Off the Cuff: The Virtual Art Market

Charles Shepard, President & CEO

These days, we are all working from home and have turned to phone conferences and Zoom meetings to do just about everything. One major part of my job – buying art for the museum’s collection – became an online exercise about a decade ago, so I have proceeded with that in a pretty normal fashion. Online auctions dedicated to fine art began as early as the emergence of the eBay marketplace but, in the beginning, few people trusted them. It’s one thing to buy a $50 Star Wars figurine online, but quite another to bid $1,000 or more on a supposedly authentic work of art by a “name” artist.  Fortunately, as auctions realized the growing economic power of e-commerce, they developed better ways to assure buyers about authenticity and quality; and, they tightened up their vetting process to ensure that suspicious or lesser quality objects would have to find another way to enter the market. By 2006, respected art auction houses from all over the country featured an online bidding option in addition to their live or phone-in options and, for the Fort Wayne Museum of Art, that was a game changer. I didn’t have to travel anywhere further than my keyboard to search for wonderful works of art and to place our bids. Institutionally, we had another advantage over other bidders: from my years as a professor of art history, I had an understanding of the artists who were under-appreciated after their passing and thus often under-valued. My tactic has long been to seek out great works of art by artists the world has forgotten.

There is something that’s important to understand about the art auction business: it is the dominant player in what is known as the “secondary market”. In the art world, the artists who make the work generally rely on art dealers, who operate out of galleries, to market the work. The art dealer selects artists to promote and holds exhibitions and events that introduces their work to, hopefully, build up an audience of collectors for them. The art dealer sets the prices for the artists’ work and establishes the primary (or first) market for these artworks.  As the artists’ sales and reputations grow, their prices increase and values are established. To protect those gradually growing prices and values, many high-end art dealers will offer to buy back an artwork from a collector if his or her interests or tastes change; this, more or less, guarantees the valuation of the work of the given artist.

So, if that’s how the primary market works, and it is, for the most part, guaranteed stable, how did a secondary market emerge?  Several things contributed to this development, the first being the emergence of a class of buyers after WWII who were simply furnishing their home rather than making an investment in solid blue-chip art that would predictably hold or increase in value.  Because there were suddenly more buyers, a legion of smaller galleries popped up to service the demand. This coincided perfectly with an exponential increase in newly minted artists who had just graduated with art degrees received through the financial assistance of the GI Bill.  In one sense, it was a wonderful and dynamic time in the art world because wave after wave of new artists found a seemingly endless supply of new art buyers who were being supplied through a sea of new art dealers. Organically, this great growth took the shape of a multi-layered system in the art world with Old Master galleries at the peak, Modern Masters below that, and a series of other layers under that which specialized in artists at various stages of development, popularity, and pricing. This, then, is the very fertile garden in which the seeds were sown for the secondary market.

It started with an increasing amount of non-investment grade art and an equally increasing amount of buyers for that category of art. I don’t mean to imply that this art wasn’t aesthetically sound. Most of it was and still is. It’s more that it never received the sufficient support of serious collectors, high-end galleries, or museums to ever make it into the realm of the blue-chip, investment grade art. Many good and extremely good artists accepted this because it allowed them to make a living doing what they loved. Wonderful! But the result, ultimately, is less wonderful.  It starts with something as simple as someone moving to a different house. My parents, for example, decided to move to Florida, and my mother observed that none of the artwork (or furniture) in their Maine home looked good in their new Florida home. They were both so excited about decorating this new condo that they just arranged a yard sale for all their “old stuff”, and let it go for pennies on the dollar.  Several paintings, previously valued at over $1,000, went for $40 or $50 bucks. Now, because nobody from outside the neighborhood came to the sale, those low prices had essentially no effect on the artists’ market. But, if they had given their art to a public auctioneer and the low price was somehow publicly recorded, the impact on the artists’ market value might have proved more serious.

A great example of what I’m describing is found in the late career of one of Maine’s finest modern artists, Vincent Hartgen.  Vincent was the founder of the University of Maine’s School of Art and a charismatic public figure. His New York gallery sold his paintings for between $1,500 and $5,000 steadily to prominent Maine and other East Coast families. But many of his Maine collectors died or moved south at the peak of Vincent’s success, and his work routinely appeared in yard sales and auctions. Anyone who liked his work could be sure that at least five or six times a year, they would have an opportunity to buy a Hartgen painting for about $100. Basically, that completely destroyed the primary market of Vincent’s work. In retirement, he could never get over or even really comprehend what had happened.

Estate sales, yard sales, and auction sales are almost always going to undercut an artist’s primary market. People who acquire art, whether they are serious collectors or simply folks that like beautiful things, do a tremendous favor for the artists they admire and acquire by keeping their art off the secondary market. As things may change in one’s life, reach out to the dealer who sold the work to you to see if he or she would be willing to resell for you for market value. Or, possibly, reach out to your favorite museum and offer the work as a gift.  In that transaction, the IRS will accept an appraisal for the object’s full, current retail value.  It’s a true win-win situation: your museum gets a wonderful gift, you get a fair value deduction, and the artist is able to preserve the primary market value of their work and protect their ability to earn a good living.

That said, I should confess that most of our greatest acquisitions in recent years are the direct result of people rushing to the secondary auction market to unload works of art for basically anything they can get. Thanks to this tendency, we have acquired probably $1 million in art for only $250,000 because we study the market and are strategic shoppers. That continually puts our museum ahead of the collecting curve and registers us in the frontline of all our colleagues.