Originally published in the Journal of Advanced Appraisal Studies - 2010

Price Anomalies by Todd W. Sigety, ISA CAPP

As a personal property appraiser, I have always been interested and intrigued by price anomalies in the fine and decorative arts. Specifically, auction occurrences hammering down realized prices far above the auction catalog pre-sale high estimates. These occurrences appear to happen with some frequency at the top end of many fine and decorative art sectors. With todays technology, such as websites, social media updates (Twitter, Facebook, LinkedIn etc), blogs, podcasts, posting of auction results, press releases and sales databases, the capability to track pre-auction estimates, sale/lot expectations, realized prices and value are now only a few mouse clicks away for the appraisal profession and collecting community. The information is easy to track and compile, while auction data is typically readily available and more transparent than private sales. Art's a store of value and a status symbol. Art and houses are inflation-proof assets you can enjoy on a daily basis. The client base for art is building worldwide, not least thanks to the internet which tells you immediately what's going on. Thirty years ago it took weeks or months of research to find out. Art's a lot more exciting than having your money in a bank or a company where you wonder if it will still be around in a month's time.1 An Anomaly An anomaly is usually defined as a deviation or departure from the normal or common order, form, or rule. A market anomaly can be defined as a price distortion within a financial or economic market. Price anomalies are sizeable sale differences realized between what an item is expected to sell for at a specific point in time versus the final sales results. This may include items selling for far more or far less than what is typically considered to be within a fair value range for the object. Theses anomalies are observable by reviewing databases of past auction property performance and pre-sale estimates and comparing the difference to the normal or pre-sale auction

range. A price anomaly is not a cataloging or identification error but a seismic shift in price over what was previously considered a fair value range by many experts, appraisers, auction house specialists and connoisseurs. As appraisers, we are taught to be skeptical and cautious when looking at auction pre-sale estimates, and with good cause. Auction houses have a tendency to adjust estimates to manipulate market interest. In manipulating pre-sale price estimates an auction house can increase or reduce sale interest while maximizing and refining expectations. By definition, a price anomaly goes beyond the normal range of expected or desired fluctuations and potential auction house manipulations. I am not referring to relatively small price fluctuations over a single standard deviation or two or a simple divergence from an expected value range based upon a few additional bid increments but fluctuations on a large and dynamic scale. Price anomalies are also not influenced over time where tastes, collecting habits and the economy might change and have an impact on value. These anomalies occur with no real substantive explanation for the sudden spike in price. For instance, what causes fine or decorative arts to sell at auction by millions or tens of millions of dollars and at multiples over legitimate pre-sale estimates? This phenomenon occurs with knowledgeable buyers and experienced collectors, all holding commonly known and referenced information. This includes connoisseurship for quality, scientific testing opportunities, quality/condition evaluations, provenance, and past sales results for similar items. As appraisers, we look to assign value to property based upon research of the pertinent market and comparable property. When price anomalies occur, it not only complicates proper appraisal development but might at times have a tendency to potentially obscure and add ambiguities to what represents true value. The appraiser, therefore, needs to know when to consider, properly identify and how or even if to effectively use the price anomaly when developing an appraisal value conclusion. As appraisers, how do we explain these price anomalies and how do we attempt to justify the differences in price, value, expected price estimates and consummated price? I will try to address these questions even though at times there are no conclusive answers. Before getting into the specific cases, a brief discussion of value and effects on value is necessary.
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Price and Cost Versus Value In developing ideas and concepts about price anomalies I would first like to emphasize the basic distinctions among price, cost and value. Websters Dictionary defines cost as the amount or equivalent paid for something. Price is defined by Websters as the amount of money given or set as compensation for the sale of a specified thing and the cost at which something is obtained. Websters states value as a fair return or equivalent in goods, services, or the monetary worth of something: marketable price and relative worth, utility, or importance: degree of excellence. Blacks Law Dictionary defines value as the significance, desirability, or utility of something. When comparing the definitions, price and cost are specific, while the characterization of value is cerebral, conceptual and dynamic. With multiple definitions of value, there is more of a philosophical tone, using interpretive expressions such as relative, desirability, degree of excellence, importance and fair return. Value as a concept is open to much more interpretation with subjective measures of latitude as opposed to the more limited and fixed definitions of price and cost. Moving from the more generic definitions into more appraisal specific definitions, the International Valuation Standards (IVS) committee defines price as the term used for the amount asked, offered or paid for a good or service.2 The IVS continues Cost is the price paid for goods or services or the amount required to create or produce the good or service. When that good or service has been completed, its cost is an historical fact. The price paid for a good or service becomes its cost to the buyer.3 The IVS defines value as an economic concept referring to the price most likely to be concluded by the buyers and sellers of a good or service that is available for purchase. Value is not a fact but an estimate of the likely price to be paid for goods and services at a given time in accordance with a particular definition of value. The economic concept of value reflects a markets view of the benefits that accrue to one who owns goods or receives the services as of the effective date of valuation.4

