having seemingly learned from their previous claim, the heirs filed for the two Schiele watercolors on the last day of the Salon of Art + Design fair where Nagy was offering them.

Resale royalties quashed in California
Decided on July 6, 2018
Resale royalties for visual art—whereby artists or their estates receive a small percentage of the sale price of their work when it trades hands at auction—remain elusive in the U.S. This year, a federal appeals court in San Francisco essentially struck down the only such law on the books in the U.S.: the California Resale Royalties Act (CRRA) of 1977. In its ruling, the court restricted the law to only apply to sales that took place in California in 1977, finding that CRRA had been superseded by a federal copyright law that took effect at the beginning of 1978. The appeals court ruled that CRRA conflicted with the 1978 copyright law, which holds that copyright owners lose control over future sales of their works after the first time they’re sold.

Why it matters
Resale royalty laws, based on the French legal concept of droit de suite, exist in many countries, including most of the European Union, and in virtually every other artistic field, but they are consistently shot down in the U.S. Supporters of the law argue that it’s only right for artists to receive a percentage of the profits that collectors may make from buying and selling their work, and that such royalties could be particularly valuable for younger artists and those who enjoy little financial stability. Others argue that the law would only benefit famous and wealthy artists and their estates, who tend to be the ones with the most robust secondary markets. Federal resale royalties bills have been introduced in 2011, 2014, and 2015, and have been aggressively lobbied against by Christie’s and Sotheby’s. In September, a bipartisan coalition in the House of Representatives introduced a new version of the bill, the American Royalties Too Act of 2018 (or ART Act).

Seven-figure win for 5Pointz artists
Filed in June 2015, decided in February 2018
More than four years after property owner Jerry Wolkoff had his building in Long Island City, the graffiti center 5Pointz, largely white-washed overnight, a group of 21 artists whose works were wiped out were awarded $6.7 million. The federal judge who found in favor the artists, Judge Frederic Block, awarded them the maximum amount of damages—$150,000 per lost work—because Wolkoff’s destruction had been so deliberate. Indeed, for years, he had permitted the site to be used as a kind of outdoor gallery, where artist and curator Jonathan Cohen managed an ever-evolving array of murals, with the understanding that the site would eventually be developed. But in late 2013, with demolition looming, Wolkoff had the works painted over without warning, making it impossible for the artists to preserve them through documentation.

Why it matters
The ruling—which Wolkoff appealed—is particularly significant because it marked the first time that the protections afforded by the Visual Artists Rights Act (VARA) had been extended to the work of graffiti and street artists (described in the lawsuit as “aerosol artists”). VARA was adopted in 1990 to protect “works of recognized stature” from being distorted, damaged, modified, or destroyed. The 5Pointz ruling extended those rights to works that were both temporary and had been created on someone else’s property. Judge Block’s opinion in the case also cited the significance of blog and media coverage and “social media buzz” about 5Pointz as factors that gave the lost murals “recognized stature,” thereby helping to clarify and modernize one of the more ambiguous phrases in VARA.

Monkey selfie denied
Filed in September 2015, decided in April 2018

One of the most important selfies not taken by a Kardashian was created in a jungle on the Indonesian island of Sulawesi, when a six-year-old crested macaque named Naruto grabbed British nature photographer David Slater’s camera and snapped a series of candid self-portraits. One of them, in which Naruto is framed diagonally and sports a toothy grin, became a viral sensation known as the “monkey selfie” when Slater released it in 2011 and included Naruto in his self-published book, Wildlife Personalities (2014). Then, in 2015, People for the Ethical Treatment of Animals (PETA) sued Slater on behalf of Naruto, claiming that the copyright for the photos rightfully belonged to the macaque and proposing to administer any income from the photos on behalf of the monkey to benefit Sulawesi’s crested macaques. In April, the Ninth Circuit Court of Appeals upheld a lower court’s decision siding with Slater. Nonetheless, per the terms of a 2017 agreement between Slater and PETA, the photographer will donate a quarter of any revenue from sales of the Naruto photos to organizations that protect crested macaques on Sulawesi.

Why it matters
The appeals court’s decision clarified an important legal point: Animals cannot file copyright infringement lawsuits. However, the Ninth Circuit Court of Appeals’s three-judge panel did not rule definitively on whether or not humans could own the copyrights for photographs shot by an animal—or, for that matter, by a robot.

Source: Artsy

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USPAP 3rd Exposure Draft Webinar

The Appraisal Foundation and the Appraisal Standards Board will be hosting a webinar about the upcoming changes in USPAP for 2020-2021 and the recently published 3rd exposure draft. This should be an excellent overview of the upcoming changes and how they will impact appraisers. Well worth attending.

To register for the webinar, click HERE

The Appraisal Standards Board has published the Third Exposure Draft of proposed changes for the 2020-21 edition of the Uniform Standards of Professional Appraisal Practice (USPAP). The draft proposes a reporting model that reduces specificity without diminishing USPAP reporting requirements.

Do you have a comment? Please send your opinion!  asbcomments@appraisalfoundation.org

WEBINAR:

Learn more about the proposed changes in the Third Exposure Draft in this live webinar with Wayne Miller, 2019 Chair of ASB, and John Brenan, Director of Appraisal Issues.

January 10, 2019


1:00 PM ET 

To register click HERE

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Art Finance

I have posted a fair amount on art finance in the past. Bloomberg recently posted on a art transaction which include third party guarantees. As auction houses work with consignors and convince them to sell, they are and have been using guarantees. In the past, the auction houses took the risk, now third party guarantees are in vogue and bring more of an art as an investment view into the transactions.

Bloomberg reports

Art Finance
“The hedge funder’s new Ferrari” is not Italian, fast or even a car, according to financier-turned-art dealer Asher Edelman. It’s a high-octane financial maneuver tied to the sale of artwork that’s part insurance policy, part betting slip.

Offering a guaranteed minimum price to those putting fine art on the block has become standard at top auction houses. Sellers like knowing that works won’t go unsold. In return, if the art sells for more than the guarantee, some of the profit above the prearranged bid goes to the guarantor.

