With big tag-lines showing crazy records on art sales, it seems like everyone should just invest in art. But, although some art investors manage to get high returns on their purchases, investing in art is, in fact, a high-risk endeavor. Art investments carry a wide range of risks and expenses that many people aren’t aware of when entering the market. In this blog post, we’ll show you a few things you need to be aware of, to ensure a return on your art investment.
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The art market is a fickle one. It’s marked with different cycles and trends that are often difficult to predict. Artists who are in high demand at the moment can lose their appeal rapidly, and the value of their work can quickly plummet. Even prominent artists experience great shifts in value over time. For example, Damien Hirst’s body of work has experienced a significant drop in value between the years of 2008 and 2018. To minimize the risks, make sure to do some research about the art market or hire an art advisor. But keep in mind that nobody is all-knowing and that every purchase carries risks that cannot be predicted.
Fine Art Storage
Waiting for the price of art to rise can take years, even decades. In the meantime, you’ll need to store your artworks in a safe place and make sure that their condition remains intact. Humidity, sunlight, dust, heat, cold are just some of the environmental factors that can damage the artwork and reduce its value.
That’s why many collectors choose to keep their valuable art in freeports, and other specialized storage facilities where they will be kept in perfect conditions. However, these facilities can charge a hefty sum for keeping your artworks safe and sound. Many collectors pay over $1,000 every month to keep their art in professional storage with climate controlled interiors.
In the meantime, there’s absolutely no way to earn money from your art. Unlike stocks and shares, that can get you a regular income, there’s no dividend on the work of art. Selling the artwork is the only way you can get your money back and make a profit from your investment. If the artwork doesn’t sell or if it sells for the price lower than it’s purchased for, you will suffer a financial loss.
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Just because your art is kept in specialized storage, doesn't mean that it’s completely safe from damage, accidents and theft. That’s why insuring your investment is a must. The price of art insurance depends on many factors - the type of art, the price of art, the size of the collection, the type of storage facility where it’s kept... In average, the insurance costs about $1 per $1,000 of covered value. That means that you will have to pay an annual insurance rate of $100 for a $100,000 worth art collection.
If you ever decide to move your art from let’s say storage to your home, you’ll have to set aside some money for that as well. The price of shipping depends on the size and weight of artwork, and the shipping distance. It can range between $1.25 and $4 per $100 value. Shipping insurance is usually added to the cost. It’s important to mention that unusually large, heavy or bulky objects have higher shipping costs as they demand special care.
The costs of conservations are also something to think about. Conservators can charge a few hundred dollars for consultations only. The other expenses depend on the type of service and materials used. Thus, cleaning the oil painting can cost between $100 and $250 an hour, while restoring damage on a larger painting can easily cost around $15,000.
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When the time comes to sell the artworks and finally make a profit, a collector is faced with a whole new set of expenses. Art is not easy to sell. It takes time to find the best channel and moment for selling it. Selling art through a gallery can take years, as the dealer tries to find the right buyer for the artwork. The costs of promoting the artwork will be covered from the dealer’s commission that ranges between 20% and 30% of the sales price, but the seller might have to pay for the costs of restoring or reframing the artwork if necessary.
Selling art at an auction has its own set of expenses. In order to be included in the auction, the seller will have to pay a seller’s commission that usually makes up between 5% and 10% of the artwork’s value. Sometimes you’ll have to pay the commission even if your lot remains unsold.
You might also have to pay additional shipping fees for delivering the art to the auction, promotional fees, insurance fees, and other fees. Sometimes just photographing and adding the lot into an auction catalog can cost up to $500. When all these expenses are taken care of, there’s usually a very small profit margin for the consignor, even if the hammer price seems high.
And if the artwork doesn’t sell, it gets even worse. Failure to sell a piece at the auction can permanently reduce its value, since now there is a public record of the lack of interest in the lot. According to an Oxford study, pieces that failed to sell at one auction, in the end, returned 30% less investment than their counterparts [acc. to JSTOR]
Making a fortune in art trade is harder than it seems. After commissions, storage, insurance and other costs, there's usually a very small profit margin on sold pieces. But when done right, art investments result in 10% to 15% profit over a 7 to 10-year period. Not to mention the pleasure of owning an original, unique financial asset.