Why art prices rise - inflation, status and market value

There are three main reasons why the price of art rises:

• an increase in the perceived worth of the art in the marketplace
• a change in the status of the artist 
• inflation

I'm going to unpick these below (in reverse prder) and suggest some reasons why raising prices in the absence of any of the above might be the artistic equivalent of shooting yourself in the foot!

Price Inflation

Many of who grew up with rampant inflation still have it factored into our brains as a really sound reason as to why prices rise.

However, if you exclude house prices, general consumer prices have not moved much in recent years. In fact, we've been living through a time of extremely low inflation. (It almost went negative at one point!)


source: tradingeconomics.com

This is what has happened over the last 9 years in the UK


source: tradingeconomics.com

I came across a very handy calculator online - the Historical UK inflation rates and calculator (which uses Office for National Statistics figures) - which calculates what a value in a specific year would be worth in today's values.

It allows you to extrapolate a sale price in a past year to one at today's date - based purely on inflation

Example:

• 2008: priced and sold a painting for £500
• 2017: the same sort of painting priced today = £635

TIP: If you're having problems selling your paintings, why not try checking back to when you were achieving sales and checking prices you charged then to the ones you are charging now?

Change in status of the artist

An artist who wins a major prize or becomes elevated to membership of an art society or secures gallery representation - or gets mentioned on the television or in the press - sometimes starts to reflect their change in status in the prices they charge for their paintings.

The reality is that although a positive status change can add credibility to the story you tell about your paintings they rarely add a significant amount to the price you can charge; unless you KNOW you can sustain that price over time - when your change in status is yesterday's news.

In general terms, a steady increase slowly over time, backed up a credible CV which indicates growing acceptance and recognition within the marketplace (eg increased exhibitions; moving from group exhibitions to solo exhibitions / rinse and repeat!) provides a much more sustainable basis for increasing prices over time.

Put another way, what are you going to do if you increase your prices because you get taken on by a gallery - and then get dropped by that gallery a year later because your paintings are not selling? It's not just music companies who take a hard look at the talent in relation to numbers!

TIP: Aim to set an upward trend in terms of exhibitions, sales and prices - but don't over-reach on price such that it has a negative effect on exhibitions and sales.

Do NOT try and be a one hit wonder! Use the change in status to raise your profile and anything and everything in your marketing that helps to promote more sales. After all sales are what generate income, not price increases!

Increase in perceived value in the marketplace

There are all sorts of things that create value in the marketplace. 

• Perception of value helps to generate market value - and it can be very difficult to change perceived value.
• Perceived value is also not the same as real value - which is why we get fluctuations - especially if the latter can be validated through other means. (eg prove an artwork is a fake and it instantly loses value - as the value is in who created it not what it looks like)
• Perceived value in the secondary market has a major influence on current real value in the marketing of new artwork for sale. 

Examples of perceived value

Some examples of ways in which artwork is perceived to have value include:

• oil paintings are ALWAYS valued higher than watercolour paintings:
• this means you can't charge the same for watercolours and oil paintings of the same size by the same artist - because that's just NOT the way the market sees the value (even if you're John Singer Sargent!)
• BUT you can change perceived value if you change the way you frame your watercolours so they look more like oil paintings!
• artwork by men is traditionally ALWAYS valued higher than artwork by women in the marketplace. 
• This is an extract from an NYT article from 2005 which provides a very neat synopsis of the issue and the problem. 

Take two contemporary artists, Damien Hirst and Rachel Whiteread, who both came to prominence in the 1990's as so-called Y.B.A.'s: Young British Artists. Both have won the Tate museum's Turner Prize: Ms. Whiteread in 1993 and Mr. Hirst in 1995. And both have made their way into high-profile collections. Next week Christie's is offering an important early sculpture by Ms. Whiteread, a fiberglass and rubber cast of two mattresses from 1991, which has been on extended loan to the Irish Museum of Modern Art in Dublin. Christie's suggests a value of $400,000 to $600,000. Meanwhile, Mr. Hirst's most famous early sculpture, a tiger shark suspended in a glass tank of formaldehyde, from 1992, sold in January for $13.3million.

