UK Trends and Developments Contributed by: Julia Bell, Parapluie
Liquidity is also uneven. While certain categories of art may enjoy active UK or international trading, other segments are dependent on a small pool of potential buyers. In such cases, the theoretical market value of a work may bear little resemblance to what could realistically be achieved within a particular timeframe when you consider factors such as an orderly liquida - tion, or a forced liquidation (distressed sale). Blockage, a term used to describe artwork by a par - ticular artist flooding into the market, can decrease value considerably. This also must be considered within the wider UK and global context of economic or political forces – inflation, recession, political forc - es, taxes, sanctions and luxury goods bans – and the impact they can have on valuations. From a legal perspective, reliance on a “recent auction price” or “last sale value” is rarely sufficient in isola - tion. Market volatility, changing scholarship and shifts in collector demand can materially affect value over relatively short periods. In estates and family disputes, these dynamics are often compounded by emotional attachment, beneficiary expectations and tax or set - tlement obligations. The definition of fair market value can be at odds with familial and timeline pressures in estate and family affairs. Additionally, fractional ownership, often common in estate settlements where chattels have been left collectively to beneficiaries, values assigned to any individual fractional ownership needs to be seriously considered. The value of the whole property may be more or less than the sum of the fractional values of its components. As such, it is never as simple as dividing the value equally. A fifth of a painting cannot hold the same value if that value is dependent on the other four beneficiaries selling to realise value, and appraisers must adjust valuations accordingly. From appraisal to evidence: What UK decision- makers expect In the UK, art valuation may be scrutinised by courts, arbitral tribunals, or HMRC, each of which brings distinct but overlapping expectations. The “Intended Use” framework is of great importance for apprais - ers as one value cannot be applicable to all intended uses:
• Sale or donation would require the determination of fair market value via sales comparisons. • Insurance cover or claim would require the deter - mination of replacement cost new/comparable or repair, using the cost approach to determine replacement value. • Financial planning would require the calculation of present worth using the income approach to deter - mine present worth. While procedural methodolo - gies differ in the approach and scope of work, a consistent principle applies, valuation evidence must be reasoned, transparent, and capable of explanation under challenge. Recently, a tender was circulated for the appraisal of a large, public, UK collection. It was evident from the brief that there is misunderstanding in the UK regard - ing how value is assigned. Upon clarification, there were two intended uses: • to have a clear understanding of the collection’s value for insurance purposes; and • to update the balance sheet of assets as demand - ed by the auditors. One valuation cannot cover both. A valuation for insur - ance purposes demands establishing the replace - ment cost (new or comparable) of the items being appraised. A valuation for auditors requires a deter - mination of value via sales comparisons within the market. Two approaches would be required to meet the rigorous demands of all parties. One approach would not fully satisfy either. Another example is valuation required for an earnings forecast – an estimate of future monetary returns expected to result from ownership of a property. Recently, a commercial gallery wanted to establish the value of their print edition collection based on its future income generation from edition sales as part of a process to determine the business’s value. Complex calculations are required to arrive at a figure that could be rigorously defended in court or provided to audi - tors looking to value a business for sale. There is a key point to note regarding informal apprais - als – often prepared for insurance, internal planning, or collection management. While they may have purpose
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