Galleries vs. Appraisers : Can’t We All Just Get Along?

I recently approached a very large, successful gallery for assistance with an appraisal of a work created by an artist they represent.  After a decent interval, a polite reply came back:

“Dear Jay,

I apologize for the delay. Please know we charge a flat fee of $500 with an additional charge of $250/hour for the preparation of an appraisal. Please let me know if you'd like to proceed.”

This is new.  My experience has been that commercial art galleries are generally wary of appraisers but more often than not are happy to collaborate.  In cases that they are not, what usually happens is that I am invited to send in the request and then I hear nothing back.  The piece I was asking about is likely to retail for around $15,000; there is no way to justify spending 5% of its price just to have the gallery who represents the artist provide a valuation.  The above reply is, of course, designed to discourage any future requests, except in the cases where objects have tremendous value.  I must admit, it seemed (and felt) like a slap.

This is a free country and commercial art galleries are in business to make profits.  They are under no obligation to provide me with free service.  Indeed, many dealers have complained to me that they expend time and effort giving appraisers valuations for free, and then the appraiser (they think) simply turns around and bills the client after cutting and pasting the information into a template and referencing the gallery as the authoritative opinion.  Having worked in galleries for over 20 years and having owned one myself, I confess to sharing this attitude.  Most gallerists have stories about obnoxious phone calls from appraisers demanding immediate assistance, followed by a volley of intrusive follow up questions and desperate emails referencing their looming deadlines.  I have my own stories: there was one appraiser who was unable to properly pronounce the artist’s name they were asking about and in another case an appraiser asked for a copy of a recent invoice to provide back-up for an appraisal she was preparing, telling/scolding me that my own opinion was not sufficient for her purposes.  I suppose it goes without saying that these people are usually unknown to the gallery prior to contact and never heard from again. 

So, really, professional appraisers today are paying for the sins of their fathers (and mothers).  I’d like to think that the profession is changing for the better and that these encounters are much less likely to occur in the present day.  But the demand for $750 before lifting a finger demonstrates that some galleries are in no mood to accommodate us.

Let’s stop right here and acknowledge that appraisers need galleries more than galleries need appraisers.  I am aware, of course, that professional appraisers are integral to the wellbeing of modern society.  Without our fiercely independent and ethical input, all commerce would be impossible.  And yes, I know that galleries have an obligation to the marketplace, they should want the proper values for their artists’ works to be known by people who own the work.  Blah blah blah. 

In truth, galleries of contemporary art hold most of the cards when it comes to their artists’ markets, and that’s the way it should be.  Galleries expend an incredible amount of time, money and energy on behalf of their program, mounting shows, doing art fairs, assisting collectors, curators, critics, publishing books and so on. Dealers work their fingers to the bone on behalf of their artists and then we come along and ask, “How much?”   

Appraisers need to be incredibly respectful of the work that they do.  I can’t overstate this.  An insurance appraisal from a gallery should be received as if one was getting communion from a bishop or some of the best Halloween candy ever.  Granted, I wish that the big fancy gallery that refused to help me was more beneficent towards the little guy, but then again, I have viewed countless fantastic shows at that gallery, for free, and can go in and read the books they have on display for as long as I like.  They expend considerable resources every day to create economic activity which makes the art world a big enough place to require appraisers.  I can’t complain.

So, what can an appraiser do to coax an opinion of value from the expert dealer?   Bribery is always an option.  Naturally, most of us can’t afford the $750 demanded by the anonymous gallerist I have been referencing, but I always like to give a small gift to the person who has gone out of their way to respond to my requests.  Doesn’t have to be much.  But something that shows them that you appreciate the time and effort they have expended on your behalf.  I like to find things that can be shared amongst the staff, if that person so chooses (a box of chocolates, for example).  This assumes, however, that the appraiser has already been helped…what can we do in advance to help our cause?