To offload risk, auction houses are negotiating more “irrevocable bids”—also known as “third-party guarantees”—with investors who may see it as a display of financial prowess. With the art market peaking, opportunities abound but carry greater risk and should be approached with caution.

The biggest profit for a guarantor was last year’s auction of Leonardo da Vinci’s “Salvator Mundi” at Christie’s. Guaranteed to sell for more than $100 million, the painting was hammered at $450 million. Philip Hoffman, founder of the London-based Fine Art Group, estimated that the guarantor made as much as $150 million.

For those on a tighter budget, a Chinese company  plans to finance the purchase of a $75 million Michelangelo painting by issuing 7.5 million restricted shares at $10 a pop. Yulong Eco-Materials Ltd. said it’s offering “the opportunity of its acquired masterpieces to anyone with a brokerage account.”

Source: Bloomberg

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More on Macklowe Decision and Appraisals

Fellow appraiser Susan Tarman sent me another article from artnet news, with more details on the recent judges ruling in the Macklowe divorce and the division/sale of the art collection. Yesterday I posted on some of the differences in the valuation of the important artwork. The artnet news names the appraisers, Gurr Johns for Mrs Macklowe and Winston Fine Art for Mr Macklowe.

artnet news reports on the division of  property and appraisals

Linda’s appraiser—Christopher Gaillard of the firm Gurr Johns—valued the work by comparing it to two versions of a different sculpture by Giacometti sold in 2010 and 1990, as well as the sale of another version of Le Nez from 1992, with prices ranging from $25 million to less than $1 million. As a result, he determined the market value of the work would be $35 million.

Meanwhile, Harry’s expert, Elizabeth von Habsburg of Winston Fine Art, used two different auction sales of Giacometti sculptures that sold in the $50 million range in 2010 and 2013. She also referenced more recent Giacometti sculptures sold privately for between $50 million and $100 million, and the recent surge of interest in his work. She concluded the market value of the work would be, conservatively, $65 million.

Further complicating matters, although Harry’s expert “ascribed a higher value to more of the art” than Linda’s expert, “that was not always the case,” according to the ruling. For example, Gaillard estimated the value of  Pollock’s Number 17 at $35 million, while Von Habsburg calculated $15 million. Once again, the difference was driven by their reliance on different combinations of comparable auction and private sales and prices for other works from the same series.

As a result of the disparity in valuations, Drager divided the works into different groupings, or “schedules,” in her decision. The art in the first and second grouping has been assigned specific values on which both sides could agree. The third grouping has not.

Source: artnet news

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Macklowe Divorce - Judge Orders Art Collection to be Sold

Fellow appraiser Xiliary Twil, ASA sent me some links on the recent court decision for New York City real estate developer Harry Macklowe and his wife Linda. From earlier posts, the divorce has been going on for some time and there have been disputes between he couple of the value of the collection, some say worth $700 million. According to reports, Linda gets to keep 15 works of art which have sentimental value to her and pay Harry $20 million. There is agreement on the value of these pieces.

During the divorce proceedings Linda said the art collection was worth $625 million while Harry ad his legal team believed the value was $788 million. The Art Market Monitor reports the higher valued works followed by the differences in values and are listed below. The valuation differences as being rather great, so it would be interesting to see the differing appraisals and how they came to their value conclusions.

Andy Warhol Nine Marilyns $50m
Alberto Giacometti, Le Nez $35-65m
Michael Heizer Track Painting 1967 $150k-$1.7m
Robert Irwin, Untitled (1965-6) $2m v $8.5m
Jeff Koons Vest with Aqualung $10m - $11m
Jackson Pollock, Number 17 $35m  v $15m

The rest of the collection are lower valued works, also with no agreed upon value and will be sold at auction per the judges order and proceeds to be divided.

The Real Deal reports

In the end, the judge overseeing developer Harry Macklowe’s bitter divorce ordered his fortune split down the middle.

Nearly 12 months to the day after the bitter court proceeding ended, Judge Laura Drager ordered Linda and Harry Macklowe to sell their contemporary art collection, worth approximately $700 million, and split the profits evenly because the two sides could not agree on how much it is worth.

“It is an extraordinary collection and the achievement of a lifetime’s work,” she wrote in a 64-page decision, first reported by the New York Post.

–– ADVERTISEMENT ––


Drager’s ruling comes nearly a year after the conclusion of a 14-week trial that chronicled the Macklowes’ years of marital strife along with the ups-and-downs of one of New York City’s most storied developers.

In divvying up the couple’s vast fortune, Drager took a scalpel to the assets (and debt) accumulated over a lifetime:

· Linda can keep $40 million worth of art but will pay Harry a $20 million credit.

· Linda can also keep their $72 million condo at the Plaza Hotel, but must pay Harry a $36 million credit.

· Harry will retain ownership of $82 million worth of commercial property, including 737 Park Avenue, but has to pay Linda $41 million.

· They will split $62 million in cash held in several bank accounts;

· Harry will keep “Unfurled,” a $23 million yacht, but they will share $16 million in debt on the boat

· Linda may keep $3.8 million in jewelry, a $409,000 silver collection and $85,000 worth of books

· Harry will hold title to vehicles valued at $385,000

Linda and Harry Macklowe split in June 2016 after the developer left his wife for his now-fiancée Patricia Landeau. Harry reportedly offered Linda $1 billion to walk away, a claim she rejected. Their bitter and pubic divorce trial kicked off in September 2017.

Throughout the proceedings, lawyers for both sides tried to downplay what’s been described as a $2 billion fortune tied to Linda Macklowe’s art collection and Macklowe Properties’ storied 13 million-square-foot portfolio.

On the witness stand, Harry Macklowe — at turns charming and calculating — cast shade on his own projects, namely 432 Park Avenue and 1 Wall Street. While an accounting expert hired by his legal team testified his companies “lose money every year,” Macklowe pegged his net worth at negative $400 million. That was largely due to deferred capital gains on the $2.8 billion sale of the GM Building in 2008.

