Artwork valuations - protecting your investment

March 19, 2013

Is your valuation up to date?

Those of you who have valuable works of art will most likely have an artwork appraisal or valuation filed away. This might have come with the purchase of the work or at your request when compiling information for insurance, tax, superannuation, charity etc. Either way if it has not been updated in at least the last couple of years you might find the value of the work could be substantially different from what you have documented. This can have a significant impact on areas such as insurance.

Do you have the right type of valuation?

Additionally, there may also be an error in the value you have applied for different purposes. There are generally two types of valuations you will need and these can be quite different for the artwork in question. These are the retail replacement value and the fair market value.

Retail replacement value

For the purposes of insuring the work, most insurance companies* will require it to be individually listed and for you to have a valuation for the direct replacement of the work ie. what one would expect to pay for the same or similar item in a retail setting at the present time. When an insured item needs to be replaced in a timely manner, the retail market is often the only place to do so. This would mean, if possible, either commissioning the artist (usually through their representative gallery if they have one) or purchasing another similar work at current retail price.

Insurance valuations need to be kept up to date. In the event of a loss through theft or disaster you may very well be out of pocket when looking to replace the artwork.

In some instances this retail replacement value can look fantastic when compared to what you originally paid for the work. However it can be misleading if you think that's what you will get if you were looking to sell that artwork now. In many instances this is just not possible as the secondary market does not generally attain prices near the retail level. This is where fair market value comes in.

Fair market value

Fair market value is generally determined as the price that the artwork would sell for on the open market. Further, it is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. An appraisal of fair market value takes into account previous prices at auction (and associated fees with the sales), demand for works by the artist, rarity of the work along with its current condition. It would also factor in, to a lesser extent, primary market prices as a guide to the current standing of the artist. If you are considering selling your artwork or possibly buying it from your super fund you will need a valuation stating fair market value.

Other purposes for attaining a current fair market price for your artwork may include assessing your collection for review purposes or in the event of a dispersal or liquidation of an art collection for the execution of a will.

Self managed super funds

For those that have self managed super funds there may be a need for both types of valuations*. Amendments to the Superannuation Industry (Supervision) Act that came into effect from July 2011 (ATO website) require that collectables and personal use assets (which includes artworks) must not be stored or displayed in the private residence of any related party of the fund and must be insured in the name of the fund within seven days of acquisition. This will require a current cost of replacement.

A current fair market valuation is usually required for a fund's tax returns* and also for the transfer of ownership of assets to a related party of the self-managed super fund (another of the new rulings).

While artworks that were held by SMSFs prior to 1 July 2011 have been given until 1 July 2016 to comply with the new rules it is prudent to consider looking into what your SMSF will need to do sooner rather than later.

How we can help

Hotham Street Contemporary has extensive experience and knowledge of contemporary Australian art and can provide artwork appraisals for both retail replacement value and fair market value. Each valuation we produce details the specifics of the work and comes with a supporting statement for the concluding appraisal.

Ideally physical inspection of the artwork is preferred for appraisal however this can be achieved sufficiently with submission of complete details and provenance, high resolution images including close ups of signature, any damage and surface condition.

Valuations are charged on an hourly rate covering inspection and assessment of the work along with research and preparation.

* NOTE Professional advice on requirements for your insurance policy, tax and for matters relating to the establishment of a SMSF and investment strategy for the fund should be sought from advisors in those fields.

To enquire about artwork valuations contact Liam Ferguson + 61 413 750 303 or liam@hothamstreetcontemporary.com