Work.  Which I know is not really a glamorous word.  But before we pick up the phone, send an email or walk into a gallery, we appraisers need to have done our homework.  Go to the gallery’s website to see if they have similar works by the artist displayed.  Look at the exhibitions for that artist…perhaps there are installation shots which depict our object on display?  Troll through the CV of the artist and read the press that might be easily accessed.  Go to the library and pull books.  Maybe go to the gallery without asking for anything and see if they have any publications or maybe a binder around about the artist that you can look at. In short, according to USPAP, you are holding out yourself as having expertise in the material you are appraising.  Be one.  A lot of questions that appraisers have can be answered by consulting freely available information.  Contacting the gallery should be the last thing we do, not the first.

Armed with knowledge, the appraiser becomes less of an annoyance and more of a collaborator.  One can call the gallery with a specific question, rather than many.  I would also recommend telling the gallery what you think the value might be and why.  Gallerists enjoy discussing their artists work, so if you actually have a specific, intelligent question and are not looking to cut corners, you might find a more sympathetic ear.

Information is another powerful carrot the appraiser can proffer.  You should ask your client if they would feel comfortable with your sharing their name with the galleries you contact.  Naturally, they might wish to remain anonymous, and it might not be appropriate.  However, most clients don’t mind and in fact, already have a relationship with these galleries.  When the dealers know that you are working for someone who buys from them, they are likely to be much more friendly.  Obviously, the more mercenary among us will think that galleries want to know who owns what in order to be able to sell it one day.  But there is nothing wrong with that!  And, on a gentler note, they might want to borrow it for an exhibition at their gallery or at a museum down the road.  Having the existence and ownership of the work in the gallery archives can facilitate all sorts of positive things.

 If you have done a lot of research into the market, you can share the relevant bits with the dealer.  While they probably already know what is out there, it never hurts to see it condensed and organized.  Maybe you have seen works by private dealers for sale, where you can report the asking price.  You may actually have turned up something that they didn’t know, which will help them in their business. 

I would be very interested to know if any of my fellow appraisers have other tactics for overcoming the inherent suspicion of us harbored by primary market dealers.  Finding common ground with them is one of the biggest challenges faced by appraisers.  In truth, we have only ourselves to blame for the often dysfunctional relationship.  But the top appraisers have always found a way to make themselves an indispensible part of the art world.  We need to make smooth relations the rule and not the exception.

The "Droit de Suite" and the Contemporary Art Appraisal

A recent piece by Whitney Kimball over at Art F City drew my attention to the “Negotiated Resale Right”, a product/idea being marketed by Level Rights, a New York company started by attorney and art advisor Franklin Boyd.  You can see the article here: http://artfcity.com/2014/05/22/time-for-artist-resale-royalties.   The idea is a twist on the droit de suite, a legal concept emanating from French legal thought.  According to Art Law, written by Ralph Lerner and Judith Bresler, a law was passed in France in the early 1920s to try to assist widows and orphans of artists killed in WW1.  It is a fairly straightforward notion:  the artist or their heirs get paid a royalty whenever one of their works is resold.  In practice, of course, it has proved rather tricky to implement.  In the United States, the law, for the most part, does not exist; it has never been passed at the federal level.  California did adopt droit de suite, requiring 5% of the gross selling price to be given to the creator, but the Supreme Court declared the law unconstitutional in May, 2012.  Interestingly, Georgia has a 1987 law on its books granting resale royalty rights to artists whose work is acquired by the state, although it requires the exact percentage to be negotiated at the time of the acquisition.

In this way, the Georgia law is actually similar to Level Right’s Negotiated Resale Right (NRR).  The NRR is to be included as part of the bargain: when a buyer purchases a work from a gallery or artist, the buyer specifically agrees to allow the gallery and/or artist to get a piece of the action if and when the work is resold.  It is not clear from what I read what that percentage would be, but I would assume it would be negotiated, probably along the lines of the 5% that the California law required.  The NRR can be sold on by the original holder, and Level Rights keeps track of it all and presumably earns a fee for this service either at the front or back end of the transaction.  Level Rights explains it on their site: http://www.levelrights.com. The Art F City article mentions that some collectors would enter into these agreements out of charity, while others might obtain a larger discount by entering into such a contract.

