Is there a "black market" operating in Australia?

Recently I was contacted by The Age journalist Marta Pascual Juanola for a story she was currently working on about the Australian art market and how “some actors linked to organised crime insert themselves into legitimate trading.” 

Pascual Juanolo was also hoping to “get a better understanding of how the artwork trading in Australia works and how common it is for pieces to change hands privately [and also] about the importance of provenance and how people can ensure they know where a piece is actually coming from (things to look out for, what are some red flags etc.)”

As expected, my comments were edited down for the article, however, I thought it may be instructive to extend the context and employ the structure of questions posed to me by Pascual Juanolo, to consider if in fact there is a ‘black market’ present in Australia, how private trading typically operates, the potential risks, and the imperative of provenance, and professional guidance.

How prevalent is the trade of highly valued paintings in Australia between private individuals compared to gallery sales or auctions?

There is no readily available data on private or off-market transactions other than anecdotal.

From my own experience, private or off -market trading of high value works would equate with a small percentage of artworks sold in Australia, likely around 10%.

Within the Australian visual arts sector, I would suggest the commercial gallery sector sells more than the auction houses by volume, whereas, in terms of value, the auction house sales are probably higher in respect of dollar amounts. 

Auction records are freely accessible, and we do know for example, that for last year, the auction houses in Australia sold a total of AU$60.31m.  Unfortunately accessing a total value for the commercial gallery sector sales is more difficult because these values are not regularly reported or shared.

What is the most common form of private trade?

Generally, high value artworks by notable or market recognised artists, where the owner or buyer wishes for some discretion in the sale or acquisition of an artwork. 

How are those trades most commonly organised?

Either a buyer or seller will approach a dealer or art advisor to manage the sale or acquisition of an artwork. 

In Australia, these transactions are generally between private individuals, whereas international transactions can include a private or public museum, foundation or gallery, with the transaction being driven by the institution. 

In the case of selling an artwork, the intermediary (art advisor / dealer / agent)  will seek comprehensive information regarding the artwork including:

·       description of the artwork: title, year produced, medium, dimensions

·       provenance

·       supporting documentation, Certificate of Authenticity (esp. important for Aboriginal artworks to confirm ethical sourcing), purchase invoice, previous valuations and condition reports

·       good quality jpeg images for initial consideration

·       asking sale price

·       access to artwork for private viewing

·       inclusion in the catalogue raisonné (if applicable eg Brett Whiteley)

A similar process is undertaken when a request for an artwork is made.  And a good intermediary will endeavour to really define the artwork request, to establish serious intent, on the part of the buyer.  So, artist, period or series of artwork, dimensions, budget are all relevant factors in helping to determine the advisor’s approach. 

I would suggest that there is an intermediary involved in either transaction – whether this be an advisor, dealer, auction house specialist or gallerist.

What are some of the risks associated with this type of trading as opposed to gallery sales, auctions or buying directly from artists?

I think to be fair, there are risks associated with buying and selling artworks from any platform; the important aspects are: reputation, credibility, level and duration of expertise, and position within the market.

However, in terms of private sales or acquisitions, and without the professional guidance of an intermediary, potential risks could be:

·       buying above the market value

·       selling below the market value

·       buying or selling at the wrong time; there are favourable seasons for both

·       buying a problematic work, i.e provenance or lack thereof will curtail re-sale value or potential

·       buying the ‘’wrong’ work by an artist, i.e. from the lesser series or period ; again impacting resale value in the future

·       solely relying on jpeg images without professional support

·       shoddy due diligence and/or lack of supporting documentation

·       unknown or undocumented condition

·       limited access to the artwork for viewing until certain point in the negotiations

Some of the above can also relate to auction and gallery sales as well.

The big difference is the transparency of the markets – primary or gallery sales and secondary or auction sales are open to the public.  Private sales are just that – private and off-market.

 How important is it for prospective buyers to check the provenance of art?

Vital!

It is the pedigree of the artwork, and ideally should be traced back to the artist’s studio.

Checking provenance is a key component in the due diligence process and impacts not only the integrity of the artwork but its market value.

How can people ensure that the provenance being spruiked by sellers is accurate?

Research and market knowledge.

It’s a challenge to check provenance for the average person, unless they have access to auction house indices and records and extensive and in-depth knowledge of the art market.

Anything of high value or what you may consider high value should be given a second opinion, and therefore I would encourage people to consult an art advisor, for a due diligence report.  Offsetting the fee against peace of mind is no-brainer in my view.

