What Creates an Artist’s Resale Market
THE NEWS IS LITTERED WITH HEADLINES ANNOUNCING MASSIVE RETURNS ON CONTEMPORARY ART.
The news is littered with headlines announcing massive returns on contemporary art. Take, for instance, Jean-Michel Basquiat’s Warrior (1982), which was sold three times in seven years, its price climbing 450 percent to $9 million between 2005 and 2012. Or consider collector François Pinault’s coup at Christie’s last year when an Adrian Ghenie painting he bought in 2008—just as the Romanian artist’s career was starting to heat up—sold for $9 million, over $8 million more than its estimate.
Pinault, a billionaire French businessman (and Christie’s owner), probably didn’t need that kind of pocket change. But maybe it got you thinking you might try your hand at buying and selling art, too. If you were planning on paying off your student loans by buying the latest work from an emerging artist and selling it for multiples of the purchase price, prepare to be disappointed. That’s because secondary markets for artists, especially living ones, only develop under very specific circumstances.
Driven largely by auction houses and private sales, the secondary market involves any work being resold after having been purchased directly from a gallery or artist’s studio (what is known as the primary market). While there are no precise estimates, it likely constitutes at least half of the $56.6 billion global art market; public auction sales accounted for 43 percent of that total, according to Art Basel and UBS’s The Art Market | 2017 report, and private sales through dealers (and, increasingly, brokered by auction houses) a good deal more.
For deceased and highly recognized artists whose supply is (obviously) limited, works trade exclusively on the secondary market and often at ever-escalating prices. But how does a young or living artist, still producing work, achieve a robust secondary market? How does she even get one at all?
The most direct route to a secondary market is through visibility and exposure, said industry experts. Generating that exposure is the work of dealers, who act as agents to get their artists’ work in front of the right eyes. According to Tamsen Greene, senior director of Jack Shainman Gallery, the more people who see an emerging artist’s work, the more their overall market expands. A secondary market is often the product of primary market labor.
Exposure through art fairs and gallery shows is key, but the best way to boost an artist’s career is inclusion in a museum exhibition, said Greene.
“When a work makes it into an institution, it’s on view to the public for months, and specialized scholarship and educational programming develops around the work,” she said. “This kind of discourse is the mechanism that allows an artist to have a lot of impact.” That can lead to higher sale prices if an artist’s work eventually hits the secondary market.
Rebekah Bowling, head of Phillips’s New Now Sale, agreed that a driving force behind a contemporary artist’s sudden arrival—or higher fetching price—on the auction block is the added street cred of a museum exhibition. “I wouldn’t take something purchased within the last year or two unless I knew there was an intense demand, something spurred by their inclusion in the Whitney Biennial or the like,” she said.
Bowling noted that there are certain exceptions. For example, if an artist has recently sold out a gallery show, she will keep that in mind when pricing that artist’s work at an upcoming auction. “In this particular sale, the work could demand more of a premium,” she said.
In other words, another major facet of an artist’s secondary market comes down to the simple laws of supply and demand. If an artist’s work is scarce on the primary market—for example, Los Angeles-based painter Mark Grotjahn is known to keep his annual production limited to ensure the market isn’t flooded with his work—then avid collectors and auction houses will seek it out from people who already own it.
It often takes time for a secondary market to develop. In some cases, early institutional recognition can lead to a slow buildup for a market, as is the case with artist Michelle Grabner’s work. It has only appeared at auction in the last year, but she nonetheless credits her inclusion in the Milwaukee Art Museum’s 1995 show “25 Americans: Painting in the 90s” for her commercial success over the last 20 years.
Her inclusion in that decades-old group show in Milwaukee “laid the groundwork for my whole career,” she said. “Chicago’s Ten in One Gallery picked me up, giving me a commercial footing by offering me solo exhibitions and taking my work to other places,” which, ultimately, eventually led to her work finding a market at auction. Her paintings appeared in Phillips’s 2017 New Now and Bonham’s spring Modern House sales; both lots sold for over their estimate.
She was also asked to be a graduate advisor at the School of the Art Institute of Chicago, on the basis of that show, where she sees her current and former students struggle to maintain demand for their work, even if they achieve some success right out of the art school gate.
“Let’s face it, the market needs influxes of the young and the new,” she said. But artists who achieve commercial success early on can’t necessarily sustain it over a lifetime, especially if they tailor their work to a time-specific market trend.
But secondary markets can go a long way towards supporting artists’ primary markets, by encouraging more trading and resale of artists’ work, said Canice Prendergast, an economist at the University of Chicago’s Booth School of Business and author of “The Market for Contemporary Art.” Consider other industries, such as cars or homes, where consumers feel comfortable plunking down large sums because they know their purchase has resale value (and in the case of real estate, a potential upside). Now think about art: not so much.
“If you buy a work of art and you end up not liking or needing it anymore, it’s difficult to get your money back on it. So basically, you have to be willing to spend several thousand dollars on something that—if it doesn’t work out—you, for all intents and purposes, are throwing it in the trash,” said Prendergast. This dynamic keeps potential buyers out of the market, making art collecting a hobby largely of the very rich.
Galleries often like to talk about finding “forever homes” for their artists’ work, and reselling is often cast as “flipping,” the practice of buying work —often from emerging artists on the cusp of major turning points in their career—and selling it quickly for a profit. The practice is said to destabilize healthy market prices for an artist’s work and bump them to a disproportionate level that may not be tenable over the long run.
This is often seen as bad practice, but as Prendergast wonders, “The question is bad for whom?”
“Often collectors buy with an implicit promise that they won’t sell the work immediately because they’re getting some sort of deal from the gallery. But I think it’s difficult to argue that flipping is inherently bad if you’re buying a work at a price that’s considered markedly below what’s considered reasonable. That’s not how other markets work.”
Prendergast thinks there’s room for improvement in the secondary market that would allow not only more people to buy art, but also open up opportunities for artists to sell more work.
“If we can imagine a world where we can sell cars on Craigslist, there’s no particular conceptual reason that comes to my mind as to why we couldn’t come up with a better way to sell art,” he said.