During the trial, Linda and Harry bickered over the value of their art (she said $625 million, he said $788 million) and their condo at the Plaza (she said $55 million, he said $107 million). Linda also filed a separate lawsuit, later dropped, alleging that Harry and his partners at 432 Park Avenue were trying to force her to close on a $14.4 million condo at the tower that had been downsized without her knowledge.

As part of the divorce proceeding, Harry’s attorney, Peter Bronstein, argued that if Linda takes half of the marital assets, she ought to shoulder some liability. “Mr. Macklowe is trying to get his business back on its feet,” he said. “He’s had to borrow money, get pieces of deals.”

In November, as both sides waited for Judge Drager’s decision, the developer closed on a $750 million construction loan from Deutsche Bank for 1 Wall Street, as The Real Deal reported.

For more than a year, the developer had been negotiating with JPMorgan Chase to finalize an $850 million loan for his office-to-residential conversion slated to hold 566 units. During that time, Macklowe’s equity partner, Qatari billionaire and former prime minister Sheikh Hamad Bin Jassim Bin Jaber al-Thani (HBJ) also transferred his stake to former Qatari emir Hamad Bin Khalifa al-Thani (HBK). After the late-stage switch from J Morgan to Deutsche Bank, HBK is planning to contribute $100 million in additional equity.

Source: The Real Deal 

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3rd Exposure Draft USPAP 2020-2021

The Appraisal Standards board or the Appraisal Foundation has released its 3rd exposure draft for the 2020-2021 edition of USPAP.  The executive summary of changes is listed in the block quote.

Per the AF and ASB "All  interested  parties are encouraged to comment in writing to the ASB before the deadline of February 1, 2019. Respondents  should  be  assured  that  each  member  of  the  ASB  will  thoroughly  read  and  consider all comments.

Comments are also invited during the ASB Public Meeting on February 8, 2019 in Scottsdale, AZ.Written comments on this exposure draft can be submitted by mail and email.Mail:
Appraisal Standards Board
The Appraisal Foundation
1155 15th Street, NW, Suite 1111
Washington, DC 20005
Email: asbcomments@appraisalfoundation.org"

For the full exposure draft, follow the source link below.

The ASB executive summary

This  Executive  Summary  is  intended  to  be  a  brief  discussion  of  each  section  in  the  document.  Because some readers may not have an interest in every section of the document, the Executive Summary gives an overview to help readers find the sections related to their specific interest(s).
For  detailed  information  on  proposed  revisions  and  the  reasons  for  the  proposals,  the  ASB  encourages  readers  to  review  the  rationale  as  well  as  the  specific  changes  being  proposed.  As  always, the ASB requests readers to submit any relevant comments.

Section 1 – STANDARDS (Reporting Options and Comments in Standards Rules)

Reporting Options

The  ASB  proposes  significant  revisions  to  STANDARDS  2,  8,  and  10.  Rather  than  limiting  appraisal reports to either a one-size-fits-all or the current two-sizes-fit  -all reporting options, the ASB  proposes  a  model  that  reduces  the  specificity  without  diminishing  the  USPAP  reporting  requirements.  The  Board  also  proposes  the  elimination  of  required  appraisal  report  labels  and  specific  warning  language  but  proposes  reporting  rules  that  require  clear  and  conspicuous  disclosure  of  any  restrictions  on  the  use  of  an  appraisal  report.  The  ASB  also  proposes  some  parallel changes to STANDARDS 4 and 6 as appropriate for consistency.
Comments in Standards Rules

In the First and Second Exposure Drafts the ASB proposed several actions related to Comments in  the  Standards  Rules.  These  actions  included  deleting  some  Comments  that  had  duplicate  requirements clearly stated elsewhere and incorporating others directly into the Standards Rules. The  responses  to  the  First  and  Second  Exposure  Drafts  indicated  these  actions  were  helpful  in  increasing  the  clarity  of  USPAP.  In  response  to  stakeholder  input,  this  Third  Exposure  Draft  includes a proposal to revise the structure of the long Comment following the Certifications and to reinstate some of the Comments that had been proposed for deletion.

Section 2 – SCOPE OF WORK RULE
After  considering  responses  to  the  First  and  Second  Exposure  Drafts  regarding  proposed  modifications to the Disclosure Obligations section of the SCOPE OF WORK RULE, the ASB now  proposes  to  add  language  to  the  Disclosure  Obligations  section  of  the  SCOPE  OF  WORK  RULE to address the flexibility afforded the appraiser in the disclosure of scope of work.

Section 3 – COMPETENCY RULE
In  earlier  exposure  drafts,  the  ASB  proposed  to  move  the  following  important  Comment  from Standards   Rules   1-1,   3-1,   5-1,   7-1,   and   9-1, and   add   a   slightly   edited   version   to   the   COMPETENCY RULE. In response to comments to the Second Exposure Draft, the ASB now proposes to move the unedited Comment, as follows, into the COMPETENCY RULE.
“Perfection is impossible to attain, and competence does not require perfection. However, an appraiser  must  not  render  appraisal  services  in  a  careless  or  negligent  manner.  This  Rule  requires an appraiser to use due diligence and due care.”
This  particular  Comment  currently  appears  only  in  the  development  Standards,  but  it  has  been  pointed  out  that  it  should  also  apply  to  reporting.  Moving  it  into  the  COMPETENCY  RULE  reduces duplication and, at the same time, broadens the applicability of this important Comment since the COMPETENCY RULE applies to both development and reporting in all disciplines.

Section 4 – DEFINITIONS 
Based  upon  responses  received  from  the  First  and  Second  Exposure  Drafts,  the  ASB  proposes  some modifications and additions to the DEFINITIONS in order to help readers better understand USPAP. Both exposure drafts proposed to include USPAP terms that differ from or are not found in popular English dictionaries and also, in a few instances, to indicate which popular dictionary definition is meant to be used if there are multiple definitions.

