Unsal Ozdilek is a professor and the director of the Real Estate Program in the Business School at the University of Quebec in Montreal. His research interests are in personal and real property evaluation fields.
In price explanation and prediction approaches, the particularities of the market and of each piece of art cannot be abstracted and generalized. The segmentation of the market, ideally by the artist, is a starting point, because there is a significant relationship between the value of the art and the identity of its creator (Valsan, 2002). Using large databases, studies often consider several artists in the same model anyway, supposing that the segmentation norm is satisfied through the use of dummy variables. Although this approach may provide some general information (e.g. comparing the popularity of different artists, among other things), it unfortunately mixes up the particular dynamics of different markets with their interrelated explaining variables. When enough data exists, it thus is preferable and wiser to segment the market per artist.
As noticed earlier, not only buyers and sellers of artwork decide on its price, mediators do too. These might be galleries (interface between supply and demand), auctioneers (there are many auctioneers of art, major ones traditionally being the English houses of Sotheby’s and Christie’s), collectors (individuals or enterprises), and the state (whose role is typically conserving, legislating and buying art). Studies analyzing the price reveal very little about them. The assumption that there is no need to distinguish these agents is not relevant in the art market, even though some correlation between the characteristics of the real properties and those of the partici-pants in the market seems to exist (Palmquist 1984; Bartik, 1986). In the art market, each party, acting alone or in partnership, has a different level of knowledge, financial situation, political power, and number of members, all of which are quite different. In practice, this is an important reason why it is preferable to identify who sells to whom, who are the intermediaries, and how they precede.
Time and location are among other important factors. Market dy-namics of art are changing constantly in a variety of ways due to interactions of social, economic, environmental, religious, political or technological forces. It is risky – or, at least, misleading – to analyze art value without referring to a specific context, precise date and period of time. For instance, the value of art in the 15th century could not have been affected by exactly the same variables as those that are relevant today. Within a defined context, we may further distinguish between a specific date (a particular day in the year) and a period of time covering multiple years. In practice, to estimate the value of an artwork at a specific date one needs to know the unit prices of a number of comparable artworks recently transacted (usually within one year) in order to better reflect the market conditions. Evaluation on a specific date thus gives an instantaneous picture of the artwork’s market value, which is subject to change in the future. In addition, rather than observing individual prices, one can study art value differentials over a period of time (i.e., a decade or even a century) by examining, for instance, the evolution of price averages by artist, city or country. In this case, since the time scale is enlarged, we cannot presume to be estimating the value of a particular piece of artwork, as each one would contribute to the explanation of a whole phenomenon by being part of the average. As for the time factor, the location of the sale is also important in order to distinguish between the auction houses, the city environments or the country in which the sales take place.
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