Suppose someone offers you a work of art or design for "investment", tells you it's been appraised at a certain dollar value, and that is how much they want to sell it for. Like most people, you may be inclined to believe that since the art has been appraised or has had a formal valuation, then the appraised value is what the art is worth. 

However, this is not necessarily the case. Art appraisals may or may not have any relation to the art's fair market value, or rather its documentable dollar value on the open market. More accurately this can be described as the amount of money a willing buyer could reasonably expect to sell the art for to a willing seller, neither party being subject to undue influences - or in other words, what informed knowledgeable collectors generally prefer to pay for their art.

Appraise the appraisal
So, in order to pay a fair price, you have to know how to appraise the appraisal, especially if you are approached as an investor or are asked to invest in art on either a short or long term basis.

Anyone selling art naturally wants to sell it for as much as possible. If a seller thinks that getting the art appraised will help sell it, then he or she will want that appraisal to be high rather than low. In other words, the appraisal that a seller provides to the buyer may well be at the high end of the valuation they have been able to obtain. Alternatively, the seller may have shown the art to several appraisers, and simply hired the appraiser who gave the highest value.

What is an appraisal?
Perhaps a good place to start is to describe what does not represent an appraisal. Whenever a seller tells you his art has been appraised, the first thing you should do is look at the appraisal. Sometimes the seller may tell you that he doesn't have an actual appraisal, but rather that an appraiser looked at the art and provided a dollar value. This is not a formal appraisal.

A seller may tell you that he has not had the art formally appraised, but that his asking price is what the art sells for at galleries. This also is not a formal appraisal. Therefore, the lack of an appraisal document that you can hold in your hands and read means, very simply, that the seller does not have a formal appraisal.

In all cases where the seller does have a formal appraisal, we would always recommend that it be examined by experts. At HSBC Private Bank we can connect or clients to art and design experts around the world, all of whom have wide experience of judging appraisals. Each appraisal will be reviewed with the following questions in mind:

The appraisal should contain contact information for the appraiser, a conflict of interest disclaimer, and also a statement of how the appraised value was determined.

In summary:

Note: An up to date valuation is necessary to provide clients with an accurate wealth check and to make sure insurance valuations are correct and current.

HSBC Private Bank can offer you access to a global network of art and design experts to suit your needs.  Find out more about our specialist design and art advisory service.

1858 Ltd works in association with the HSBC Private Bank Design and Art Advisory team. It is a leading international art advisory firm providing independent and impartial advice to high net worth individuals, financial institutions, corporations and museums. From its headquarters in London and offices around the world, 1858 services an international client base providing expert advice on all areas of the art collection process.