Demystifying Fair Market Value

FMV represents the price of an artwork that is sold between two participating parties. It is an incredibly sensitive numerical figure that is impacted by various macroeconomic factors. The price, or value, assigned to an artwork is determined through qualitative analyses by art specialists and advisors who have qualifications within the field of art history and years of working experience within the industry tracking artists and the circulation of their works. There is no finite mathematical formula that will calculate the FMV of an artwork - it is an art, not a science. Any successful valuation requires technological advancement and human touch.

The art market is composed of primary and secondary markets, which sell and acquire works by different methods. The differences of each are important to identify as each market influences FMV selling prices that fluctuate according to the demand of each market.

The primary market is made up of smaller galleries dedicated to developing artist’s careers and deal works, often acquired directly from the artist’s studio, that have no prior sales history. The secondary market refers to pre-owned artworks with a previous sale(s) record. Secondary sales operate by consignments through mega-galleries, digital platforms like MyArtBroker, art dealers, and, largely, auction houses.

Primary and secondary markets and the institutions that they encompass rely on one another for success and ultimately drive the art market and FMV of artworks. Auction houses are built off secondary sales, galleries are built off primary sales, and artists’ markets rely on these institutions to help promote and sell their works at a current and accurate FMV.

Learn more about the history of the art market here.

Assigned sales estimates and FMVs, although different, work synonymously to determine an artwork’s worth. Estimates are indicators of the minimum and potential selling points of works, and there are various elements to consider when assigning a realistic range. Several key considerations listed below determine what numerical bracket the FMV of an artwork will fall in.

1. The reputation of the artist, are they established or emerging?
2. What gallery representation does the artist have? A smaller gallery or a mega-gallery?
3. The longevity of their market, is there relevant sales data to compare?
4. The physical attributes of the work - size, condition, exhibition history and provenance.

The physical attributes of works are unique and important for marketing a work. For example, large-scale works do not always guarantee a sale as this can limit the amount of buyers. Condition always matters and exhibition and provenance of an artwork are reflections of demand and its historical significance, which impacts auction estimates and value.

Sales histories are also pertinent and are a reflection of the longevity of an artist's market, an exclusive diarised account of spending power and buyer’s taste. These reflect fundamental information that is used to analyse patterns, repeat sales performances, and identify comparable works within an artist’s market, where works have sold, and when.

However, not all sales histories are relevant or made public. Data that spans past five years are not accounted for to determine FMV as these price points are not an accurate reflection of current trends and demands within the art market. This is why, when understanding FMV to acquire an artwork, it is important to work with a trusted advisor, like MyArtBroker that understands market trends, the longevity of an artist's market, and can ensure you are buying at a fair price for the work’s worth.

Find out more about other aspects of transparency in the art market here.

Assigning estimates requires the skillful implementation to drive desired outcome of market sales and high FMVs. During auction sales, if bidding is started low against preset estimates this is often interpreted as an auction house tactic used to drive a high volume of bidding. Intense bidding generates excitement and demand, which from a marketing perspective has a positive impact on an artist’s market. David Hockney’s, Portrait Of An Artist (Pool With Two Figures) (1972) is an example of this bidding influx. Christie’s New York offered this work in 2018, and opened the bidding at a low offer of $20 million, only a quarter of its high estimate. Offers soared above the asking price, and the work hammered at $80 million creating a record for Hockney as his most expensive work ever sold at auction. Record sales positively impact the FMV of comparative works and the artist’s overall market. Since this sale, Hockney’s market has seen considerable success across all fine art categories. MyArtBroker has exclusive access to Hockney prints. Get in touch to acquire an artwork and grow your portfolio.

Read more about Hockney's latest interactive exhibition at Lightroom in our recent review.

Alternatively, assigning low estimates prior to bidding can negatively impact an artist market, causing a lower threshold for the work (and others) than its actual worth. This exact scenario was illustrated recently, as The Art Newspaper reported on 16th of March, that Rosebery Fine Art Auctioneers pulled eight sculptures by British artist Bill Woodrow from their sale featuring works from the Saatchi & Saatchi collection. Charles Saatchi is a renowned art world collector and marketing mogul, an important name on the provenance of artworks. Although Woodrow never saw the same success as some of his artistic contemporaries, the assigned estimates of his works were thought to be shockingly low, which would ultimately damage his career if the works were to be offered publicly.

Accurate estimations are principal factors to ensure successful auction house sales. A lousy sale or auction house buy-in can harm an artist’s overall market, driving the yield value of their works, within the market and held in private collections, to cautionary levels.

MyArtBroker’s new digital platform, MyPortfolio, offers transparent advice on FMV of prints and editions with our bespoke algorithm specifically designed to track the market value of art collections. Unlike the market for original works of art, the prints and multiples market is a comparable market, which is why we can provide an unparalleled level of insight into market trends. Powered by repeat sales regression technology, MyPortfolio affords its members to see where opportunity lies in the market, in real time. Users can upload their personal collections and monitor the FMV, alongside most recent auction sales of works that they own and track works they would like to acquire through our TradingFloor.

The Art Market has historically been a divinely lit playground for the ultra-wealthy. However, the market is working towards more diversification for young and experienced collectors, just as MyArtBroker is working to make more critical information about the art market transparent as we provide guides with Q&A’s to access and transparency. The supply of artists and artwork is abundant, and the potential for growth within the art market in the coming years is calculable. In addition, the market is expanding to investors providing a way to diversify portfolios and acquire works of value.

There are indices available that can help with research to determine which artists have a hot market and what works have investment potential. However, understanding the methodology of these indices and for what market sector they account can be strenuous. Buying or investing in any art market can be complex and sometimes volatile. Digital platforms, like MyArtBroker, are providing ways and services for art investment available, which can help understand FMV, make informed decisions, and navigate the market.

Find out more about how to finance art here.