Get an intermediary involved.

Start with researching a reputable valuer or advisor.  A referral from a trusted colleague or professional in your field would also be a good start.

If you are a collector and have spent time with gallerists and auction house specialists, you can also call upon their expertise in the matter or if it’s outside their area, ask for a referral. 

Otherwise, if you have the time and inclination, you can research auction house catalogues and utilise one of the many art market portals and subscription-based price indexes to confirm provenance.

But even then, I would suggest, from experience, not every facet of provenance is always necessarily noted in an auction catalogue for example – whether this is an oversight or was not provided at the time of consignment – and similarly, not all subscription-based art market portals contain every update on an artist.

It’s really a case of cross-checking with multiple tools and resources and having knowledge of the market.

What are some of the red flags to look for when it comes down to trading art privately? 

·       Lack of or documentation confirming the agreement, an/ or in line with common practice.

·       Provenance is not included in any documentation or is not forthcoming when requested

·       An option to view the work is not provided

·       Lack of transparency from the intermediary

·       Limited access to the intermediary

·       Discovery of work being offered to multiple prospects on multiple occasions– this is a big issue. – the work is “burnt” and it’s no longer private

·       Difficulty in establishing clear legal title – this is problematic

·       Work is not included in the catalogue raisonné and it should be

What are some of the vulnerabilities that might allow organised criminals and scammers to enter the legitimate art market?

There are vulnerabilities in many markets not just the art market.  And on this occasion, I am certainly not going to provide any details which could enlighten or encourage “organised criminals and scammers” 

What I will say is there is a common misnomer that the art market is unregulated – this is not entirely accurate.  The art market does not have an overriding all-encompassing statutory governing body, but within its various sectors and sub-markets there are professional associations and organisations, codes of conduct, for example the Indigenous Art Code which sets standards of ethical behaviour for art dealers and galleries operating in Australia, and then of course, numerous guidelines and indeed legislation, for example, Australian Consumer Law in force in various jurisdictions, that can and does govern trade generally and is applicable to the art trade.

This is not the Wild West and you will be caught out if you do the wrong thing.  We’re a small market and not much can transpire without being subject to some level of scrutiny.

How prevalent is the art black market in Australia? 

I would suggest the so-called black market in art in Australia is nominal to non-existent.  I don’t believe we have the depth of market to ‘harbour’, if you like, a criminal ‘trading’ element, and one which emulates that present in Europe.

Bear in mind with a black market to function as it where, you need very accessible trade routes in and out of a country – we are island located in the southern hemisphere.

©Catherine Asquith

How to navigate the art market

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Recently I was invited to be a part of Leonard Joel’s new feature “Art Expert” for their Dec/Jan Leonard magazine.

The idea behind the series is to speak with an art industry expert to educate Leonard Joel’s audience on all things art.

I enjoyed this opportunity to provide a brief snapshot on ‘how to navigate the art market’.

Read the full article here.

Images:

Article/Front Cover, Leonard, Dec/Jan

Del Kathryn Barton, Openly Song, 2014, Acrylic on French linen
244 x 183. Exhibited: “The Highway is a Disco”, ARNDT, Singapore, 1st November to 6 December 2015. Auctioned: Lot 33, Australian & International Fine Art & Sculpture, Menzies, 27 February 2020

Bill Henson, Untitled 1/5, 1990-91, from the series Paris Opera Project, type C photograph, 127 x 127 cm; series of 50, Edition of 10 + AP 2

Coen Young, Untitled (Mirror Painting)2 2022, Acrylic, enamel, silver nitrate on paper, 141 x 121 x 9 cm (framed) In situ, Sydney Contemporary, September 2022, Kronenberg Mais Wright

Values, estimates, provenance and being ‘on the money’

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Recently Nick Miller, arts writer for The Age, interviewed me regarding how auction houses set their estimates and how often are they ‘on the money’, in light of the forthcoming marquee auctions in New York and in particularly the widely publicised “Shot Sage Blue Marilyn”, Lot 36A of Christie’s sale on 9 May**, with an “in-house” estimate of US$200m.

