Chapter 12 - Parting With Your Collection
Let's say your tastes have changed and you want to shift the direction of your collection. You have limited room in your home. You've bought for investment and the art market is favorable. Maybe you simply need the money. For whatever reason, you've decided it's time to part with your collection. How do you go about it?
There are several options when selling on the secondary market:
You could engage the services of a reputable dealer. Dealers generally take upwards of 20% of the selling price as a commission but they can advise you on the best price for the work and know the market. They may even have existing clients who would be interested in buying.
If you consign the work to an art gallery you can expect to pay anywhere from 30% to 50% of the selling price in commissions. Art galleries earn their commissions by providing wall space and sales staff. They may market the work to their existing client roster, but unless the piece/collection is exceptional, don't expect them to do much in the way of advertising. Most galleries have enough to handle in promoting their own stable of artists.
If you consign the work to a gallery insist on a written agreement. In addition to commissions, the agreement should specify if you will receive wall space and for how long. (You don't want the work to languish in the back room.) Also, describe the work's condition and what happens if any damage occurs, i.e., what if the frame gets dinged while in the gallery's possession? And how secure is the gallery? Who is responsible if there is a theft? Does the gallery have insurance?
It's a good idea to check out the staff. Would you buy art from them? Are they experienced, knowledgeable and qualified? Make sure the gallery is reputable and pays its bills.
Once you have an appraisal you can approach an auction house with the work you wish to sell. You should be as cautious of selling at auction as you would be at buying. The first thing you should do is put a "reserve" on the work. A reserve is the minimum amount you will accept for the art. When determining the reserve price, be sure to take the following into consideration: insurance, the cost of appearing in the auction catalog, and the auction house's commission. Auction house fees can be considerable, but are negotiable. If you are selling an entire collection as opposed to a piece or two, you can expect the fee to be less.
If the art doesn't meet its reserve price and is not sold, ownership will revert back to you. The work may bear the stigma of not having met its reserve, making it more difficult to sell later. Collectors will expect to pay less than the reserve price.
Auctions can be highly successful, but they are always a gamble.
You could advertise in arts magazines that have classifieds just for that purpose and you wouldn't have to pay anyone a commission. Your only cost would be for that of the advertisement. Bear in mind, magazines have lead times months in advance, so it is not a speedy alternative. If the ad comes out and you get little or no response, you've lost valuable time.
Ads in the classified sections of major metropolitan newspapers can appear a day or two after placement, but newspaper ads smack of desperation and will probably attract bargain hunters.
Many people shop for art on the internet, especially on eBay. You can post a picture of the work and a statement about it. Costs are minimal. Keep in mind, it is an auction site, so there is no guarantee what price the work will fetch. Always be sure to establish a "reserve."
If you have been collecting for a while and belong to a network of other collectors, you may know someone who would be interested in the work and amenable to a private sale, in which case the price would be open to negotiation.
If you're thinking that reselling art is not all that easy, you're right. However, there's another way to profitably dispose of your artwork, and that's by donating the art to a qualifying organization —thanks, IRS!
The U.S. government has established a tax loophole that actually encourages donations of art to museums and non-profits. The only requirement is that you hold onto the artwork for a year and a day, and that it be donated to a qualified entity. This little gem of an investment vehicle is based upon a widely used tax law that permits an art collector to purchase the art at a lower price, hold the art for an appropriate length of time, then donate it at the higher retail "fair market" value.
You can purchase a piece of art from a newly emerging artist, hold it for five or six years, then when that artist's retail prices have appreciated to much higher levels you can donate the artwork for the currently appraised retail value. You walk away with more in tax savings than you could probably derive from an outright sale.
Individuals, corporations and estates often use charitable donations of art as part of their tax planning. The main difference is the limitation on how much one can give. Individuals can deduct up to 50% of their adjusted gross income in the year of their donation, and may carry any excess forward or backward. Corporations, on the other hand, are limited to 10%, and estates have no limits at all. Of course, each situation is different, and the collector should consult his or her CPA or tax specialist.
Museums are able to develop and expand because of these gifts from collectors both large and small, and of art, both old and new.