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The International Society of Appraisers (ISA) defines value as the monetary worth which an informed purchaser would offer in exchange for an item of personal property taking into consideration a given market condition (i.e. within a given market at a specific point in time).5 The ISA defines cost as the amount of money paid for an item. Cost may be equal to value but is not synonymous with value.6 From these appraisal related definitions, we can conclude the value of a product or item may reveal an owners desire to either retain or sell property and a buyers desire to obtain a product for a specific price, being fair within the marketplace or not. As appraisers, we need to keep in mind there is owner value as well as acceptable and different value points for the buyer. There is an equilibrium point between the two where the desire to sell meets the desire to buy. An individual's level of desire to retain or acquire a property depends on how much the product reinforces the value system of the individual. To an individual owner or buyer, property value not only includes price but a subjective dynamic associated with human nature and desire tendencies which are not always easily defined. An art or antique auction is typically based upon independent private value models (owner value), meaning the value of the object being offered at auction is different from bidder to bidder. The ISA defines owner value as the nonmonetary satisfaction the owner enjoys as a result of owning property. Owner value may be more than market value if the owner perceives it as such.7 In personal property appraising, there are many explanations which define and explain impacts on value. These include perceptions, internal considerations such as size, weight, age, etc. and external considerations such as the economy. Price anomalies that account for cost multiples and not basic, routine, or expected price shifts are typically associated with some form of value perception which impacts an individual buyers value system. In most cases the appraiser is interested in assigning a proper value or value range. For some wealthy collectors and well endowed institutions, the rationale of collecting is based solely on acquiring property and not necessarily in obtaining value or a perceived value in return. The following is a list

