Why is it important to know the value of my art collection?

Whether you are a seasoned art collector or read our post “A beginner’s guide to collecting art” a few days ago, you will have concluded that collecting art is a passion and fun! We acquire artworks because they enhance our lives. But art is an asset class and we should know the value of our art collection as part of sound financial management practices.

According to DollarSprout, art consistently delivers average returns of 7.6% per annum. At the same time, the 2019 Deloitte Art & Finance Report indicated that between 2016 and 2018, the African art market grew by 22% per annum. That means values are changing rapidly, and interest in African art is expanding, so let’s delve into why it is essential to know the value of your artworks.

Art IS an asset class

We often forget to think about the artworks we own as an asset. We simply love them, and that’s all well and good. Still, suppose we have been investing in collecting over some time. In that case, we will have purchased artworks whose value, individually or in aggregate, will hopefully have grown.

We regularly know the value of the shares in your stock portfolio; similarly, we should know the value of our art collection.

There are several avenues one can use to sell one’s artworks in the secondary market. Private sales through art dealers, auction houses, or the numerous digital marketplaces that have emerged mean that an artwork’s value can be realised. And ideally, that artwork will be sold at a higher price than the price at which it was bought. Artworks can be sold at a capital gain if the painting is desirable, had a famous (or notorious) previous owner, or simply by a renowned artist.

Know the value of your art collection for your insurance

Having an inventory and pictures of your art collection is essential. Ensuring that you have the correct values for the artworks is also critical. In the event of a fire or theft, you don’t want to be paid outdated amounts to find replacement artworks. We insure our household property and contents, such as televisions, clothing and other valuables. And we should be ensuring we do the same for the contents of our art collection.

Most standard insurance contracts are worded such that if you’ve only recorded your artworks at the amount you purchased the paintings, but the value has increased since you bought them, you are at risk of being underinsured. Being underinsured can occur when the insurer concludes that the chance of a risk event was not completely assessed because the contents were undervalued. This could mean that you might not get paid out the entire sum insured in the event of a claim.

Collection reports like those provided by collection management services like Capital Art make it easier to submit an inventory for addition to your household contents insurance policy.

Specialist art insurance can also be helpful; you can specify the value you want insurance cover for rather than the replacement value, given that art piece values can vary quite a lot from year to year.

Know the value of your art collection for sound financial planning

Many people think estate planning is only for septuagenarians, but you can never be too young to start estate planning. The start of any estate plan is knowing what your balance sheet looks like, in other words, the value of your assets and liabilities. Assets like the cash in your bank accounts and the value of listed equities are often easily obtainable from your financial services providers. Assets like property are often on one’s personal balance sheet, just at cost. And assets like art are often forgotten about altogether.

Understanding the various asset classes your assets are invested in helps you to assess whether you are well-diversified across asset classes or not, as well.

Art values are quite volatile over time. This means that art can become a significant part of one’s assets, like many collectables. Remember the bowl bought for US$35 at a yard sale which went on to fetch over US$700,000 at an auction? So understanding its value and how it changes over time is vital to ensure one’s assets are correctly valued. This is also important for those who take out life insurance to use in their estate planning strategy. Providing updated values to your financial planner is critical.

Knowing the value of your art collection ensures that whoever inherits your assets will understand their value and won’t simply think they are trash when they should maybe be in a museum or simply be kept for future generations.

How often should you value your art collection?

Financial planners recommend an annual review of one’s financial plan. So ensuring that your artwork is valued frequently, ideally once a year, would fit in with that timeline.

Services like Capital Art enable art collectors to ensure that they know the value of their art collection and preserve that value through collection management. In addition, Capital Art allows the collector to either get a once-off valuation through the Report-Only package as needed or get a quarterly report for paid subscriptions for the service.

We hope this article has highlighted that valuing your art collection is an integral part of the regular management of your art collection. Many people think it is only relevant to know the value of their art collection when they’re thinking of selling any items in it. Consistent price tracking is invaluable, especially when collecting art for long term value.