June 8, 2007 3:43 pm

Value judgments in a contemporary scene

A£50m skull fashioned out of diamonds and platinum by Damien Hirst sits in the White Cube gallery in Mayfair – an eery testament to the popularity of contemporary art in London. Thousands of prospective owners and curiosity seekers wandered in last week for a chance to view what is thought to be the most expensive piece of contemporary art ever created.

Prices of contemporary art jumped 44 per cent last year, according to figures provided by Artasanasset.com, as demand from young, wealthy investors soared. Record prices for contemporary and post-war art at Sotheby’s and Christie’s sales this year also underline its popularity.

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Specialists admit it can be difficult to assess the worth of works sometimes comprising newspapers, metals, plastic ware or cardboard.

You can hire an “art” adviser to offer counsel on works by artists such as Banksy, Hirst and Jamie Reid. Yasmine Datnow left her job at White Cube to strike out on her own when she felt she had a superior understanding of the price and value of a range of contemporary artists.

“I will take anyone on as a client who has an interest in art. Some of my clients have £1,000 to spend. Others have £10m,” she says. Datnow represents those interested in purchasing works from galleries, auction houses and from artists directly. “People have little time to educate themselves about the buying process and the artists themselves. I try to prevent clients overpaying for work,” she adds.

Overpaying for contemporary works is a considerable risk as most galleries charge a commission of roughly 50 per cent for the works they sell. At auction, prices can go higher or lower depending on demand, but Sotheby’s, Christie’s and other auctioneers usually add on a buyer’s premium of 20 to 25 per cent to the hammer price.

“The gap between the cost of buying art from a dealer and the auction house has narrowed,” says Viscount Rupert Cranley, fine art practice leader at Marsh, the insurance broker.

To avoid commissions, more collectors are trying to arrange sales privately with artists. One novice collector for example, bought a table constructed by the artist Abigail Lane at White Cube. Later, at a gathering at the gallery, he met the artist directly and purchased a second table from her studio at a discount of 50 per cent.

Once you have purchased art, it is important to insure it, which can be expensive. Specialist insurer Hiscox estimates it would cost £50,000-£100,000 per year to insure Hirst’s skull.

Underwriters will assign their own value to the work, which can be higher or lower than what you paid. Valuers put a series of prices on a particular work, according to Andrew Cheney, a senior risk surveyor at Hiscox. For example, they will assign a value for inheritance tax purposes or estate planning purposes. These figures tend to be slightly lower than quotes offered if a surveyor is assessing a work’s fair market value, which is their prediction of what a piece would be worth if sold at auction.

It is important to remember that the agreed value of a work for an insurance policy, usually determined largely by the purchase price, is not necessarily the same as the market price.

“If someone has an agreed value based on a purchase price, but the market moves either with him or against him and the work is stolen, he would only be remunerated for the value of his purchase price. The actual worth of the art might be totally different,” says Philip Turner, managing director of Marsh’s Specie practice.

Fluctuations in pricing have made it important for clients to reassess the value of their collections from one year to the next. Cheney predicts Hiscox will conduct a third more validations of personal collections this year than it did last year, when 730 were recorded.

“For some collectors, in the space of a year or two, the market has shifted
so much that it could have an impact if they were trying to replace a work lost by theft or fire or flood,” he says.

Insurers tend to require collectors to have adequate security such as intruder alarms to protect against theft. So-called DNA marking – invisible labels – can also help. Storage conditions are also factored into the price of premiums as the materials in contemporary art can disintegrate quickly.

“Contemporary pieces tend to be fragile and that makes them riskier to own,” Cheney says.

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