What is an appraisal?
Lunch & Learn
What’s in an Art Appraisal?
Presentation given to the partners and staff of 1919 Investment Counsel, New York City, to provide them with the tools to open up a conversation with their clients about tangible assets and provide a better understanding of what the value of those assets could be.
Speaker: Helen Kippax
Helen Kippax & Associates
Larchmont, New York
How understanding the value of your clients’ tangibles could impact your guidance for their assets under management
It is my pleasure to be with you today to discuss the topic of fine and decorative arts appraisal. The subject is a bit of a gray area in most people’s minds, as we live in a retail environment and rarely have to think about the real value of things we own, referred to as ‘tangibles’.
The times we need to come head to head with this topic is when we want to sell something we own or if we are involved in an estate. I equate the experience to having a baby: You are suddenly knee deep in a project you have no formal education in and have to make it up as you go along…occasionally making a few mistakes!
My hope today is to remove the gray area so you have a basic platform of knowledge to refer to if you find yourself in the role of executor or if you are trying to understand how to make sense of your client’s true wealth.
How to know what to ask your clients
When working with clients their tangible assets are part of the picture of their net worth. It can be a bit awkward to ask about tangibles and often people are funny about sharing all their personal wealth information. In my experience if people have inherited art it has usually been years since they have thought about the value and rarely have they had an updated appraisal conducted. In the case of people who had a designer buy for them they make have no real knowledge of what they own.
As you will find out from this talk, most people have attached erroneous values to their tangibles and will often think they have more inherent value than they do or are oblivious of a real heirloom that could make a financial difference in their life styles.
If you are working with a client and you ask about their art holdings: They say they collect art and have about $1.5 million in purchases. How do you calculate what that is worth in real value (FMV)? If they wanted to liquidate it could they? What would it cost to sell? What is the bottom line?
For starters you need to know where did they buy their pieces? From an auction (FMV) or a Madison Avenue dealer (Replacement Value)?
Do they have 5 items or 50 wrapped up in that $1.5 figure?
If purchased knowledgably through auction the price they paid should be close to the FMV value of the item. Markets shift so something their parents bought in the 60’s may have less value today depending on what it is.
If purchased from a retail gallery, a $50,000 painting might have a $15,000- $20,000 FMV value or less.
There are no standards imposed on a gallery owner saying what he can charge. If they were working with a designer who takes them to a gallery and encourages them to purchase an expensive piece of art they are paying in effect the insurance value (replacement value) for it. Once they own it and might decide to sell it or if it remains in their home until it is part of their estate it has FMV: Similar to the value of a car once driven off the lot. If 5 to 10 years later that artist has become sought after and they bought a work in the best style of the artist the value may have gone up. However, this doesn’t happen very often.
In your own family you may have been asked to be an executor:
If your client shows you an appraisal of something they own to verify their overall wealth how can you quickly asses what the paperwork is showing you?
If they are working off an old appraisal (anything before 2010) ask if it was from an estate listing or for insurance. The document should tell you. Look in the footer for language “estate appraisal for Mary S. Smith”.
Older appraisals offer very limited info versus appraisals done in the last 10-15 years. They often don’t include photos and the preamble pages stating the purpose of the appraisal are often missing. If the client has a single page showing an appraised value ask if they have the rest of the document and advise that they need to confirm values before tallying the tangibles as part of their net worth.
There are several branches of the family and you are in charge of equitable distribution amongst the heirs. In addition to real estate there is a houseful of tangibles.
What Not To Do:
You are the executor and are dealing with a family member’s estate and find an old appraisal. It says several paintings are valued at $10-25,000 each, the family silver is worth $50,000, the Oriental carpet is worth $40,000….Total value in the $200,000 range.
You tell the beneficiaries that they will be getting a nice inheritance based on this. You know of a dealer in your town and ask him to stop over and look at the estate to see what he would give you for it. The dealer comes and looks around. He says he’d pay you $25,000 for the entire group. You are shocked. Can this be true? You can’t proceed as this is so contrary to the information you have. You are now embarrassed that he has gone out of his way to help. He offers you $500 for a small bronze. You look on the list and it’s not mentioned. He hands you cash, picks it up and gets in his car and is gone.
