Determining the value of artwork depends on several factors. Whether it’s a contemporary painting or an historic Native American item, determining the correct value is at the heart of what we do. While this is stating the obvious, what may not be obvious is the types of value that come into play with appraisals. An item can have differing valuations depending on the “intended use” of the appraisal. In other words, why is the appraisal needed and what are the circumstance around that item. A need to liquidate an item quickly versus donating it to a museum are examples of two different value scenarios.
In essence, determining the value of artwork is to ascertain the monetary worth of an item as of a specific date. The operative word here is “determined” as opposed to “estimate”. This is because value is justified by analyzing previous transactions of comparable items in the most appropriate marketplace. Through that analytical process, value is determined. This approach is utilized when valuing artworks for the purposes of charitable contributions, estate planning and equitable distribution.
Appraisers also estimate cost, which is often used for insurance purposes. It’s a different approach than determining value. Estimating cost is used to discover what it will cost to replace an item, as of a specified date, generally the date of the appraisal, should it disappear or become damaged. Cost, which is sometimes referred to as replacement value, is essentially a prediction of a future cost of replacement. Since prices rise and fall over time, it is an estimate.
Common types of values used in the appraisal process are:
- Fair Market Value
- Market Value
- Liquidation Value – Orderly / Forced
- Replacement Value
- Actual Cash Value
- Value in Place / Use
Aarin Richard is an art appraiser, broker and consultant and a member of the International Society of Appraisers. His company, Richard Associates Art Appraisals, specializes in historic American Indian art and Contemporary Paintings and is based in Santa Fe, NM.