How is art valued?

Although difficult to quantify in words, an artwork’s ‘wall power’ is perhaps the biggest determining factor in its value. Does it shock you? Does it inspire awe? Does it just draw you in and you don’t know why? All of this will help the price soar.

An artwork’s provenance, or a history of who it has belonged to, is another determining factor in its value. For example, if a painting was once owned by a prominent collector or came from a respected gallery, it will automatically be worth more.

Likewise, if the artist is super trendy at the moment, his or her work will cost more, regardless of whether the work has real staying power. It might seem absurd to think that previous ownership of a painting could radically affect its value, but remember, the art market is simultaneously a global consensus machine and a global status network.

Art has value because people agree it should, and the reputation of previous owners drives excitement. Most art market pundits will advise collectors to “buy what you love,” and not speculate on making a profit on acquisitions, but nevertheless imply that substantial appreciation on par with traditional asset classes is a hallmark of the art market.

Much like the universe itself, one of the chief opacities to understanding the true economics of the art market is the enormous influence of ‘reservoirs’ on asset prices. This dark matter consists in the vast number of artworks that have not, cannot, or will not, come to market, but nevertheless apply an invisible gravitational pull on the asset prices we can actually observe.

These reservoirs of non-transactional works serve to artificially underwrite scarcity and aggravate demand, and both support the rarified prices of that very thin sliver of works that do come to market and distort the appearance of returns on investment for the category as a whole. In short, this unseen dark matter is just as important as the few star lots grabbing headlines every auction season. A large portion of these reservoirs comes in the form of museum accessions, which in effect serve as primordial black holes that sequester masterpieces from the marketplace through donations and museum acquisitions, but for the most part, they will never be sold again.

A second field where reservoirs reside is in the vaults of dealers’ unsold inventory of primary market material, as well as a select group of market makers who own large positions in a given artist’s work. In both cases, these entities are often active bidders and third-party guarantors who support prices in their chosen sector, in order to provide stable benchmarks for that unsold inventory. If these large reservoirs of material were not temporarily off the market, prices would crater as supply would quickly outstrip demand.?

It may come as a shock to some, but after many years of collecting, I would conservatively estimate that a substantial majority would realize?less?than they cost to acquire if they were to be liquidated, given the enormous transactional costs associated with buying and selling art.

A significant portion of past acquisitions typically do not come to market, and this enormous deadweight loss is like an invisible lodestar on the apparent annualized rate of return of artworks that are often only calculated from actual repeat sales. The works that come for resale are on balance mostly the winners that have achieved significant price inflation, making them a poor proxy for the true asset appreciation for the category.

This enormous reservoir of underperforming assets, scattered across numerous private balance sheets and thus difficult to discern, does not normally come into the marketplace to demonstrate its eroding state of depreciation, except in piecemeal fashion through eventual death, divorce, or duress. This enormous, hidden cache of dark matter is the unseen lodestar significantly depressing the true annualized rate of return for artworks as a whole.

There are as many reasons for choosing a piece of artwork as there are people looking to buy it. For some, it’s all about finding that perfect painting to hang in the living room – something that will catch the eyes of guests and inspire conversation. For others, artwork is primarily an aesthetically pleasing investment. Still others see art as a status symbol or a collectible or any number of other things.

With all of these possible reasons for making a purchase, it’s easy to assume that there’s no single kind of artwork that meets every need. But that isn’t exactly true. Emerging artists give you the opportunity to buy a piece of art that’s attractive, often experimental, and has the potential to offer major financial returns down the road.

So, no matter your reason for collecting art, you should consider making your next purchase from an emerging artist. Here are three reasons why. It’s common knowledge that artwork from well-known and successful artists tends to increase in value. But what some people don’t realize is that the most valuable artwork is almost always the earliest. Early on in an artist’s career, they’re often more experimental, trying a variety of methods and mediums. As a result, they may create some pieces of art that aren’t exactly like what they’re known for later on. This scarcity in style or medium can create major value and boost collectability.

When artists are first getting started, they’re normally more open to innovation and experimentation. An artist’s early career is usually characterized by an exploration of possibilities that can lead to truly unique and unforgettable work.

Emerging artists tend to do a whole lot more experimentation than established artists. After all, established artists understand what works (and what sells), so they’re less likely to venture out into more uncertain territory. Early on, while they’re still trying to discover what does and doesn’t work, artists are willing to try different things.

As an artist’s unique style crystallizes, you can often see the nascent form of that style in their earliest works. So, when you purchase art from an emerging artist, you aren’t just buying a piece of artwork. You’re purchasing one step in an artist’s journey. And there’s a good chance that it will include hints of what that artist will eventually become. It’s also worth noting that you’re making it possible for that artist to continue creating art by financially supporting them.

Emerging artists often have a fresh and unique perspective to offer through their artwork. They are unburdened by the expectations and limitations that can come with fame and recognition, allowing them to explore innovative ideas, techniques, and themes.