The Complete Guide to Art Appraisal for All Levels of Collectors

Key Takeaways

• Art appraisal is the process of estimating an artwork’s value based on a number of factors.

• A popular myth is that art appraisal is only for very rich individuals with high-value artwork, when in actuality appraisals can be done for any type of artwork, value notwithstanding.  

• The appraisal process generally requires knowledge of market trends, art history, and the ability to assess a work of art relative to its rarity, condition, and historical relevance.

It is no surprise that investors continue to seek to invest in art, an asset class previously limited institutions or the well monied. After all, while every investment carries risk, art has outperformed the S&P 500 over nearly the last quarter century, with returns exceeding 360%, according to the Artprice 100 index. Art investments also can diversify one’s portfolio and offer protection against inflation and recession.     

But what role do art appraisals play in such investments? Quite a big one, as it turns out. In fact, appraisals are essential to good investment decision making, whether art is being bought or sold.

Here is art appraisal: everything there is to know.

What is an Art Appraisal?

In essence, art appraisal is the process of estimating an artwork’s value based on a number of factors. Another way to say it is, art appraisal is the process of forming and delivering an opinion about the value of a work of art.

In addition to investing, such appraisals are often used for insurance, tax, and estate planning purposes. Many owners get their art appraised before putting it on the market, or generally every few years, otherwise. Such appraisals usually are completed within hours.

Note that, technically, the chief purpose of an appraisal is to provide a professional opinion about the artwork’s authenticity, condition, and quality – not to determine how much the piece is worth. Having said that, the appraiser generally does provide an estimate of what the artwork might bring on the open market.

A common myth is that art appraisal is only for very rich individuals with high-value artwork, when in actuality appraisals can be done for any type of artwork, value notwithstanding.  An appraisal can impart information about the artwork that one cannot find elsewhere. 

How to Get an Art Appraisal

For those who are considering getting an art appraisal, the importance of engaging a qualified appraiser cannot be over emphasized. After all, this is about a potential investment or an asset from which one wants to get the highest return possible.

Investors should seek a certified appraiser or credentialed appraiser with affiliation with an organization such as the American Society of Appraisers. The appraisal process generally requires knowledge of market trends, art history, and the ability to assess a work of art relative to its rarity, condition, and historical relevance. Do avoid getting an appraiser from the art seller. 

After an appraiser has been found, they will need fundamental information about the artwork, including its history and provenance, and any other pertinent documentation. The artwork will subsequently be inspected, with the appraiser usually taking copious notes and sometimes even photographs. The appraiser may even conduct research to verify the piece’s authenticity. Once the appraiser has all the info they need, they will issue a report.

Factors Considered in an Art Appraisal

There are several factors that go into determining an artwork’s value, including:

• Attribution. This is the process of determining the identity of the artist who created a work of art.
• Condition. The appraisal report will document the artwork’s entire physical appearance and whether there have been any changes since its creation. In general, savvy art buyers seek pieces that maintain their condition as well as value, keeping in mind possible restoration costs. The investor will also want to know whether conservation efforts have already begun.
• Rarity. Combined with demand, rarity is markedly important in appraisal. It is generally determined by how often an artist appears on the market, or by the availability of a certain type of piece from a specific period in the artist’s career.  
• Exhibition history. A robust record or history of an artwork’s inclusion in exhibitions can increase the piece’s value.

Types of Art Appraisals

There are different types of appraisals, depending on the evaluation’s purpose:

• Fair market value appraisal. This is the price at which the artwork would sell on the open market. It is most commonly used for charitable donation values and also inheritance tax, as required by the Internal Revenue Service.
• Replacement value appraisal. The appraiser here arrives at the amount it would likely take to supplant the item with a similar work of similar condition that was bought during a certain time period. This appraisal is most commonly used for insurance coverage.
• Liquidation value appraisal. The least common appraisal type, liquidation value is the work’s value if forced to sell with conditions and perhaps time constraints. 

Limitations and Challenges of Art Appraisals

While essential in the art investing world, art appraisals do have their limitations. For example:

Subjectivity of artistic value.  One can ostensibly have three appraisers with the same qualifications and backgrounds assess the same artwork — and arrive at three different artwork values. Setting artistic value is ultimately a subjective activity that may or may not yield desired results.

Fluctuating market trends. Prices can rapidly fluctuate with trends, rendering pricing challenging.

Importance of Art Appraisals for Investing

The process of establishing an artwork’s fair market value can help investors decide whether to purchase or sell the art.  Investors looking to start building an art portfolio these days have more options than ever, including through Yieldstreet, which to date has had more than $3.2 billion invested on its private-market alternative platform. 

Among its highly vetted and curated offerings – which include asset classes such as real estate, private credit, and transportation – are art equity funds that offer fractional ownership with minimum buy-ins as low as $10,000.

In addition to the possibility of steady returns, investing in art can also help reduce portfolio risk through diversification, which is essential to long-term successful investing. Alternative investments can be a good way to help accomplish this. 

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $5000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

Appraisals play a key role in helping investors decide whether to buy or sell artworks. They are beneficial as long as the appraiser is duly qualified for the type of appraisal sought, and investors understand appraisals’ limitations.