Understanding art prices

(By Nalini S Malaviya)

Now that the art market is beginning to look up, there is a lot of interest in understanding the intricacies of the market. The pricing of artworks has been a component that often requires a greater understanding of the market dynamics in order to analyze it. And, even then it may not appear entirely rational, as it is not completely deterministic or quantifiable.
Many people fail to comprehend the logic behind art prices and their upward movement due to its multivariate nature, there are a certain amount of elements that influence it. Also, it is important realize that there is a difference between the commercial price of an artwork and its value. The price of an artwork is determined by physical attributes such as market conditions whereas the value is its perceived worth or a subjective opinion of the viewer.
Typically, the price of an artwork depends upon the medium and size of the work, previous price points, its rarity and the artist. Art prices in the primary market are driven essentially by the artist and the gallery, whereas prices in the secondary market are often driven by demand. For instance, in an auction there is a reserve price which is estimated for a given piece of work prior to the auction, and its subsequent sale price could be much higher, sometimes in multiples of the reserve price. The sale price is driven up by the demand and may be a result of competitive bidding.
It has also become common to estimate prices of an artwork based on per-square-inch / foot or centimeter. And, some auction houses tend to follow this system of computation as a basis. However, there are no standard formulae to evaluate the price or value of an artwork, and hence the discrepancies that are seen in the market.
As a buyer it would be wise to crosscheck comparative prices before making a decision, but at the end of the day, if there is a particular piece of art that you wish to own, be prepared to pay for it.
(Published in Financial Times)

Price Wise

(By Nalini S Malaviya)

Last week, I wrote about how the recession gloom appears to be lifting, and as a subsequent result the art market also appears to be looking up. This does seem to be happening, but, what is surprising is that there are a few artists and galleries who have marked up the prices of their art significantly. Apparently, this is in response to the better than average auction results posted about a month ago.

In my opinion, this is the wrong time to raise prices. Auction reports cannot be directly correlated or extrapolated to justify a raise in price in the primary market, as well. While, it is true that some of the auctions did perform well, it helps to remember that the works that went under the hammer were also of good quality, and, in fact, there were some exceptional pieces as well. As a result, these went for a good price. To expect the same response for all gallery works could be optimistic.

When the general feeling is that the market is looking up, it implies that the art scenario is more ‘happening’ than before. It means that there are more events taking place, footfalls have increased in galleries and shows, and sales have begun to pick up. But, prices should remain competitive.

To go back in time, and think about the art bubble where art prices spiked sky high in a short period of time, most people knew that this trend would not be sustained for long. And, as predicted the bubble did burst and prices crashed significantly. It is unlikely that a similar situation will occur again. Prices are unlikely to shoot up drastically in a short span of time. The biggest advantage today is that the buyer is much more aware. He understands art, quality, artists, price curves and market trends. Especially, the ones who either lost money or got stuck with art that they could not resell, are wiser now. Such buyers will not buy a painting for Rs 5 lakhs when they know that the market price is around Rs 3 lakhs. They will also not buy a painting if it is of poor quality.

So, even if the market appears to be picking up now, the trend could see some ups and downs before stabilization happens. In such a scenario it would be better to go easy on the price front.

(Published in Bangalore Mirror)