There are invariably a combination of factors or elements which inform estimates:

•  firstly, the auction house endeavours to meet the Vendor’s instructions, albeit tempered by market specialist advice;

• the estimate is in line with the reserve;

• previous auction results for that artist and/or a similar work, i.e. composition, dimensions, and even year are taken into account;

• provenance, the ‘pedigree’ or history of the artwork from artist’s studio to current owner is a vital component and comprises research and investigation into:

Ø  what collection has it come from and the significance of that collection;

Ø  how long has the work been in that collection;

Ø  was the work acquired from a gallery, dealer or auction house;

Ø  is it fresh to market, or, in the alternative, if the work has been at auction too often, even if it has sold, on occasions this can work to its detriment and all in likelihood the auction house will lower the estimate;

Ø  what is the condition of the artwork;

Ø  what are the current market values for the artist or that style of work, for example, is figuration currently the ‘choice de jour’;

Ø  what’s the market support for the artist? For example, is the artist having sell out exhibitions, being included in any major museum shows.  Gallery representation is also a significant factor, especially internationally, and when it comes to the higher end of the market; and, how many & which museums have collected work by the artist;

Ø  subject matter can also have a bearing on estimate setting: is it a pleasing subject or does the work present challenging motifs or iconography;

Ø  and finally, is the work in the catalogue raisonne? (a published inventory of all the artworks an artist has produced throughout their career).

In the case of a work by Andy Warhol, an auction house would include all of the above factors when setting estimates.  In addition, the inclusion of the work in the Warhol catalogue raisonne is also especially pertinent; Warhol’s output was considerable during his four enormously productive and intensely inventive decades.  Warhol’s market is also clear about favoured or coveted works; a ‘Marilyn’ work would reach a broader audience than say, a work from his ‘electric chair’ series.

And to the second part of the enquiry: how often are the auction estimates right?

I would suggest for the most part they are ‘on the money’; auction houses do know the market, know their clientele, and invariably before an auction they do have some sense as to the outcome of the sale. 

The strategy with setting the ‘right’ estimates is to enthuse potential buyers, and garner buoyant bidding at the sale; start too low or too high the work may pass at the sale; it could even become ‘burnt’, especially if it has been to auction before.  The ‘batting average’ is 85% by volume and 90% by value.

Auctions houses are at the behest of socio-political factors, the economy and indeed, the whims of collectors; so, there are occasions when they may misjudge the market.  But there are certain strategies which auction houses will utilise as a means of risk management.

So for example, the marketing department will devise specific PR campaigns in the lead up to selected sales; the house may tour part or all of a premium or blue chip auction; or, relegate a particular sale to another region, so perhaps Hong Kong for example may be the better platform for certain inventory; and with certain blue chip inventory, most US and more especially NY auction houses will invariably seek third party guarantees.  (As in the Macklowe Collection’s Warhol @ Sotheby’s which also has an irrevocable bid.)

**Since then, the work sold for a hammer price of US$170m, with fees the total sale price was US$195m, making it the most expensive work by a 20th-century artist ever to be sold at auction. Read about the auction here and other auction highlights of the week here

Read the full article here

The art of investing in art

I was delighted to be invited on to the “Rich with Purpose” podcast hosted by Thabojan Rasiah of Rasiah Private Wealth Management. 

We both enjoyed a terrific conversation looking at artwork from many different angles: what is art? the differences between personal artistic value versus the more commercial aspect of the art world; and the many ways people produce, share and sell art  We also discussed how the advances in technology have impacted on the art world, the so-called democratisation of art, and the challenges with buying art online; all as means of deconstructing the question: “is art a good investment?”

Listen here

Art Valuations for Family Law Property Negotiations: What to Expect

Art like any asset, requires the same attention as that accorded to your other personal assets: your car, your home, or your CD collection.

Obtaining a professional appraisal of your artwork(s) operates in much the same way as seeking a value for other assets. Credentials should be assessed; market sector and specialty experience should be examined together with the level of tertiary qualifications and membership with an industry association.

Most importantly, seeking the services of an independent, objective and impartial professional will result in a more accurate, credible valuation, and without the potential bias of a vested interest in the artwork and therefore its value.

Valuation: the importance of methodology & purpose

There are different types of art valuations, and various methodologies are utilised in assessing the artwork(s) specific to its/their purpose. Typically, art valuations are used for:

• Insurance

• Superannuation;

• Financial reporting;

• Asset Validation;

• Liquidation reports;

• Estate planning and division; and

• Family Law property negotiations.

For the valuation of an artwork for insurance purposes for example, the methodology will incorporate an assessment of the current retail value and market for the artist and artwork, which will provide a ‘replacement’ value.

