5 Ways to Lose Big on the Art Market
Collecting fine art and antiques can be a stellar investment strategy – but only if you know how to beat the pros at their own game. Keen-eyed observers of the art market publish reports of record-breaking transactions and sky-high valuations echoed by trade journals, auction houses, and even buyers and sellers themselves. It’s easy to get starry-eyed, but finding unbiased information about the real financial risks associated with the art market can be difficult. Here are five ways you could lose big money on the the art market, along with Lofty’s expert tips for keeping these risks in check.
Get Busted with a Fake
If you don’t believe that the art world is awash in risky propositions, pay attention to the former director of the Metropolitan Museum of Art in New York City, Thomas Hoving. He estimates around 40% of the art market to be fakes and forgeries. Though talented forgers like van Meegeren are now well known to historians and experts, the practice of forgery is still very much alive. Once discovered, fakes hold little to no value; but cleverly forged artwork can fetch high prices from buyers.
Pro Tip: Before you buy, consult with an expert to evaluate an object’s authenticity. Owners should maintain proper records detailing verifiable information about their artwork’s origin.
Commit a Crime of Passion
In the art world, it can be easy to lose sight of rationality. The spectacle of a major event like an art fair, antiques show, or auction can create an atmosphere of heated competition. Players can become obsessed with winning at any cost, and their passion can prove very expensive. Though many dealers and galleries are honest players, be weary of falling for a slick sales pitch from an unscrupulous dealer eager to unload low-quality goods. Don’t get burned by a dealer pushing a “hot” property that will supposedly earn money as an investment.
Pro Tip: Be sure to keep your desire in check and watch out for the two classic traps of the art market: “speed and greed.” Never indicate you are prepared to buy something unless you have really decided that you will buy it. Exercise patience by holding out for the best items. Don’t compromise for something less. Use restraint. Never allow yourself to exceed a predetermined maximum price for an item, no matter how badly you want it.
Because the art world trades in real objects, owners assume the risk that their property may be damaged, harmed, or even stolen. Displaying your most treasured objects is certainly reasonable; however, many objects are sensitive to atmospheric conditions and will deteriorate without proper care. The risk of art crime is most vividly illustrated by the still-unsolved 1990 robbery of thirteen works from the Isabella Stewart Gardner Museum in Boston. The Museum continues to offer a $5 million cash reward for information leading to the recovery of the works.
Pro Tip: Take proper care of your collection, employing storage and display methods that will secure and conserve the objects. It’s also a good idea to have your collection appraised, listing individual items and values on an insurance policy. If an item has been damaged and requires restoration or repair, consult an expert. When placing your property on consignment, be sure to get written documentation describing the item, noting responsibility for breakage or loss, the price, and the dates the item will be held for sale. Even better – buy and sell with Lofty. Lofty’s professionals do all the leg work to remove potential headaches during the process.
Active collectors in the global market have become increasingly mindful of where they buy and sell fine art. Changes to taxes and duties can have a drastic effect on a particular country’s art market, and rates and fees vary across the world. International UNESCO (United Nations Educational, Scientific and Cultural Organization) conventions of 1954 and 1970 protect the cultural properties of any nation during wartime, meaning items obtained during battle should never reach the legitimate market. Collectors should also know about restrictions on trading in specific materials like ivory.
Pro Tip: The financial considerations of maintaining a collection can present opportunities. In the United States, lending a valuable item for public display in a museum can lower your tax burden. Avoid an expensive scramble for your estate by planning the disposal of your collection in advance. Partner with experts to ensure all of your collecting activities comply with international regulations, import restrictions, and local laws.
Markets are notoriously difficult to predict because trends and fashions change over time. The smartest players remember that prices fall as easily and dramatically as they rise. In past decades, entire categories of art have fallen in value: at almost any point in the 20th century medieval tapestries could be had for significantly less money than in the 19th century, when they were must-have decorations in wealthy households. By nature, supplies of art and antiques are extremely limited. When particular supplies reach a low point and items become difficult or impossible to obtain, potential buyers can lose interest in the market, which will experience a decline.
Pro Tip: Smart buyers understand the vagaries of the market and make informed decisions, fully confident that they have done their homework. While data can be useful, paying attention only to metrics will leave true art lovers feeling empty and dissatisfied. Don’t react to market swings by selling at the onset of bad news and don’t buy simply because evidence shows that prices have risen. Most important: never copy another person’s collection strategy. Trust your own judgment, and buy what you want!
Feature image: Auction Room, Christie’s, circa 1808. Source: KoreaBizWire.com