At Meural, we're driven by art democratization and transparency—and so we've developed a series at the intersection of art and commerce. Each installment provides an objective, accessible debriefing of a financial aspect of the art industry. Read more about the series' objective and what's to come.

Courtesy of Generator Arts

by Elinor Case-Pethica

Over the past few decades, art has come to be viewed by much of the public in a new light: as objects with investment value, rather than purely aesthetic value. This is not to say that art has not always been a commodity—going back all the way back to the ancients there are clear signs of artworks being linked to wealth and status. However, the idea that art can be collected strategically for a profit, is relatively new. 

The shift in attitude may be linked to the spike in market activity between 2005 and 2007. Both auction prices and volume of artworks being purchased skyrocketed, and the potential to make money by “flipping” art became apparent. Flipping a work refers to the practice of buying on speculation, at a low price, and then swiftly re-selling the same piece for a profit. This practice is particularly effective and popular when dealing with emerging artists. Typically an artist’s early works will sell for relatively low prices, in the four to five figure range. Purchasing before an artist’s big break means that re-sale prices can be tens of times what the collector initially paid. Take, for example, a piece by artist-du-jour Oscar Murillo called Untitled (Drawings off the wall). It sold in 2011 for $7,000, but was flipped in 2013 for $401,000, more than fifty-seven times the original price.

Courtesy of ARTnews

This kind of extreme return is understandably attractive to buyers. Taking a gamble on emerging artists may not always pay off—but the price to play, so to speak, is relatively low considering how high the rewards can be. Recognizing this opportunity has led to a gold-rush on young artists, and increased awareness of art as a financial asset. This surge of interest in emerging art has made the venture of flipping the artworks more difficult. Young artists are able to sell a greater number of works for higher prices, flooding the market for emerging art, while the number of overnight successes stays relatively stable.

Courtesy of ARTnews

Art advisors often quote an average annual return of 10% on fine art sales, which is an impressive figure when compared to the US stock market, which has returned an average of 7% over the past 50 years. However, the figure of 10% is skewed high, overestimating return and underestimating risk. The skewing that occurs happens in a range of ways, in part because pieces that are successful “flips” are sold many many times for ever higher prices, while unsuccessful pieces disappear quietly. A more nuanced and attentive look at returns on art assets provides a figure closer to 6.5%.

Courtesy of Phillips

Art can be an extremely lucrative asset, but without a good and lucky eye or significant influence as a tastemaker and maverick, flipping art is very much a gamble. Well-established, mid-career artists who have proved their staying power and earned their price-point may be tentatively considered safe investments, as their prices are very unlikely to fall and tend to slowly and steadily climb. Purchasing artwork solely for financial gain is a risky strategy overall. In an industry based upon aesthetic pleasure and personal expression, a purely fiscal and analytical approach will rarely meet the mark.

Figures from Blouin Art Sales Index