What You Need to Know About the Increasingly Important Role of Private Art Transactions
By Peter Falk, Co-Founder and Head of Research for Private Art Transaction Alliance, LLC in New York
For most of the 20th century transactions in the art market were largely under the control of brick-and-mortar art galleries and the major auction houses. Galleries sold privately at what were considered to be retail prices — this defines the primary market. They nurtured artist’s careers and established value benchmarks. As time passed, the auction houses fed off the galleries’ consistent promotional efforts and sold works publicly at what were often by comparison, wholesale prices, and this defines the re-sale or secondary market. But, by 1990 auction price results had become easily accessible on the internet. Suddenly, the prices paid by dealers were no longer a best-kept secret. As a publisher of what was at the time the largest auction price index, I endured a barrage of complaints from dealers. My retort was a prediction that increased market transparency would foster a new confidence and generate new collectors. And, while my predictions are far from always accurate, this one was, and increased market transparency has indeed led to market expansion.
Another natural result of this maelstrom of rapid global communication and access to data was the rise of the single biggest new growth in the art market in the 21st century: the field of private art transactions. Owing to uncertainties in the world economy, would-be sellers have become increasingly worried about selling at public auction because of transparency: If their work failed to sell it would become “tainted” and, unfair as that fate may be, such failed works are often “burned” for years before they can be offered again. The major auction houses adapted quickly, calling their solution “Private Treaty.” But since galleries always considered private transactions their realm they saw the auction houses as crossing an inviolate border. The two have been at each other’s throats ever since. The competition heightened during the financial crisis of 2008 and since that time the auction houses have seen their share of total turnover of private transactions increase every year.
Keeping art transactions private has obviously been practiced from the very beginnings of the art market. However, in the age of the Internet the market has experienced an increasing number of both buyers and sellers who want to keep their business private and transacted more quickly. They don’t want to wait six-months or longer before their artwork can be offered at auction. This new urgency for privacy and speed has given rise to a large and growing number of private art brokers, of which there are four basic types. The roles of the first two — galleries and auction houses — were mentioned earlier. Either could provide appropriate solutions depending on their expertise and the real depth of their market connections for the specific artwork. Private dealers and private brokers can be equally effective. The primary difference between them is that private dealers have brick-and-mortar office-galleries with regular hours, and many exhibit at art fairs or at upscale pop-up spaces, and sell works on consignment as well as those works they own. And, while the Private Art Dealers Association lists only 60 members, the actual number of private dealers is significantly higher. Private brokers are by far the largest group, and they act as intermediaries in art transactions, representing the buyer or the seller. Additionally, as a group they reveal the widest variation in abilities. Some possess a depth of expertise and connectivity that matches or surpasses that of the major auction houses. But others have limited knowledge and are simply social gadflies who have attached themselves to a few collectors.
A Reality Check on the Broker
These three points about brokers are crucial for any seller to consider when preferring the path of a private transaction:
1. Expertise: First, it is crucial to determine how many years the broker has been active and the depth of their expertise. Five years is certainly a minimum. Do they possess real scholarship? Ask them to describe the artists, styles, periods, and movements in which they have expertise. What about the particular artist at hand?
2. Trust & Discretion: Have you checked out the reputation of the broker offering the artwork? How direct are they with the owners? For our own protection as brokers (as well as that of our clients) we’ve developed a grading system for the many brokers of which we are aware. The bottom grade is our blacklist of “radioactive” brokers. Obviously, these are the unethical characters, some of whom are selling out of an empty cart — blasting images of artworks on robo-emails to thousands of art market participants. There are worse sins, but the bottom line is that those incapable of discretion simply cannot be trusted. We avoid such individuals and we never distribute images. Instead, we work with a trusted group of colleagues we’ve known for years, sometimes decades, and with whom we’ve had successful experiences. If this is not possible for a specific project, we do careful due diligence and meet personally with prospective buyers and/or their advisors/brokers and show them images on our laptop or phone and discuss the opportunity. In this way, the interest level can be quickly determined and privacy is ensured.