At the end of the day the friendly dealer has his own interests at heart and
he wasn’t hired to appraise the estate.
In this scenario if you looked through the document you found it probably was an insurance appraisal done at a time when silver was worth more in weight and in collectible value. Silver is currently worth around $18/oz; in 2013 it was upwards of $30/oz. This current generation doesn’t want to be bothered polishing silver so the supply/demand of silver has dipped considerably, negatively impacting the value of things our parents purchased and treasured.
Oriental carpets are a specialized field and fraught with imitations to the unknowing eye. A dealer may have sold it to them. The owner gives the receipt to the appraiser at the time of the appraisal and ta-da it’s worth $40,000 in REPLACMENT VALUE . If it’s a mid-20th century carpet in decent condition it is worth about $4000 in the current market. If it was a late 19th, early 20thcentury carpet that had been worn out and the dealer restored before reselling you may have a “painted” restored carpet also with minimal value. Even if you had bought an Oriental at a reputable auction in the 80’s and tried to sell it now, the value would be about half of what you paid due to a major change in the decorating taste of millennials. The insurance value has no bearing on what it is worth in the current FMV market.
Paintings come in and out of favor. Sentimental 19thcentury paintings were in the height of fashion during the early 1900’s. Many of these are still sifting through family estates handed down to the next generation with old values associated with them.
Where do you begin?
Several family members have identified pieces they’d like to keep as part of their inheritance in lieu of cash. What do you do and how do you appease all members of the family so they all feel comfortable with the division of property?
In my opinion your best approach is to hire an INDEPENDENT appraiser to do a walk through and tell you if it’s worth doing a full estate appraisal. They can identify the ‘sleepers’ (the items that have potential value if offered in a well advertised auction) and those can be removed and handled at the right level auction house. Any items that family have picked out can be evaluated by the appraiser for individual FMV. The appraiser should be able to produce a few ‘comps’ (similar items) from recent auction sales so other family members see that they aren’t losing out by their relatives’ selections. If the items are sent to an auction there will be trucking fees, commissions and a number of other sale related costs. Often if family members retain items there is a saving to the estate. Explaining the process can help make these negotiations much easier to understand.
If there are no special items in the estate and you are faced with several hundred low value pieces it can often cost you more to pack and ship to an auction and pay the selling fees than you have in value. An appraiser can help you assess this and direct you to a small dealer to come and give you a check and remove the property. I often use this option for small estates as the funds are more readily available for estate related costs. This payment can also serve as the IRS value of tangibles for filing, avoiding the cost of a full appraisal if the estate’s overall value falls under the IRS’ taxable guidelines.
Where appraisers get their research to put prices on items ?
No one knows everything! There are now subscription online websites to access past prices on a full array of art that gets sold around the country and abroad. It is critical that the researcher knows what to look for when assigning values. A good appraiser needs to evaluate an item with an eye to the piece as seen in the context of like items. A piece by an artist who did a landscape that sold for $15,000 may not get the same value for a portrait or still life they did. Artists get reputations and a market history by having their work go through auctions.
Condition is also important. Has it been relined? Was it over-cleaned? As mentioned earlier if you have a painting by an artist and his name doesn’t appear in these sale results you can only get what is known as ‘decorative value’ put on your piece. This is why a lot of contemporary art is so complicated. There is no auction history and you are on your own to decide if there will be long term value.
A few stories of items that I have handled over the years.
In the late 1980’s I was hired as an advisor for an elderly woman in Manhattan who had an extensive European art collection. She wanted to sell a few things to generate some cash. Among her belongings was a 17thcentury unsigned Italian old master painting. I had read that Christie’s NYC would be selling a very important painting by the Florentine artist, Pontormo that had been housed at the Frick for many years and this was generating a lot of excitement. I took photos of the picture and met with the head of the Old Master paintings department at Christie’s.
With just a few weeks left before the catalog would be closed to additional lots I was able to get the picture into the auction house. The Frick Pontormo broke a world record for an Old Master painting selling for $35 million and was purchased by the Getty. My client’s painting got swept up in the excitement and sold for $45,000 well over the $10,000-15,000 estimate. Right place at the right time.