Section 5 – Other Edits to Improve Clarity and Enforceability of USPAP
The Board proposes several edits for clarity and consistency. The edits are related to the following three terms or phrases:
1.Accept an assignment
2.At the time of the assignment
3.Intangible Items
In response to comments received from the Second Exposure Draft, the proposed DEFINITION of “At the time of the assignment has been modified.”

Section 6 – Proposed Revisions to ADVISORY OPINION 1, Sales History
The  Board  is  proposing  edits  to  provide  additional  detail  related  to  an  appraiser’s  obligation  to  analyze the sales history of the subject property. In addition, the Board is proposing corresponding edits  that  will  be  made  if  the  changes  to  USPAP  contained  in  this  Third  Exposure  Draft  are  adopted.

Section 7 – Proposed Revisions to ADVISORY OPINION 2, Inspection of Subject Property
The  Board  is  proposing  edits  to  reflect  changes  in  the  marketplace  related  to  an  appraiser’s  inspection of a property. In addition, the Board is proposing edits that will be made if the definition of INSPECTION contained in this Third Exposure Draft is adopted.

Section 8 – Proposed Revisions to ADVISORY OPINION 3, Update of a Prior Appraisal
The Board is proposing edits that clarify an appraiser’s obligations regarding confidentiality when performing an update of an appraisal using the “incorporate by reference” option.

Section  9  – Proposed  Revisions  to  ADVISORY  OPINION  28,  Scope  of  Work  Decision,  Performance, and Disclosure
The Board is proposing clarifying edits to Illustration 2, and to include an additional illustration regarding  a  scope  of  work  problem  related  to  real  property.  In  addition,  the  Board  is  proposing  corresponding edits that will be made if the changes to USPAP contained in this Third Exposure Draft are adopted.

Section 10 – Proposed Revisions to ADVISORY OPINION 31, Assignments Involving More than One Appraiser
The Board is proposing edits that will be made if the definition of SIGNIFICANT APPRAISALASSISTANCE contained  in  this  Third  Exposure  Draft  is  adopted.  Additional  edits  are  being  proposed if the edits to Standards Rules 2-3, 4-3, 6-3, 8-3, and 10-3 in the Third Exposure Draft are adopted.

Section  11  – Proposed  Revisions  to  ADVISORY  OPINION  32,  Ad  Valorem  Property  Tax  Appraisal and Mass Appraisal Assignments
The Board is proposing to add an Illustration 5, capturing information proposed for deletion from a Comment to Standards Rule 5-5(a), which the Board concluded was more advisory in nature and better placed in this Advisory Opinion. Additional edits are being proposed based on the potential changes to USPAP in this Third Exposure Draft.

Section 12 –ADVISORY OPINION 38, Content of an Appraisal Report
The Board is proposing a new Advisory Opinion that will replace Advisory Opinions 11 and 12 if the proposed edits to USPAP in this Third Exposure Draft are adopted.

Section  13  – Proposed  Retirement  of  ADVISORY  OPINION  4,  Standards  Rule  1-5(b); ADVISORY OPINION 11, Content of the Appraisal Report Options of Standards Rules 2-2, 8-2, and 10-2; and ADVISORY OPINION 12, Use of the Appraisal Report Options of Standards Rules 2-2, 8-2, and 10-2

The Board is proposing the retirement of AO-4 as the existing guidance is viewed as narrowly-focused, and is more appropriately housed where it also currently exists in the USPAP Frequently Asked Questions.

As  stated  above,  AO-11 and  AO-12  will  be  retired  and  replaced  with  AO-38  if  the  proposed  revisions to USPAP contained in this Third Exposure Draft are adopted.

Source: The Appraisal Foundation 

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UBS Investor Watch Pulse Report

The Associated Press recently posted an article on a UBS Investor Watch Pulse Report (Art in Motion) from UBS Global Wealth Management.  The report was released during Art Basel. The reports note a growth in online purchases, nearly doubling from 2017, growing interest in women artists, and collectors looking to purchase but reluctant to sell.

The UBS site does not yet have the Art in Motion report posted. I will keep checking and post when available.

The Associated Press reports

UBS Global Wealth Management released today a new report that unveils the majority of art collectors are going online and using social platforms to stay at the forefront of the art market year round. Released during Art Basel in Miami Beach, this special Investor Watch Pulse Report, titled “Art in Motion,” studies the attitudes and behaviors of fine art collectors in the U.S. with at least $5m+ in investable assets.

Art collectors increasingly comfortable buying art online

The percentage of art collectors who have purchased art online before they’ve seen it in person has more than doubled in the past year (26 percent in 2017 vs. 58 percent in 2018), while 63 percent of collectors polled have gone on the internet to participate in an online auction.

What’s more, art collectors are beginning to feel the pull of social media, using it as a resource to help them follow the art market closely. Among the collectors, 67 percent follow an artist on social media, while 65 percent have seriously considered buying art after first seeing it through their social media platforms.

“The technological trends changing the economy are increasingly changing the art market,” said Karl Ruppert, Market Head of Florida Private Wealth Management at UBS Global Wealth Management. “There are potential opportunities presented through future growth of the online art market to attract new buyers at different price levels, which is beneficial to the health of the overall market. For gallerists, fairs, auction houses, artists and collectors, digital tools will be a key area of growth over the next five years.”

Women artists on the rise, and so are the investments in them

Women artists are increasingly being recognized for their standout contributions along with breaking their sales records — which hasn’t gone unnoticed among collectors. Almost three-in-five collectors see the artist’s gender as a determining factor when purchasing a piece, and 70% plan on purchasing works by women in the next year.

“While male artists continue to lead overall sales within the market, we found clients are increasingly recognizing that women artists are undervalued,” said Ruppert.

Collectors ready to buy, but cautious to sell

Collectors are eager to grow their art collection with half stating they’re always looking to add new pieces, and 34 percent are opportunisitically searching. Moreover, 58 percent are ready to make an addition in the upcoming calendar year, while 64 percent of fine art collectors are gearing up to spend more than $100k on their new additions in 2019.

More than half (58 percent) of these wealthy art enthusiasts view their collections as their most prized possessions. Not surprisingly, collectors are only willing to sell up to a third of their collection.