From an appraisal standpoint, this got me thinking.  How does the droit de suite and the NRR (which apparently has already been used in transactions) affect the valuation of art? 

Right off the bat, appraisers need to ask owners if they have entered into an NRR or any similar as yet uninvented financial product.  This may be something my fellow appraisers have been doing all along, but this recent article made me realize that there are a number of factors we need to consider.  This question has particular relevance if the most appropriate marketplace for an artist is where the droit de suite is in force (at this point, primarily Europe).

What is crucial to note here is that these payments and fees are universally paid by the seller, off the top of the selling price.   FMV, of course, is defined in a few parts of the tax code, one of which is Treasury Regulation 1.170A-1 (c) (2), which lays out the familiar concept: “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.”    It is also settled law that commissions to brokers who would be involved in selling property are to be included in calculating FMV (decisions in the 1953 case of Publicker v. Commissioner make this clear). 

Thus, fees and expenses that are additive to the selling price must be considered.  However, since the droite de suite is subtractive, calculated after the bargain is reached, it would appear not to affect our calculation of FMV. 

Looking more deeply, might one argue that the existence of the droit de suite affect the value by its mere existence?  In other words, might a seller’s behavior be altered by the requirement to break off a piece of their proceeds to the artist, their heirs or assigns?   In the case of the way the law is currently set up in the European Union, this seems unlikely.  As I understand it, there is a sliding scale for calculating what one has to pay:  4% of the first 50,000 Euro; then 3% up to 200,000 Euro and so on like that, with the overall fee capped at 12,500 Euro.  Interestingly, according to Christie’s website, the royalty is calculated on the hammer price, not including the buyer’s premium.  So, if an auction seller’s work received a hammer price of 190,000 Euro, they would owe the artist 6,200 Euro.  Which is a lot of money, but it would not appear to be so large as to affect a seller’s behavior.   What the seller wants is the most money possible in their pocket.  If Europe was the place where a work of art will get the best price, it seems unlikely that a seller would avoid the market to dodge the 6,200 euro haircut; the risk of getting a substantially lower price for their property seems to outweigh the pain of shelling out money to the creator of the original work.   And if there was a market where the seller could dodge the fee and still get the same price (Switzerland, say), then our calculation of FMV is unaffected…the selling price is the same.  A buyer doesn't care who gets the money...what they want is the art, so none of this really affects the price one is willing to pay.  

The equation changes dramatically when the value under consideration is marketable cash value, or if the appraiser is assisting in determining liquidation or salvage values.  Here, the droite de suite, NRR, and any other such payments need to be backed out of the final number.  The droite de suite, at least in Europe is payable to the copyright holder, so in the case of severe damage, the artist may have renounced authorship of the work, which gets you off the hook.   Copyright is an ever-moving goalpost, but generally, the artist needs to be dead for 70 years before it expires.  So, if you have an artist alive after WW2, you need to be aware of the droite de suite, in cases where the artist is European.  The EU regulations are unsurprisingly complicated, but there are a number of helpful organizations who collect the fees on behalf of the artists.  One useful site is the Artist’s Collecting Society, which had a handy calculator  http://artistscollectingsociety.org. 

The concept of the droite de suite is a noble one and like most laws that try to assist the supposedly downtrodden, it probably has not brought as much comfort as its supporters hoped.  Franklin Boyd, with the Negotiated Resale Right, has brought a real sense of fairness and transparency to the table, which is unsurprising.  Anyone who has come across her knows that she is all advocate for doing business the right way, which will benefit all of us.  The droite de suite because it is a presence in the marketplace it must be accounted for when trying to value contemporary art. An appraiser ignores it at their peril.