Analyzing raison d'etre of auction estimates, what goes into its formation and why some artworks sell for more than others.
The perennial question on many observers' minds when watching the auction sale is "WHY DOES IT COST SO MUCH?". It may come across almost shockingly as one bidder outbids another, sending the prices into stratospheric figures, if one doesn't understand the process. While it is important to bear in mind that the prices paid at the auctions are subjective to how much a person is prepared to pay for the ownership of the given lot at that specific moment in time, hence potentially skewing the objective value of an artwork, auction estimates provide a well-reasoned background for the value of each lot. In this article we will explain which factors play a role in determining the estimates.
Before each sale takes place, auction specialists assess every work of art and offer its owners low and high estimate prices that the work could achieve at the auction. Establishing the estimates is part of the negotiation process with prospective consignors to win business. Auction houses prefer lower estimates, because it encourages bidding and typically results in higher prices realized and higher sell-through rate, whereas consignors inevitably suffer from endowment effect - overvaluing something they own, regardless of its objective market value (Kahneman et al., 1991). In offering estimates, auction houses also compete with each other for consignments, so they oftentimes rely on other practices, mainly financial guarantees and marketing tools, to convince the consignors that the work would sell for the desired price.
But we digress from the main topic. The auction houses offer low and high estimates, because there are many factors to consider when determining the value of the artwork. The main ten factors are:
Authenticity. This is pretty straightforward. A fake Picasso would not command a nine or ten figure price tag. Authenticity is established when all elements conform to the requirements of that particular genre, production process and artist (i.e. brush stroke, pigment). A helpful tool for confirming authenticity of a work of art is catalogue raisonne - a scholarly organized and annotated publication of all known works by the artist. If the submitted artwork is not in the catalogue raisonne, you have either encountered a long lost masterpiece, or you have a problem - more often it's the latter.
Provenance. Provenance helps to establish authenticity, as it is the documented record of ownership history of the work, from the moment it had left the artist's studio until it arrived to the current owner. The more details of previous owners are available, the higher is the value of the artwork. Additional contributing factor to higher value is past ownership by a historical figure or a celebrity.
Condition. Conservation issues or poor physical condition lower the value of an artwork.
Rarity. Unique works of art command higher prices, than multiples. Works that haven't been seen on the market often in recent times may be considered more valuable by 'trophy hunters'.
Historical Importance. The higher the historical significance of the work, or the more its author is deemed a pioneer by art historians and museums, the higher the value.
Size. Bigger works are more valuable, than smaller ones, but it stops being the case once the work is too big to fit in residential homes and may demand additional storage requirements. In that case price could be lower. Also, bigger works are commonly purchased by corporations or museums, and those institutions have a discount.
Medium. It varies on the artwork in question. Typically works on canvas are more expensive, than works on paper. Sculptures made of bronze command higher prices, than sculptures made of marble.
Subject Matter. Subject matter influences price. For example, depiction of religious or violent scenes may make the artwork harder to sell.
Quality. Otherwise called "recognizability". It refers to different periods in the same artist's oeuvre. The works that are representative of the artist's signature style will command a higher price tag.
Market trends. Fashionable artists that get a lot of coverage, museum exhibitions, gallery representation typically have higher prices, because people gravitate to what's "hot" and desirable at the moment. However, it is worth noting that fashion changes and long-term trends are hard to predict.
If you have made it all the way through the list, congratulations! Now you should be able to explain to friends, why all lots from the estate of Jacqueline Kennedy Onassis sold at a single-owner sale at Sotheby's in 1996 for astonishing $34.5m, resulting in a white glove sale (that term is used to describe a sale with 100% sell-through rate) and beating the estimates of $4.6m over seven times; or why Henri Rousseau 'Les Flamants', that hasn't been on the market for 74 years, has sold for $13.5 millions higher, than its high estimate.
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