Buying Art from Afar: 10 Ways to Improve the Risk
At first glance, news about the art market appears ominous: fairs have been canceled, auction houses have cut salaries, and closed borders have reduced trade. But dramatic headlines don’t paint the whole picture: auction houses have pivoted to selling online, dealers and fairs have created virtual galleries, and online selling venues have witnessed an uptick in traffic.
While there is much speculation about the current state of the art market, data points are scarce. What is clear is that there is an abundance of opportunities for collectors to make acquisitions, and anecdotal evidence suggests that they remain hungry for new property.
Technology has made couch-surfing for art, antiques, jewelry, wine, and even collector cars, easier than ever, but purchasing from a distance comes with a distinct set of challenges. When objects cannot be viewed in-person, determining condition is difficult, and making a purchase over the internet may elevate the likelihood of fraud. Matters are complicated further if art handlers and shippers are not readily available to make post-purchase deliveries.
Whether your clients are making their first online auction purchase or contemplating a major acquisition through a dealer, adhering to the following advice will go a long way in helping them to avoid common pitfalls. Share these tips as you confer with them:
1) Auctions
The level of expertise varies between auction houses, as does what they warrant, and auction consolidation services include offerings from sellers with a range of professionalism. As such, check an auction house’s reputation from a trusted third party before transacting.
The formats of online auctions also vary. Some are live with an auctioneer; some are automated, allowing a collector to bid up to the closing time; and others are hybrids, beginning with a period of online bidding followed by a live component. Confirm the format before bidding to ensure that you will be actively participating through the duration of the auction. Most importantly, familiarize yourself with the auctioneer’s Conditions of Sale, which outlines their liability and indicates the buyer’s premium that will be added to the hammer price.
2) Dealers
Like auctioneers, the professionalism of various dealers runs the gamut. Perform due diligence relating to a prospective seller’s reputation and familiarize yourself with the return policy. Respected dealers have reputations to uphold, so they may be more likely to guarantee an item, or take it back if it is not to your liking. Unlike auctions where the Conditions of Sale rule the transaction, so for high-valued items, consider having an attorney draw up a sale contract that protects your interests before buying from a dealer.
3) Expertise
Unless you are a connoisseur with confidence in the item you intend to purchase, it may be beneficial to consult with an independent advisor or appraiser who is a recognized authority that has studied the specific artists or objects in question. An advisor or appraiser can also help you collect the data points necessary to establish whether or not an asking price reflects the current marketplace.
4) Condition
It is crucial to request a detailed condition report from the seller, including images. The condition report provided by the seller may be sufficient, but for an added layer of due diligence, hire a conservator to prepare a condition report for you. Conservator-prepared condition reports can even be done remotely with images when viewing property directly is not possible.
5) Authenticity
When buying remotely it is possible to fall victim to an innocent misattribution, an unauthorized edition, or an outright fake. Unfortunately, certificates of authenticity are meaningless unless they are directly connected to the artist, and art insurance policies generally do not cover fraud. However, even though an appraisal is not a guarantee of authenticity, collectors who seek out the advice of an appraiser or art advisor in advance of a purchase can often identify an outright fake or forgery. In extreme situations, it is possible to hire an authenticator, but the process can be lengthy and expensive, especially when shipping options are limited.
6) Title
If time permits and the value warrants it, conduct a title search to help ensure that the property is free from encumbrances. This can be done independently or when purchasing title insurance. Although title insurance does not guarantee authenticity or attribution, think of title and authenticity as “first cousins”; when an insurer has guaranteed clear title, it can add to a collector’s comfort about authenticity.
7) Insurance
The best way to insure a work of art is with a specialized insurance policy that contains specific language covering art, often with no deductible and extending worldwide, including during transit. Once you’ve decided to make a purchase, check with your independent insurance advisor to confirm that your existing policy will automatically cover purchases as soon as the transaction is completed, or if additional limits are required.
8) Logistics
A work of art is at an elevated risk of being damaged when it is handled, so carefully consider what will happen to your item post-transaction. Before bidding at auction or purchasing from a dealer, obtain a shipping quote from a firm that specializes in moving valuables. If you cannot arrange collection of the item right away, inquire if the seller will extend free on-site storage. If your purchase must be collected after the transaction but cannot be delivered to your residence immediately, confirm that your shipper’s warehouse is both climate and humidity controlled, with appropriate burglary and fire alarm protections.
9) Payment
Protect your confidential financial information by using secure payment services or ask if your credit card company offers virtual card numbers for online transactions. Jordan Arnold, Chief Innovation Officer and founder of the Art Risk Advisory team at K2 Intelligence adds: “Use caution when wiring funds to entities with which you lack an existing, trusted relationship, and request verbal confirmation of payment instructions with the seller. Additionally, request documentation and identifiable information for the account you are sending payment to, such as an official invoice or statement of account, and ensure you are tendering payment to the source itself. After terms are agreed, nefarious actors may sometimes request for payment to be sent to a ‘shipping partner’ or other account. This type of behavior should raise red flags and trigger additional diligence before moving forward with the transaction.”
10) Delivery
Once the item is received at your residence, carefully check the condition of both the packaging and the piece itself. If there are any issues, take photographs and contact the seller for guidance. Valuable works of art should always be installed by professional art handlers to avoid accidental damage and hardware failure.
The art market had already been leveraging technological advancements for the past decade, but we’ve witnessed an accelerated move to online platforms over the last three months. As collectors grow more comfortable with this medium, we expect to see the “virtual collecting” trend continuing. Staying abreast of the risk considerations will help you effectively and comfortably nurture your clients’ pursuit of passion investments.
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Rand Silver, Global Director, Art Collection Management, AIG Private Client Group
Rand oversees all aspects of risk management for AIG’s insurance portfolio of art, jewelry, and wine. Working with a team of seasoned professionals, he provides collections related loss prevention services to policyholders, ensures that high-valued claims are handled seamlessly, and implements disaster mitigation and response initiatives.
David Sleeman, Executive Director, Winston Art Group, Inc.
David leads the Business Development initiatives of Winston Art Group in the United States and Europe. In that role, he and his colleagues work closely with collectors across all categories in building and managing their collections. This includes working closely with his clients’ trusted advisors in Risk Management, Asset Management, Estate and Tax Planning.