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Some people are moved so passionately by a painting or statue that they can’t help but desire to possess it. Or perhaps they are so impressed by the artist that they’re willing to pay several thousand dollars to own one of his or her creations.
But others who buy art are thinking more about the dollars, meaning not so much what the piece costs today but how it may increase in value over time. Collecting art for the home can be about passion, or it can be about investing. Sometimes collecting is about a combination of the two.
As with any investment, and especially with art, there is risk. To seriously invest in any collectible—whether it be Native American carvings or impressionist paintings—a great deal of education and experience is required. Utilizing the services of a curator or art historian can be useful when shopping.
Unlike a relatively sane process such as buying real estate or investing in a financial security, when it comes to fine art and other collectibles, people tend to buy what they like. In some ways, what a person collects is an extension of their personality or experiences, which may or may not prove to be fruitful. But for those seeking a healthy and rapid return on their so-called investment, investing in artwork can quickly become a disappointment.
Where is the best place to begin for those truly desperate to have a piece from the next up-and-coming Picasso or from a solid artist on their wall? How does one protect oneself from being swindled? What is worth the investment and how can one tell?
Further, since the art market is relatively “illiquid,” it can take a long time to locate the right buyers and sellers and agree on a fair price. While online auction sites make connecting buyers with sellers easier than ever, art hunters need to be cautious. Organizations like the Fine Art Dealers Association (fada.com), the National Art and Antiques Dealers Association of America, Inc. (naadaa.org) and the Art Dealers Association of America (artdealers.org) are national non-profit groups whose members are dedicated to promoting professionalism and integrity. These organizations can help with buying, selling and appraising art.
When it comes to discovering that hot new artist, a respected gallery is the best place to shop. Future treasures are rarely found at the flea market or garage sale, unless one is interested in folk art. And it’s also usually wise to avoid auctions, where getting an object at the right price is nearly impossible.
According to James LaMantia, co-proprietor at the LaMantia Gallery in Northport, selecting art as an investment is all about the appreciation value.
“One of the biggest mistakes people make once they decide to collect art is not buying an artist with a history,” he said during a recent telephone interview. “An artist with an international following will have value as his work can be consistently assessed with galleries around the world.”
Mr. LaMantia’s advice: “Buy for the love of the artwork but buy an artist that is sold around the world.” He cautioned that those in love with a local or regional artist may spend a lot of money and later find a limited or non-existent resale market for the artwork. But he added that local artists are worth it for the love of art, though they may not always translate into down-the-line resale profits.
In some cases collections can be used as collateral for financing, usually pending a professional appraisal. But while it can increase in value, fine art usually does not generate income until it is sold.
When selling any collectible at a profit, the seller must report the gain to the Internal Revenue Service and pay capital gains tax on any profit. Some expenses may include appraisal fees, insurance premiums and travel expenses but it can be difficult to convince the IRS of the legitimacy of such expenses.
Of course, the more valuable the collection the more important record keeping becomes. Documentation, including bills of sale and receipts, should be retained as well as photographic and video recordings of what has been collected. Anything valued over $100,000 should be insured and ownership well documented.
While valuing collections is subjective, a seasoned appraiser can help formulate and sign off on written records, which should include notes on the overall condition of each item, the item’s age, plus product identification or series numbers when available. This is important when an estate is liquidated, if the collection is stolen or damaged or when a value comes into question for tax or sale purposes. A collection’s estimated value will also be required should an estate go into probate.
Proof of ownership is often required when a loss occurs. A basic policy with $10,000 worth of coverage can cost as little as $75 per year and will protect against accidental breakage, mysterious disappearance/theft and acts of nature such as floods and fire. But each piece of art should be a scheduled item if worth $2,000 or more. A personal articles floater can usually be attached to a homeowner’s policy to cover fine art.
Joseph Finora is the author of “Recession Marketing.”
on Aug 23, 2010