According to conventional wisdom, the value of an artist's work increases when she has shows in prestigious museums. But as Mark Fletcher, a private art adviser who has dealt in work by both artists, said, "Whiteread has an extraordinary, esteemed museum exhibition and patronage history, but it's Hirst, which has little such institutional support, which does extremely well in the marketplace."
The X Factor: Is the Art Market Rational or Biased? | Greg Allen | New York Times May 1, 2005

• However, if you appeal to a niche market for specialist artwork, it seems to me that the gender differences very often become minimised e.g. the avid collectors of paintings of birds are much more interested in the species portrayed and the quality of the painting than the gender of the artist.
• the value of artwork in the secondary market is often determined by "art advisers" 
• Demand in the market at the high end is for quality and provenance
• However, art advisers often don't actually "know" the value of artwork in an objective and validated way - just that they are believed to "know more" than the knowledge of the collector. 

Buyers in other investment markets would not approach any major purchase without a team of highly vetted and professional advisors. In the art market, however, it has been common for buyers to rely on reputation, personal judgement and opinion. Even in areas where forensics, science, legal and other due diligence are available, collectors have often deferred to promises and the opinions of advisors.  Plotting the art market: An interview with Clare McAndrew

• The implication is that in order to increase your perceived worth in the secondary marketplace you need to have the backing of those with some sort of standing.

resale prices matter to collectors, as auction sellers are not inclined to sell if they are likely to make a loss. This supports the theory that there is much more to collecting art than following the simple conventional rhetoric of “just buying what you like and selling what you don’t”.  Deloitte Art and Finance Report 2016

• Prices in a capital city are often perceived to be higher than those in the provinces - however, an artist needs to sell at the same price everywhere. 
• It's so easy these days to check out what an artist sells his or her artwork for via their website or other galleries
• Why would an art collector pay a premium for buying in (say) London when they could buy directly from the artist or their galleries in the provinces?

TIP: Artists should aim to monitor and manage the influence on the perception of the value of their artwork.  An artist can:

• look for means to lever changes in the perception of the value of their artwork and their reputation as an artist. 
• keep a close eye on the value of their artwork in the secondary market - whether that is via eBay or Christies!

Bottom line

The value of paintings is determined by whether or not they sell. In other words, the price is the sale price, not the asking price.

For all the experts and connoisseurs and scholars and analysts, when it comes right down to it, the price of a work of art is based on what buyer and seller agree it's worth, and that's all.

The X Factor: Is the Art Market Rational or Biased? | Greg Allen | New York Times May 1, 2005

For information 

I collate all information about pricing art in section on How to Price your art on my website. This includes:

• How important is price when buying art? - Find out how important prices is to those buying art
• Options for pricing art - How to avoid pricing art disasters + Check out different approaches to "how to price art"
• Terminology and formulas for pricing art - Learn the words used when pricing art. Review what influences different ways of pricing art
• Art experts on pricing art - Find out what art experts recommend as the best ways to price art
• How artists price their art - Find out how other artists price their art - and which are the most popular
• What's the price of affordable art? - find out why people attach importance to numbers + what are the big price hurdles and how they can vary between countries

Below are some links to articles / reports about the price of art:

• On Experts - Priceless - How art became commerce | Rachel Cohen | | New Yorker 
• On Perceived Value: The affordable-art paradox: Do reasonable prices make pieces of art less desirable? | Noah Charney | Salon
• On Art Markets and Collectors 
• Deloitte Art and Finance Report 2016
• The X Factor: Is the Art Market Rational or Biased? | Greg Allen | New York Times May 1, 2005
• Plotting the art market: An interview with Clare McAndrew | Clare McAndrew,
• Suhail Malik,
• Gerald Nestler | 
• Finance and Society, 2016, 2(2): 151-67.