Paying Insurance fees , understanding the real liquid value of art,
Equitable Distribution Issues?
I recently was asked to help update an appraisal in a large home in Rye, New York. The mother had been moved to a retirement facility in Florida and the various adult children had decided to equitably distribute artwork amongst their families. I set up a google doc system so as I appraised the contents the family members could put their names next to the items they were interested in. We set up a follow up meeting to review my results. With a certain amount of attitude I was handed an insurance appraisal listing various items. The insured items on a well known NYC appraisal company letterhead showed me a life size bronze statue of a girl listed at $99,000 and a 15” 19thcentury marble of a mother and child listed at $99,000.
The look on my client’s faces was that of annoyance due to my FMV figures of $1,500 for the marble and $25,000 for the bronze.
In my research I was able to find 3 different copies of the same marble that had sold at auction over the last 5 years. These are known as “Comps” and should be included in an appraisal to verify value. None sold for over $1,500 and 2 under. I don’t understand why this was so over valued by the last appraiser and I wonder how much they have paid over the years in insurance costs at that amount. The bronze was a whim purchase of their mother’s when she was in Israel . The artist has a workshop/museum of sorts in Israel, but her bronzes have never made it to an auction to establish a FMV value. The artist is no longer producing pieces but a similar one could be purchased in a retail gallery for about $60,000. As an insurance value the $99,000 (ship a new one back from Israel) is perhaps $30,000 over valued for insurance, but the kids understood it to be an amount they could sell it for. Needless to say they were very disappointed with the reality.
So you want to make a donation?
You have a painting you and your husband bought at a charity auction years ago and in the fun of the evening you managed to pay $15,000 for it. When you got it home it didn’t really fit with your place but you hung it up in the guest bedroom. Now you are downsizing. You wish you could recover some value from this generous but silly purchase. Why not donate it to the historical society and get a $15,000 tax benefit?
Donation appraisals are the most complicated of all. You do not get what you paid for something. You get the FMV for it. In appraiser’s terminology FMV is “the amount it would bring…” Chances are the painting was donated to the charity event by someone else who was moving it along. If it was donated by the artist IRS rules will only give them the cost of the canvas and the paint! Most non profits can’t handle gifts like this because they don’t have the staff to figure out how to sell it either. There are other considerations the IRS takes under advisement to weed out what they consider fraud. Does the item donated meet the criteria the organization is focused on? etc.
I always hear the saying that if you want to collect art you should buy what you love. This way, if it doesn’t appreciate you are still looking at something you like.
In my opinion paying a lot of money for something requires more than ‘buying what you love’… Do you have a background in art? Did you grow up in a family where you have developed an eye for what is quality? Would you pick a stock investment because you like the sound of the name? Would you purchase a car because you like the color and style but the engine is dead? Hopefully, no! In most cases where you spending more than a few thousand dollars some form of guidance and research is in order.
There is SO MUCH ART out in the market you can buy something you like that is also vetted and can be shown to have some basis of value. You need to know where to go and how to assess it. It would be wise when making expensive purchases with a designer to have an appraiser evaluate the item.
Liquidating a Mansion:
In 2017 I worked with a couple in Greenwich, Ct moving to California, clear out a 12,000 sq ft ‘ chateau’ filled with furnishings they had purchased over the last 25 years. A lot of what they have is not going to work in their new house. They were very successful (he ran the M & A department of a very well known investment company and she was a doctor). They used a number of designers over the years and, at one point, handed their check book to a dealer they trusted to go and find them treasures for their home in Paris! A pair of urns that they paid $30,000 for were outright recasts and worth about $2000-3000; they had a number of palace size carpets that are worth a fraction of what they paid for them; the ornate gilded and marble top consoles were modern copies. This list goes on. The process was a heart wrenching experience for them.
I had several auction houses estimate the contents and then reviewed all the selling fees and trucking expenses. After taking a hard look at what a high vs low selling figure could produce and calculated the various expenses we decided to work with a group who wrote a check and then handled all the moving costs. They were happy to be able to leave and not wait for settlement checks to drip in.