Passing along the passion: Concerns for art inheritance

When it comes to passing along their passion pursuit to the next generation, 58 percent of art collectors are worried their heirs won’t know how to care for the collection and 57 percent are concerned about taxes when passing on to the next generation.

Source: Associated Press 

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Millennials and Antiques - Growing Interest?

The Telegraph recently ran an interesting article on a growing interest in antique and vintage furniture from millennials due to the sustainability rather than the past interest in fast furniture. With low price points fro many antiques, at times lower than Ikea, according to many in the auction trade, millennial interest is growing, and it is expected to continue.

Perhaps that interest in sustainable furniture will grow into real collector interest as well. With that it might move the needle from just buying antique and vintage furniture to collecting.

The Telegraph reports

A boom in antique sales has been driven by eco-conscious millennials who are rejecting “fast furniture”, auction houses have said.

While the enduring image of a young person in their first home is the assembly of cheap flat-pack tables and wardrobes, many members of the younger generation are rejecting this stereotype and filling their houses with antique finds from auctions.

And with auction houses setting up special sales for first-time bidders, featuring lower-cost items, some pieces are even cheaper than what can be found in IKEA.

Benedict Winter, a specialist in furniture and works of art at Christie’s auction house told The Telegraph: “We've definitely seen a growing trend in  young people who are interested in our sales at Christie's.

"It definitely helps that people care about green furniture, and this combined with the history and the craftsmanship really appeals to 21st century people.

"The trend is towards sustainability and less of a throwaway culture and that's definitely been reflected in our auction sales.

"We have so many sales a year with low starting points for beginner collectors. The lowest lots start at £300 which is entry level stuff."

 Christie's said they have had many new young customers thanks to Instagram and other social media sites
Christie's said they have had many new young customers thanks to Instagram and other social media sites CREDIT:  PAUL GROVER
International search engine Barnebys, which monitors 2,000 auction houses on its website which hosts more than one million items daily, has found a similar trend to be true.

Their furniture sales have risen by 32 per cent in the last 12 months, and the company believes this is due to young people searching for sustainable furniture for their homes.

A spokesperson said that their search tracking is picking up info that this interest is coming from people aged 18-45, which is a  steady and growing increase that has happened over the last few years.

Pontus Silfverstolpe, co-founder of Barnebys, said: “Today we can say that everyone who works in the auction world is working in the world’s most sustainable industry. Changes in consumer behaviour, led by millennials is driving this new interest in using renewable pre-owned items.

“They know that antiques are better for the carbon footprint. We clearly see an increased interest from the younger generation of buyers who want unique, personal and quality items that last over time.

“It is just not sustainable for our world to continue to consume as we do today, and have done over the last few decades. So, today, many of the younger generation actively choose to furnish their homes with pre-owned furniture, which surprisingly is often cheaper than even Ikea furniture.”

Also driving this trend is the Instagram aesthetic; people hungry for inspiration often land on the idea of buying photogenic vintage pieces.

Mr Winter added: “At Christie's online is a great aspect, people can read the stories about the pieces on our website, and on social media there is a huge trend of decorative arts and furniture, that's by people of the younger generation and sales completely are driven by that.

"I've actually emailed people from Instagram who have turned out to be bidders and buyers in our sales.”

Source: The Telegraph 

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Art Market and the Bank Secrecy Act

Fellow appraiser Maureen Heenan, ISA AM sent me an interesting opinion piece from the Wall Street Journal. The post discusses money laundering and encourages regulators to promote reporting of suspicious activity in the fine art financing, similar to the Bank Secrecy Act of 1970 and to promote transparency. Art market insiders say money laundering is infrequent.

The Wall Street Journal reports

In April 2014, a subsidiary of the Sotheby’s auction house lent more than $105 million to Jho Low, a business associate of the Malaysian prime minister’s stepson. As collateral, Mr. Low offered Sotheby’s 17 paintings, including a van Gogh and two Monets. The art, worth twice as much as the loan, had been purchased by Mr. Low and an accomplice using a web of offshore bank accounts. Sotheby’s had unknowingly assisted in laundering proceeds of an alleged multibillion-dollar fraud that ultimately ensnared Swiss and American banks, a Saudi oil company and Malaysian and Emirati sovereign-wealth funds.

Sotheby’s is hardly alone. With $64 billion in annual sales, the often opaque art business is an attractive arena for money launderers. Subjective pricing creates an ideal environment for criminals to legitimize illegal funds or get money across well-protected borders. It is long past time for the U.S. to treat art and antiquities like any other major market and require participants to report suspicious activity and keep thorough records on clients and transactions.

Art sales and auctions are famous for secrecy. It isn’t uncommon for a party to a multimillion-dollar art transaction to be anonymous, sometimes because of legitimate concerns about financial privacy and suppression of political art. Galleries and auction houses collect basic information on their buyers and sellers, but the vetting is usually far less intense than for similar-size bank transactions. For criminals, the art world’s comfort with secrecy provides a layer of protection against investigation into their finances.

The variability of art pricing is another lure. The price of a work of art is determined by individual taste and hard-to-quantify trends. In a rudimentary example of money laundering, a person transfers money by overpaying someone else for goods. Customs officials and law enforcement are constantly analyzing pricing data to spot this type of behavior, and it is relatively easy when the costs of goods are easy to compare. Art transactions are harder to investigate because hardly any two prices, or pieces, are alike.

Even in the world of luxury goods, art and antiquities sales are curiously opaque. Dealers in precious metals, jewelry, high-end cars and private planes are all regulated by the Treasury using the same standards used to regulate banks, casinos and securities brokers.

Real-estate developer Aristos Aristodemouhas described the sale of artwork as “the only market that is unregulated.” At least that’s what he allegedly told a crooked stock trader in December 2017 as he explained how to purchase art and resell it, obscuring the origin of illicit funds so that it could be moved to the U.S. Working with British art dealer Matthew Green, Mr. Aristodemou, his nephew Panayiotis Kyriacou and the trader concocted a scheme to do just that using a Picasso painting valued at $9 million. One problem: The crooked stock trader was an undercover Federal Bureau of Investigation special agent. The Justice Department indicted Messrs. Aristodemou and Kyriacou and four associates in March on charges of money laundering and securities fraud.

