How Are Artwork Appraisals, Valuations, and Estimates Different?

The art world can seem among the most jargon-dependent sectors to the newbie. Chatters across the fair aisles and gallery dinners might sound like a foreign language to most outsiders, while for the industry players, throwing in an expression like “blue-chip” in a sentence is a part of the everyday affair.

Nowhere is this jargon more common than at auction. Nail-biter bids in which genteel sitters heatedly raise their paddles inside ornate auction rooms are among the market’s most common visual codes, partially owing to many films and TV shows. While the ritual of bidding and eventually acquiring an artwork is often misrepresented in the media, the real process of walking into an auction house with a work in hand or mind can also be a mystery.

Some common misconceptions about the industry stem from conflicting understandings of an estimate, an appraisal, and a valuation. These three terms, all related, are among the trickiest. Often conflated, and very often confused with one another, the nuances between these ubiquitous terms can play a big role in why many collectors feel intimidated. “While these terms are often colloquially used interchangeably, they do represent different functions,” said Meagan Kelly Horsman, managing director at Christie’s in the Middle East.

Here, we break down the differences between the three terms and the intricacies of consigning and acquiring with an auction house.

What is an artwork appraisal?

Simply put, an appraisal is a professional assessment of an artwork’s value that results in a formal document . These take into account a number of factors including the work’s history, rarity, significance, and so on.

Angelo Madrigale, senior specialist in fine art at auction house Doyle’s, underlines that appraisals can be undertaken for several reasons. He lists examples including auctions, insurance, or donations.

“There are different approaches for different needs, such as date of death in case of an estate appraisal, which are necessitated by the Internal Revenue Service,” he said. “When a client approaches with an appraisal request, I make sure to explain the steps and make sure what they will obtain on the final document so they avoid unnecessary steps.”

Given the common usage of the word “appraisal” as an umbrella term, it is not unusual for a client to be unaware of the process of a comprehensive evaluation. In most cases, they simply seek a rough estimate for a work they have recently inherited or decided to consign (entrust their items for sale) years after acquiring.

Reputable auction houses have extensive knowledge of time periods and context, giving them the ability to offer appraisals on a plethora of materials. Recent sales at Doyle’s, for example, have ranged from a bronze Jim Dine sculpture to MAD magazine cartoonist Al Jaffee’s ephemera, each necessitating different evaluation standards. “In appraising contemporary art, you will rarely hear opposing opinions because of the easier access to data,” he said. “Unlike a classical painting with potential attributions and manners, a Warhol is either a Warhol or not.”

The New York–based advisory EAB Fine Art Services’s founder and principal Erica Barrish notes that an appraiser “must stand behind their methodology and be able to back up with documentation on comparable artworks.” She added: “There should be an explanation for why a work costs, say, $2 million, and break down the factors such as scarcity, quality, condition, and history.”

A common misunderstanding, according to Horsman, is the confusion between market appraisals for auction and one for insurance, which tend to be higher than the former. “They are designed to cover the full cost of an artwork’s replacement, including taxes, shipping, and premium to fund a replacement on the market,” she noted.

Many appraisals at auction houses require a contract to be signed to be clear on its purpose. “If there is an obviously missing or conflicting element, we stop the process and tell the client the work may not be made by who they believe is the artist,” said Mari-Claudia Jiménez, chairman and president of Americas and head of global business development at Sotheby’s.

The bumpy road of appraising or giving an estimate on contemporary art often yields unexpected steps to solve. Among the offerings of Phillips’s fall 2024 contemporary art sales, for example, is a version of Jeff Koons’s Two Ball Total Equilibrium Tank (Spalding Dr. J Silver Series) (1985). The work features two floating basketballs balanced inside a glass vitrine, which demanded the search for the best conserver to acquire the liquid solution. “We eventually found a place in Chelsea known for their formula,” explains Rachel Atkinson Marrin, director of professional and advisor services at Phillips, who adds that “such maintenance issues and future costs affect the valuation of a work that is different than a painting on your wall.”

Madrigale considers the popular media depictions in TV shows as both a blessing and a curse for the appraisal field. While these programs have taught the average viewer to pay attention to the potential value of their heirlooms, these productions can also seed unrealistic expectations from the process. “Clients expect a similar speed and ease during an appraisal, but they forget that a broadcast is heavily edited for time and drama,” he added.

What is an artwork valuation?

Valuations are very similar to appraisals. Sotheby’s, for example, has a Valuations Department instead of a more common Appraisal Department. Atkinson notes that her British colleagues more commonly use the word “valuation,” while in the American market, “appraisal” is the popular term.

It’s for that reason that auction houses will sometimes use the two terms interchangeably. “Let me clarify that appraisal and valuation are the same thing,” said Sotheby’s Jiménez. “We call our appraisal department the valuation department, where we provide appraisals of objects.”

Where valuations can differ is in their purpose and formality. While an appraisal is a formal process that results in a certificate or judgment and can be legally binding, valuations are more akin to approximations, which can be based on opinions from multiple sources and are not legally binding.

Atkinson underlines that, while terms and conditions of valuations can differ, the opposite is true for appraisals, which are bound as formal judgments. The role of the appraiser has had to evolve significantly in recent times. “The profile of a contemporary art appraiser has been changing for the last decade—they need to be more and more willing to scour the earth for the relevant marketplace comparable figures and explain these to their client,” she said.

What is an artwork estimate?

An estimate is a figure provided by an auction house, which predicts the value of an artwork. The figure is normally presented as a range, for example, $1.1 million–$1.3 million. Appraisals are used to calculate auction estimates, but that’s not the whole story.

Estimates can often be seen as a “sales strategy to get buyers excited or encouraged,” noted Barrish. She commonly finds herself explaining to her clients the reasons behind the difference between an auction estimate and retail replacement value, which determines the fair value of replacing an artwork that is lost, stolen, or damaged in an accident.

“For a young, new artist that may have an auction estimated for around $10,000–$15,000, the work may have a retail replacement value around $100,000,” she said. “The higher valuation is often based on the retail price and thus the valuation is to ensure coverage in the event of an accident, such as fire.”

The “psychology” behind determining an estimate, however, differs according to Madrigale, who added: “We have to think about the end user perceiving the object’s value and the number that they would feel comfortable bidding on.”

After her auction house’s two decades in the region, Horsman noted that estimates can still provoke confusion among newer collectors. “It can be daunting for new clients,” she explained. “Many of my conversations revolve around explaining the psyche of auction valuation compared to primary market [works being sold for the first time] pricing, especially with those new to selling.”

Bonus tip: The importance of the appraiser