3. Connections: This is the inseparable corollary for any transaction: What are the broker’s connections for selling this particular work? Does the artwork on hand require that their reach be global? Is the broker direct and contractually exclusive with the seller for a reasonable period? Daisy chains of brokers who simply pass along the want lists of others are common — but a guaranteed waste of time. Determining the closeness of a broker’s relationship with the end buyer is a factor that can make or break a transaction at the very beginning.
A Reality Check on the Artwork
Once a seller is satisfied with the broker’s background and capabilities, a thorough examination must be made of the following six points about the artwork itself:
1. Price: The first step towards determining the appropriate price requires researching the auction price results. Of course, anyone can delve into the online databases of Artprice, AskArt, and ArtNet — but does the broker have the depth of experience and scholarship to identify the closest and most valid comparables? After all, the big qualifier in the art market is quality, tempered by historical importance. This is the “wild card” that has always prevented art from being traded strictly like a commodity.
Sometimes sellers have drastically inflated views of the quality, and therefore the asking price, of their artwork. We do a thorough reality check on prices, and if a seller refuses to come back down to earth, we just don’t get involved.
At the high-end of the market, private curators or advisors typically insulate major collectors. These advisors have a fiduciary responsibility to their clients and will not consider any artwork that is grossly overpriced. So, if the broker runs with a price that is unrealistically high, buyer after buyer will pass on it until all the likely prospects are exhausted and the artwork essentially becomes “burned” — and remains not only unsold, but unsellable for years. On the other hand, a broker who mistakenly prices an artwork far below its market value just for the expediency of a quick flip is also doing a disservice to the seller. In addition to examining the auction price databases, a top broker will be a detective who also finds the prices for similar works sold privately.
Finally, most of the time the selling price will include the broker’s commission from the seller and this fact should be made transparent from the beginning. However, sometimes a seller will require a “net deal” — being a firm amount that must be paid to the seller. The buyer must also understand that they are typically responsible for any fees owed to their advisor or broker, and any art experts they require to confirm condition and authenticity.
2. Market History: Researching the databases will reveal when an artwork has had one or more past sales. That’s part of provenance, discussed below. But when artworks have been offered privately, any past offerings are harder to determine. Is the artwork totally fresh or has it been offered within the past few years? If so, when, by whom, to how many individuals/entities, and at what price? Has it been circulated on the daisy chain?
3. Authenticity: Look at any formal valuation report and you’ll see that when a qualified appraiser determines fair market value the conclusion always includes the caveat that the price is valid only if the work is authentic. Appraisers rarely have the expertise to authenticate. A smart broker will know of the leading experts on each artist, style, and period — predominantly academics — and how to approach them.
4. Condition Report: Once interest has been determined the most current condition report must be provided. In addition, more high resolution images will be needed, including both sides of a painting (and various angles of a sculpture) plus detail shots. Images of any labels and/or annotations are also important.
5. Provenance: A full provenance will list all of the owners in a chronological order. A list of literature in which the artwork has been discussed or illustrated as well as its exhibition history provides additional important pieces of information.
6. Good Title: Nazi-looted art will certainly continue to catch the headlines, but there are a host of issues that can stop a transaction dead in its tracks. For example, we have encountered sellers professing to own an artwork that is not really under their control. Stolen art aside, problems with good title usually involve an artwork that is jointly owned or controlled by an estate, thereby requiring authorization to sell.
The professional management of any private art transaction requires the parties to adhere to the key attributes described above. The happy consequence will be that the expectations of both sellers and buyers will be fulfilled.
Peter Hastings Falk is the Co-Founder and Head of Research for Private Art Transaction Alliance, LLC in New York. Mr. Falk is the author of numerous art reference books, was the founding Editor-in-Chief of ArtNet, and has been the U.S. Editor for Artprice.com since 2000. More information may be found at PrivateArtTransaction.com