Art-industry insiders insist that money laundering through art is rare. And stand-alone prosecutions for money laundering that involve art are rare, because prosecutors generally address the activity in the context of crimes that are easier to prove, such as tax evasion or fraud. But even if money laundering through art weren’t occurring—which it is—the art market’s vulnerability to such crimes is obvious enough that something must be done to address it.

The first step is to apply the Bank Secrecy Act of 1970 to dealers of art and antiquities. The BSA establishes standards for anti-money-laundering controls, record-keeping and reporting of suspicious activity to the government. Rep. Luke Messer (R., Ind.) introduced a bill in May that would extend the BSA to art dealers but it remains stuck with House Financial Services Committee and is unlikely to become law. Even without legislation, the Treasury secretary has authority under the USA Patriot Act to introduce similar requirements by regulation.

Officials at the Treasury Department’s Financial Crimes Enforcement Network should be specially trained to supervise implementation of the BSA on art-related businesses. Art-industry associations should do their part by investing in secure technology to record transactions worth more than $10,000. This would reduce the cost of compliance with any eventual regulations and improve “provenance research”—verifying ownership of a work of art.

Critics of art regulation have argued that increased reporting requirements and controls could be used by the government to suppress politically motivated art. But the overwhelming majority of records would remain in the hands of private individuals and companies. Increased record-keeping and reporting comes with a cost, but auction houses and dealers already have much of the information they need to satisfy banks, insurers and the Internal Revenue Service. Compliance software used by banks could easily be adapted for use in the art business.

By embracing the BSA and a new generation of reporting technology, the American art market has the potential to become more transparent, secure and efficient. Many American businesses will soon need to comply with European Union regulations that are stricter than the BSA, making this a good time to evolve.

Criminals will always look for places to launder money. The art industry should do everything it can to convince them to look elsewhere.

Source: The Wall Street Journal 

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Art Lending

The Art Newspaper takes a look at the growth in art lending. The article notes that in 2017, based upon the Deloitte ArTactic report, there is between $17 billion and $20 billion in outstanding art loans. Keep in mind, that most of that artwork at some point needed to be appraised. So here again we see opportunities for appraisers to make contact with lending institutions which specialize in fine art as well as with financial planners who may recommend borrowing against fine art.

The article quotes Citi Private Bank's Private Bane Art and Advisory head  “Our client base in the US is strong and growing. Most notable is the increase in the size of the art loans. Ten to 15 years ago, typical art loan facilities were in the tens of millions; today it’s increasingly common to offer art loans facilities in the hundreds of millions. Business is growing dramatically in Asia and Latin America as well.”

The increase in art lending, and other commercial activity involving fine art is one of the reasons the International Society of Appraisers set up their Private Client Services program to specifically train their appraisers in dealing with high net worth clients, private bankers providing art loans, estate planners etc. This Art Newspaper certainly reinforces the decision of ISA to train their appraisers in appraising for financial transactions. The upper middle and upper end of the market is where the money is, and it is also where the opportunities for qualified appraisers are.

The Art Newspaper reports

Warhol or a Wool hanging on your wall may give you great pleasure, but it used to be that art gave you no monetary return—unless you sold it.

No longer. Today that work of art can remain on your wall and at the same time give you cash in hand, allowing you to buy more art, inject some money into your business, cover a guarantee at auction or pay off an urgent tax demand.

Borrowing against art poses specific problems because of its portability, its heterogeneous nature and difficulty in establishing a reliable price. And yet, according to a report published last year by Deloitte and ArtTactic, in 2017 the global total of loans outstanding against art was eye-popping: between $17bn and $20bn.

“Perhaps the biggest driver of growth in this field has been a mindset shift by collectors who once viewed their art purely as a hobby or aesthetic pursuit and now view it as a strategic asset,” writes Evan Beard, a national art services executive at US Trust, in the first Tefaf Art Finance Report, published earlier this year. US Trust has a stunning $6.7bn out in loans secured against art, and other private banks such as Citi or JP Morgan have loan books that also run into the billions of dollars.

“You will probably find that many of the US-based names in Artnews’s top 200 collectors list have borrowed against their art holdings,” Beard says.

While precise figures are difficult to obtain, according to a number of players in the market the vast bulk—in excess of 80%—of the art-secured lending business is in the US.

And it is a buoyant sector: “Our client base in the US is strong and growing,” says Suzanne Gyorgy, the head of Citi Private Bank’s Art Advisory and Finance. “Most notable is the increase in the size of the art loans. Ten to 15 years ago, typical art loan facilities were in the tens of millions; today it’s increasingly common to offer art loans facilities in the hundreds of millions.” And while the US is strong, Gyorgy says, “Business is growing dramatically in Asia and Latin America as well.”

“Americans are so much more accustomed to borrowing,” says Barbara Chu, a partner at Emigrant Fine Art Finance, the art lending arm of Emigrant Bank: “And there are cultural biases against borrowing in some countries; people are generally averse to debt in the UK and Germany.” She adds: “Our financing offers another option for people to monetise their offshore assets.”

The biggest loan books are held by private banks, such as US Trust, with departments servicing their clients by giving recourse loans against their art holdings. But for others, there are specialist boutique lenders offering both recourse and non-recourse loans, and here is where there are a number of newcomers in the field: the London-based Fine Art Group moved into this area two years ago, TPC Art Finance just one year ago. The auction houses are also more than willing to lend against art and the main player, Sotheby’s, has a $1.1bn war chest with which to do so.

Almost all of the firms will lend against 40% to 50% of the appraised value of the artwork; some will take possession, others not. In the US, Uniform Commercial Code (UCC) filings identify works of art with a lien against them, and in many cases this means that the borrower can continue to enjoy their artwork and not see it crated off into storage. Elsewhere in the world, where no UCC exists, lenders generally want to hold the art until the loan is paid off.

