Although difficult to quantify in words, an artwork’s ‘wall power’ is 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, it will automatically be worth more. If it comes from a respected gallery, its value increases as well.
Likewise, if the artist is super trendy at the moment, his or her work will cost more. This is true regardless of whether the work has real staying power. It might seem absurd to think that previous ownership of a painting radically affects its value. However, remember that the art market is both 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.” They recommend not speculating on making a profit on acquisitions. Nevertheless, they imply that substantial appreciation on par with traditional asset classes is a hallmark of the art market.
Understanding the true economics of the art market is challenging. Much like the universe itself, reservoirs influence asset prices. This dark matter consists in a vast number of artworks. These artworks have not come to market, cannot come to market, or will not come to market. Nevertheless, they apply an invisible gravitational pull on the asset prices we can observe.
These reservoirs of non-transactional works serve to artificially underwrite scarcity and aggravate demand. They support the rarified prices of that very thin sliver of work that do come to market. They also 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. These accessions serve as primordial black holes. They sequester masterpieces from the marketplace through donations and museum acquisitions. For the most part, they will never be sold again.
Reservoirs reside in the vaults of dealers’ unsold inventory of primary market material. They also exist among a select group of market makers. These market makers hold large positions in a given artist’s work. In both cases, these entities are often active bidders. They act as third-party guarantors who support prices in their chosen sector. This is done to provide stable benchmarks for that unsold inventory. These large reservoirs of material are temporarily off the market. If they were available, prices would crater. This would happen because supply would quickly outstrip demand.
It may come as a shock to some. I have collected art for many years. I would conservatively estimate that a substantial majority would realize less than they cost to acquire. This would happen 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. This enormous deadweight loss resembles an invisible lodestar. It affects the apparent annualized rate of return of artworks. These rates are often only calculated from actual repeat sales. The works that come for resale are mostly the winners. They have achieved significant price inflation. This makes them a poor proxy for the true asset appreciation for the category.
This enormous reservoir of underperforming assets is scattered across numerous private balance sheets. Therefore, it is difficult to discern. These assets do not normally come into the marketplace to demonstrate their eroding state of depreciation. This happens only in a piecemeal fashion through eventual death, divorce, or duress. This enormous, hidden cache of dark matter is a significant force. It depresses the true annualized rate of return for artworks as a whole.
There are as many reasons for choosing a piece of artwork as people are looking to buy it. For some, it’s all about finding that perfect painting to hang in the living room. It should be 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.
There are many reasons to make a purchase. You assume there’s no single artwork that meets every need. But that isn’t exactly true. Emerging artists allow you to buy a piece of art that’s attractive. These pieces are often experimental. They have 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 often involves exploring various possibilities. This exploration can lead to truly unique and unforgettable work.
Emerging artists do a whole lot more experimentation than established artists. Established artists understand what works. They know what sells. They’re less 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 free from the expectations that fame and recognition can bring. This freedom allows them to explore innovative ideas, techniques, and themes.
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