When it comes to a valuation for Family Law property negotiations, the methodology for establishing a ‘fair market value’ will be employed. A fair market value is defined as

the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts

Put simply, ‘fair market value’ means what the artwork(s) could sell for at any given auction in the immediate or near future. In determining this type of value, the appraiser will undertake market research derivative of both the primary (commercial galleries) and secondary (auctions, re-sales) market sectors.

The valuation process for Family Law property settlements

Fundamental to Family Law property settlements is the division of assets, with the primary asset invariably being the family home. Artworks are viewed as assets, and in a similar manner to jointly electing a property valuer to assess the value of the matrimonial property, so too with the appointment of a specialist art valuer for the parties’ art collection. The steps entailed are generally, as follows:

• Once the appointment of a valuer has been confirmed, the elected valuer will receive a joint letter of inspection from one of the solicitors to the negotiations. This letter should clearly detail exactly the requirements for the valuation including for example, if the artworks need to be realised within a certain time frame; or if the attributable value should be stated as a nett value, or as a value less sale costs.

• The valuer will respond to the letter of inspection and confirm instructions, in addition to providing a fee proposal to the solicitor, which will confirm the hourly rate and estimated total time required to undertake the valuation.

• Included in the letter of inspection will be a list of artworks/items to be valued, agreed upon by both parties. This is an especially important step; it is crucial the solicitor has received accurate instructions as to the artworks/items which need to be valued so as to provide a definitive list to the valuer, otherwise disputes can potentially arise.

  If your art collection has been well documented over the years, this step will be relatively simple; in the alternative it will be important to collate all relevant documentation regarding the artworks (purchase invoices, artwork commission contracts, receipts) to assist with drafting this list.

• The valuer will then seek pre-payment for the audit and valuation. This is common practice and is based on the duration of property negotiations to reaching final settlement. This payment will be referred to as a disbursement in your solicitor’s invoice(s).

• The valuer attends the premises where the artworks/items are located and carefully inspects each piece and proceeds to document the artworks noting artist, title, medium, dimensions, signature and/or other inscriptions  or distinguishing  marks, and condition;and photographs the artworks for reference. These details will form an inventory (schedule) of artworks and will be included in the final report.

  One of the parties to the negotiations or the person who resides at the premises, will be in attendance during the valuation to direct the valuer to each artwork. To assist with this process, it is preferable the artworks are accessible (i.e. not wrapped for example) and are available all in one location.

For the purposes of documenting the artworks and drafting the final report, the valuer will consider the following attributes:

• Authenticity - discernment of a signature, title or date, original sale documentation;

• Quality - consideration of the artist’s period in which the work was executed; composition, palette and technical prowess;

• Rarity - how many works by this artist are available on the open market;

• Limited Edition Prints (if applicable) – the breadth of the edition for the work; available prints in the edition;

• Condition – the archival stability of the work and framing quality, i.e. is the artwork in its original frame?;

• Provenance – probably one of the most crucial factors in the overall valuation process, “provenance” equates with the artwork’s ‘history’, i.e. from artist’s studio to gallery exhibition to auction house sale; and includes discerning any notable non-commercial exhibitions in which the artwork was included, for example, a ‘survey’ exhibition at a regional gallery, in addition to any publications in which the artwork was illustrated or discussed;

• Market – does the artist have an auction record? Sales rates for the artist in either the primary or secondary markets.

Documentation

The final report, i.e. the valuation, constitutes a ‘legal’ document and will become supporting material to the property negotiations. The parties will be provided a copy each via their respective solicitors.

The quality of the appraisal documentation is important and should include:

• a statement of compliance (i.e. no vested interest from the valuer);

• purpose of valuation;

• asset class, location and inspection(s) dates;

• definitions, provisions & disclaimers;

• demonstrate a solid, up to date appreciation of the market for the subject artist/artwork;

• present well-reasoned research;

• provide documentary proof and/or reference to recent auction results and other market indices (ones which are verifiable); and finally,

• clearly and concisely outline the methodology used for the appraisal.

A professional audit and valuation of your artwork(s) which adheres to industry set standards and is provided by an experienced specialist will provide a level of assurance as you proceed through the Family Law property negotiation process.

©Catherine Asquith 2020

The state of the art market: a brief overview

Pierre Soualges, Peinture 162 x 130cm 14 Avril 1962”, 1962, oil on canvas, 162 x 130cm. SOLD: Sotheby’s Paris, June 2017.

According to Dr Clare McAndrew’s 2019 Art Market Report, the global art market accounted for US$67.4 billion last year, an increase of 6% from the previous year, which points to positive growth in the sector. The three main markets, the United States, the United Kingdom and China, remain the strongest accounting for 84% of the global market’s total value.