UCC filings are publicly available, and a quick browse through some of the lenders reveals a wide spread of owners who have leveraged works. The Turkish trader Yomi Rodrik, for example, has borrowed against nine works by the likes of Rudolf Stingel, Anselm Kiefer, Takashi Murakami and Jean Dubuffet from Athena Fine Art Financing, launched three years ago by Carlyle Group with $280m in funding (but now seeking a buyer). Omanut Holdings borrowed against 25 works, including Keith Haring, Mark Grotjahn and KAWS, from TPC Art Finance. Art dealers who have taken loans—among them Pace, Mitchell-Innes and Nash, Kasmin and Gagosian—can also be found in the filings.

Interest rates vary wildly depending on a number of factors. At one end of the spectrum are the private banks, who can offer very favourable rates—from the mid-single figures—to their clients, who have other assets beside art; some will only lend over $5m, with a minimum term for at least a year. And remember that a $5m loan means the work of art must be worth at least double that. Most lenders, as well, prefer to lend against a collection rather than a single piece.

Then there are the specialised lenders, who are likely to charge interest in the upper single figures; some, such as TPC, Falcon Fine Art, are the lending arm of a bank or finance company. “Non-banks” such as Sotheby’s will lend up to 60% of the low auction value at around 8% interest, but generally will do so against future consignment of the work(s) for sale.

At the other end of the scale are short-term, lower-value lenders such as Borro Private Finance, with offices in London, New York and Los Angeles, which might give a loan for just £100,000 for three months, but at 1% to 2.5% interest per month.

Outside the US, according to Dr Tim Hunter of Falcon, “the market is massively underdeveloped”. He identifies a number of reasons: the absence of UCC, the varying laws in different countries and cultural differences. But things are changing, says Freya Stewart of the Fine Art Group, which lends in the $500,000 to $150m range: “In Europe, younger collectors have a different view of the concept of leveraging assets; they are far savvier than the older generation and see this as a smart thing to do.” However, some borrowers may be entering too enthusiastically into loan agreements. This year there have been cases of overleveraging, for example the US art dealer Anatole Shagalov, who has taken loans against art but has allegedly defaulted on some purchases. An outlier, perhaps, but the consequence of what some see as a very frothy art market.

Source: The Art Newspaper

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More on Blockchain and Fine Art

Here is an interesting article recently published in Forbes on the growth and interest in blockchain technology within the art market and the interest from Christie's in using and growing the technology.

Forbes reports

The art world witnessed an extraordinary auction on November 13th at the Christie’s Auction House in New York. Not only the collection of the late Barney A. Ebsworth raised over $300 million, setting the new world auction records for Edward Hopper and Willem de Kooning, but also for the first-time-ever, the results of the major auction sale were recorded using blockchain technology. To do so, Christie’s has collaborated with Artory, the leading independent blockchain-based registry for the art market built on Ethereum Blockchain.

Artory’s Registry, built on the public blockchain, creates a system for vetting, memorializing and protecting transactional data, while simultaneously allowing the artwork’s owner to stay completely anonymous. One of the critical differences between Artory and similar services is that the company uses third-party vetted service providers, such as auction houses, to supply the data for their registry, creating a reputational guarantee that the information is correct.

Weeks before the auction Richard Entrup, CIO at Christie’s, commented in a press release: ‘Our pilot collaboration with Artory … reflects growing interest within our industry to explore the benefits of secure digital registry via blockchain technology.’

However, things weren’t as optimistic just a few years ago. In 2016 when Jason Rosenstein, CEO of Portion, a decentralized online auction house for luxury goods and rare collectibles, spoke with Christie's and Sotheby’s auctions about a potential collaboration, both weren’t ready to explore adding this technology to their authentication process. Both auction houses suggested that their brand and reputation ensured the authenticity of the works of art and didn’t feel necessary to use a decentralized database.

Today, Portion offers an open market exchange of digital and physical works with a mission ‘to cater to younger collectors by partnering with notable brands and establishing relations with living artists.’

So, why Christie’s moved closer towards the use of the blockchain technology and collaborated with Artory to record the data from the Ebsworth sale?

The success of Bitcoin cryptocurrency and the attention to the blockchain it provoked, may be one of the reasons. Jason Bailey, the founder of Artnome and an advisor to Portion suggests that ‘the lack of good data has led to a major problem with forgery and misattribution,’ and the fact that Christie’s used ‘blockchain for the Ebsworth collection is an early step towards data transparency and improved provenance.’ Bailey also suggests that ‘the art market currently fails to support most working artists in any meaningful way.’ Portion and similar services provide an opportunity for the artists to get royalties for the works of art they create.

Does it mean that all auction houses will now add blockchain tools to record auction data routinely? A lot will depend on the extent to which the big art market players, including Sotheby’s, will adopt this technology in their operations and we are yet to observe how long it will take.

Source: Forbes 

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New TAFAC Chair - Linda Selvin

In yesterday's post about The Appraisal Foundation Advisory Council I failed to mention some outstanding news that should make all personal property appraiser feel positive about what is happening within the Appraisal Foundation and TAFAC.

In our Friday TAFAC meeting, Appraisers Association of America's Executive Director Linda Selvin was elected the new chair of TAFAC. This is outstanding news for all PP appraisers. Having Linda serving as chair of TAFAC will greatly add to the influence and significance of personal property appraisers within the Appraisal Foundation. In short, we will have a stronger voice and larger presence.

I have had the pleasure of working with Linda for many years on AAA/ISA collaborations as well as serving with her on the PPIC. I know first hand Linda's dedication to the personal property appraisal profession and her strong work ethic on  its behalf. On many occasions I have seen Linda stand up and support the personal property appraisers and promote qualified appraisals and appraisers. I am confident Linda is going to make an excellent and active chair of TAFAC.

Please pass along congratulations and your support to Linda as she leads The Appraisal Foundation Advisory Council.