The other salient points in McAndrew’s report are:

·         Millennials emerged as active market participants;

·         The online market has witnessed continued growth;

·         Auction figures rose by 3% “year on year”; and

·         Art fairs continue to play a central role in the global art market.

Sotheby’s Mei Moses Index discerns a shift in market trends; up until recently, Impressionist and Modern Art held a prominent position in secondary market growth.  However, over the past two years, it is now the Post-War and Contemporary Art market which has seen the strongest growth, up by 12.8% compared with the Impressionist and Modern Art market at 10.8%. 

This shift in investment has been evidenced in newsworthy, strong results for artists such as Jean-Michel Basquiat, Pierre Soulages, Zao Wou-ki and Alberto Giacometti.

Whilst the “Basquiat phenomenon” has garnered an unprecedented command of the art market, with record breaking auction results, and survey/retrospective shows at numerous, prestigious museums and galleries, the perhaps less ‘spectacular’ artists, such as Soulages, Zao Wou-ki and Giacometti for example, have been steadily accruing value; suggestive of a more educated sector of the market re-assessing previously over-looked historical masters and preferring the ‘long game’ investment. 

©Catherine Asquith 2019

Valuing your Art and the Appraiser

Zhang Xiaogang’s Bloodline: Big Family No 3. Auctioned at Sotheby’s HK in April 2014 for a hammer price of US$10,698,699

Art like any asset, requires the same respect as that accorded to your other personal assets: your car, your home, or your stamp collection.  Interestingly, as part of the ‘acquisition’ process of these types of assets, insurance becomes part of the overall monetary outlay; you seek the advice of an advisor or broker to ascertain adequate insurance and annual premiums ensue thereafter.  Yet, the same cannot be said for art.

Speak with an insurance broker and you will be surprised to hear how infrequent clients seek the advice of a professional when estimating the value of their art collection; the consequences of not having an up to date valuation, and therefore a current value, can mean the difference between being reimbursed for loss or damage appropriate to its market value or incurring a loss on that initial investment.

Additionally, having an up to date and current value of your collection can also assist in having in place a de-accession strategy; selling too early or too late can result in an unforeseen loss.

Obtaining a professional appraisal of your artwork operates in much the same way as seeking a value for other assets.  Credentials should be assessed; market sector and speciality experience should be examined together with the level of tertiary qualifications and membership with an industry association.

Most importantly, seeking the services of an independent, objective and impartial professional will result in a more accurate valuation, and without the potential bias of a vested interest in the artwork and therefore its value.  Returning to the gallery or dealer from which you first acquired the artwork and seeking an appraisal is clearly a conflict of interest.

Additionally, the quality of the appraisal documentation is equally important: it should demonstrate a solid, up to date appreciation of the market for the subject artist/artwork; present well-reasoned research; provide documentary proof and/or reference to recent auction results and other market indices (ones which are verifiable); and finally, clearly and concisely outline the methodology used for the appraisal.

There are a number of attributes which an experienced appraiser will utilise in order to determine the value of your artwork:

• Authenticity - discernment of a signature, title or date, original sale documentation;

• Quality - consideration of the artist’s period in which the work was executed; composition, palette and technical prowess;

• Rarity - how many works by this artist are available on the open market;

• Limited Edition Prints (if applicable) – the breadth of the edition for the work; available prints in the edition;

• Condition – the archival stability of the work and framing quality, i.e. is the artwork in its original frame?;

• Provenance – probably one of the most crucial factors in the overall valuation process, “provenance” equates with the artwork’s ‘history’, i.e. from artist’s studio to gallery exhibition to auction house sale; and includes discerning any notable non-commercial exhibitions in which the artwork was included, for example, a ‘survey’ exhibition at a regional gallery, in addition to any publications in which the artwork was illustrated or discussed;

• Market – does the artist have an auction record? Sales rates for the artist in either the primary or secondary markets.

Valuing your art necessitates the same respect as valuing your other lifetime assets.  Regular, up to date valuations of your artworks are an important adjunct to the ongoing maintenance and accurate documentation of your collection.

Seeking the advice and services of an experienced and knowledgeable professional is a critical step in the provision of an accurate art appraisal.  Professional art appraisal services offer new and established collectors a comprehensive appreciation of their collection, its current parameters and indeed, future directions.

©Catherine Asquith, January 2019