The Appraisal Foundation Advisory Council (TAFAC) is composed of 60 non-profit organizations and government agencies.  TAFAC member organizations represent various professions and occupations with an interest in valuation including appraisers, home builders, real estate brokers, financial institution regulators, federal land acquisition agencies, the secondary mortgage market and the private mortgage insurance industry. 

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TAFAC PPIC

Last Thursday I attended The Appraisal Foundation Advisory Council committee meeting. I am the chair of the Personal property issues committee and would like to share the agenda and discussion items from the meeting. The following day was the actual TAFAC meeting where the minutes were accepted by TAFAC. In addition to our regular PPIC members, which includes representatives from ISA, AAA, NAA, ASA and AMEA, Dave Bunton Pres of the Appraisal Foundation and Kelly Davids VP of the Appraisal Foundation also attended.  Special guests included Maggie Hambleton, Chair of the Appraisal Standards Board and Patricia Graham, Chair of the Personal Property Resource Panel.

Overall it was a very good meeting, and we are again starting to get tasked for ideas and participation in upcoming Appraisal Foundation programs and actives. I am pleased to see the PPIC starting to gain more traction with AF staff and initiatives.  Some of topics we are working on includes developing program ideas for a joint Industry Advisory Council/TAFAC meeting this summer, as well as assisting the ASB in developing case studies examples regarding personal property for use in USPAP update classes.

We will of course continue to work on appraiser qualification outreach, looking to train and provide AF/USPAP/AQB Qualification information to users of appraisals and why it is so important to only hire qualified appraisers who write USPAP qualified appraisals. We needed, we also comment and make suggestion on USPAP exposures drafts and recommendations for USPAP changes and clarifications.

The submitted minutes are below.

Special Guest – Patricia Graham, Chair of the Personal Property Resource Panel

·         Updates from AF staff – Dave Bunton and Kelly Davids updated the PPIC on potential plans for the Industry Advisory Council and TAFAC meeting this summer. The PPIC will make suggestions on PP content and programs for the meeting.
·         Volunteerism – Discussed working with our organizations and to leverage membership for input, questions and content for PPIC initiatives.
·         General discussion of working with the Personal Property Resource Panel -  PPRP chair Patricia Graham gave background on her committee. The two committee chairs plan on discussing how we can work together to assist various initiatives and to not duplicate efforts.
·         Appraisal Qualifications and Perceptions,. Discussed negative blog post by an art dealer about appraising. General consensus of the committee was to ignore the post as the exposure was limited, not promote it, and to continue to promote qualified appraiser sand appraisals.
·         Develop personal property case studies for both 15 hours USPAP class and 7 hour update class for potential future USPAP ASB use. – Maggie Hambleton joined our meeting.  By early 2019 the ASB will work with the PPIC in order to develop suitable and appropriate case studies for the ASB
·         Continue outreach regarding USPAP and appraiser qualification criteria. Discuss potential for holding an outreach program at an appraisal conference to promote PP qualifications and outreach to organizations such as the ABA. Promote hiring qualified appraisers as best practices connecting with due diligence
·         New Business – Notify the AF when we feel there is something that needs additional clarification and/or explanations regarding personal property content within USPAP.
·         Motions for TAFAC approval if any - None
·         Adjourn

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RE FMV and Auction Comparables

After posting the Artsy article on FMV and auction comparables I received several comments on the topic. Most regarding the hypothetical and application to only the top end of the market. Others mentioned manipulations at the top end of the market has been ongoing for many many years.

Perhaps the most interesting, and by far the most in-depth response was from NYC art advisor Elisabeth Hahn who took the time to write a thoughtful and respectful response to the author of the Artsy column. Elisabeth forwarded her response to me and allowed me to post on the AW.

Please forward any additional comments on this topic to me.

Comments to the Artsy author from Elisabeth Hahn

Dear Mr. Gammon,

I read with interest your article on Artsy regarding the “fairness” of auction prices and whether appraisers can rely on them to truly be “fair” market values.  Having been involved in the art world since 1981, having worked at Christie’s for many years, and having performed many appraisals as well as having taken the USPAP courses and passing the tests a few years ago, I was very surprised and even a bit alarmed by the headline and the contents of your article.

In the same way that so many in the art world complain about sensationalist articles about the art market in the press, I feel your comments inflame an already confusing situation—to say nothing of the many thousands of appraisers in the world who may not be as skilled or knowledgeable as you clearly are.  I feel this way because your entire premise is based on an incredibly RARE situation—that of the Hockney painting—and yet you seem very comfortable imposing your warning on the entire art market and use it to call into question long-held, and often-tested methodologies used and agreed upon by all appraisers and their associations.

What happens at the very tippy top of the Contemporary art market seems to me to have little, or more often, nothing, to do with the entire remaining balance of art, furniture and decorative objects’ public auctions results.  I do not feel anyone needs to be worried about the kind of back-room, behind-the scenes shenanigans you discuss in your article, in the great majority of cases.  While the general press seems mostly to report on the highest results, the most unflattering stories, and the deepest failures of the current art world, those of us who are in the thick of it know these stories often refer to only a small part of what is actually going on.  The heated prices at the very top of the market, have never dictated specifically what everything else is worth, how we make those evaluations or what the trends necessarily are.  The behind-the scenes scenarios you invoke are unheard of in the auctions of items of lower values.  In the auction world, we were always taught “one price does not a market make.”  Every appraiser should know this too.  While I agree that at the very highest price points, many issues like this one, and others regarding guarantees, etc. should absolutely be considered, I disagree that we are at the point of questioning what the entire group of public auctions results mean when determining appraisal values.

I would have been much more interested in, and less concerned about the messages in your Artsy article if you had not used a few unusual situations to put a crucial definition of fair market value into question.  If you felt you were speaking to a general art audience, then it seems to me you have caused unnecessary alarm.  If you felt you were speaking to a more knowledgeable group of people who are in the art world and/or are in the business of appraising works of art, then I really feel you should have known better.

Thank you for taking the time to read and consider my thoughts.

With kind regards,

Elisabeth Hahn

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