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of some of rationalizations which can positively or negatively impact value and account for some of the price anomalies we see. Conspicuous consumption - extravagant and ostentatious expenditure. Conspicuous consumption is meant not to satisfy any physical need, but rather to gratify the psychological craving for status or the esteem of others.8 Buyers market effect - Situation where goods are plentiful but demand is scarce, therefore buyers can dictate the prices to suit their estimate of value. Also called soft market. Opposite of sellers' market.9 Sellers market effect - Situation where demand is high but supply is low, therefore sellers can dictate prices to maximize their returns. Also called hard market. Opposite of buyers' market.10 Blockage effect is a discount applied to value to reflect the depressive effect on value caused by the sudden offering for sale of a large number of identical or very similar items at the same time.11 Bandwagon effect - also known as "cromo effect" and closely related to opportunism, is a phenomenon - observed primarily within the fields of microeconomics, political science and behaviorism - that people often do and believe things merely because many other people do and believe the same things. The effect is often called herd instinct. People tend to follow the crowd without examining the merits of a particular thing. The bandwagon effect is the reason for the bandwagon fallacy's success. In microeconomics, the bandwagon effect describes interactions of demand and preference. The bandwagon effect arises when people's preference for a commodity increases as the number of people buying it increases. This interaction potentially disturbs the normal results of the theory of supply and demand, which assumes that consumers make buying decisions solely based on price and their own personal preference. 12 Winners Curse Economists, operations researchers, sociologists, and others have studied the phenomenon, confirming its existence in numerous empirical studies. The amount of the winner's curse is
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the difference between the true value of the item being auctioned and the amount paid for it by the winning bidder.13 Snob effect - Situation where the demand for a product by a high income segment varies inversely with its demand by the lower income segment.14 The price of property set intentionally high so only a relatively small segment of purchasers can afford and giving the appearance of exclusivity, be it actual or not. Nostalgia - a wistful or excessively sentimental yearning for return to or of some past period or irrecoverable condition; also : something that evokes nostalgia.15 As adults grow older and have additional disposable income they become nostalgic for items from the past, and are typically willing to pay a premium in order to reestablish the connection with fond memories of the past. Veblen effect - Abnormal market behavior where consumers purchase the higher-priced goods whereas similar low-priced (but not identical) substitutes are available. It is caused either by the belief that higher price means higher quality, or by the desire for conspicuous consumption (to be seen as buying an expensive, prestige item).16 Social Effects Changing habits and lifestyles impact the value and desirability of products and property. Discretionary Income - The amount of an individual's income available for spending after the essentials have been taken care of. The quantity funds available to spend on non-necessary items needed to live. The greater degree of discretionary income an individual has and may be used to obtain property could alter acceptable value ranges thus causing pricing anomalies. A collector who is not a billionaire or have institutional backing would have more concerns in purchasing beyond an acceptable value range and beyond their means. Status the relative rank in a hierarchy of prestige. Marketing Opportunities Paying a record price for a work of art can bring additional attention, stature and value to a collection. For
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example, the private purchase by Ronald Lauder for his Neue Galerie in NY brought additional notoriety, fame and attendance to the museum and the collection. Same for the Picasso in which Steven Wynn put his elbow through, even with the damage, the notoriety may have actually increased the value. Market Trends Hedge Fund manager Mike Platt states 'Every market on this planet trends, 'by which Platt means that everyone starts buying the same thing and there are huge waves of popularity.' All markets do. It's the way human beings are programmed. These artists we're talking about are trending higher. Personally, I would never bet against anything that's trending.17 Market Manipulations Tight control on an artist inventory, such as Warhol creations, can cause artificially high prices and increase demand. It is said Albert Sack used to bid on his furniture sold from his gallery that appeared in auctions in order to maintain price levels. The art markets have a certain degree of efficiency, but there are sectors, and individual artist where the market can be manipulated. Efficient Markets In developing personal property appraisal theory, principles and methods, much has been taken from the practice of real estate, business psychology, economics, finance and investments. Blockage and blockage discounts are areas that have successfully crossed over from investment theory to appraisal methodology. For this discussion, I would like to introduce another well know financial principle to appraising. In the financial markets, there is the Efficient Markets Hypothesis (EMH), which in principle states that an efficient market is one where the market properly reflects all information that is publicly known about those securities. The EMH infers that investors cannot purchase over or undervalued securities as all information on price is already reflected in the current price. This may work in the aggregate sense of the market but is less applicable on an individual basis, such as paying a premium to take majority of control of a company where the perception of value may be greater. When using investment theories for financial return and when applying to appraising, be aware these
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concepts have detractors, contrarian views, non-applicable circumstances and change over time. Those individuals and institutions purchasing fine and decorative arts at the upper market levels of international auctions are typically assumed to have researched the market, past sales prices, provenance, condition of the piece, and so on. Buyers, including both high end collectors and dealers, have access to this information in addition to other expert opinions on multiple value ranges for the property available prior to sale/purchase. Perhaps one lacking factor is the unknown which is important. Will scholarship change? How rare and scarce is the property? Do other similar properties exist, will they become available, and is that number known and certain. This is perhaps easier to track in the fine arts although it is less so with the decorative arts such as furniture. Much information is readily available and, with diligent research, a reasonable value range can be determined. In effect, this is what we do as appraisers. If EMH can even partially be applied to the personal property markets, then there should be fewer or at least a reduced number of large price fluctuations and price anomalies. I would speculate that that is the general rule. It may be statistically sound based on the large number of auction sales falling within the price estimates and a normal standard deviation compared to those selling at multiples above the estimates or outliers at the top and bottoms end of the ranges. Empirically, I would think

auction results and pre-sale estimates fall under a normal distribution of a bell curve. Yet, as we know as appraisers and in the social sciences, rules are meant to be broken. In many instances, they are done so on a regular basis. Perhaps EMH is applicable to appraising when markets are functioning
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within the normal value range and at the macro-economic level. EMH does not take into account how each individuals own acceptable value range is established and reinforced or how human nature, desire, collecting and money may motivate a potential buyer or groups of interested buyers. I believe EMH is applicable in an overall conceptual nature working within the pricing structure but it does not filter down to the individual or microeconomic level of purchasing behavior of the fine and decorative arts. Buy and Hold The purchase of high quality fine and decorative arts by collectors and investors as a long term investment strategy and as an asset safe haven for monetary speculation during difficult economic times is a typical practice. Many wealthy investors/collectors are more than willing to pay a premium for the right property, at times approaching and reaching an anomalous price. We are seeing this effect in the fine and decorative art market today. Upper market fine and decorative art investors are purchasing rare and high quality property at the top sectors of the marketplace, paying premiums for portfolio diversity, safety and protection against inflation. An article written on the expectations of the 2010 art market in the Art Newspaper stated it is interesting to note that the upheaval in global financial markets has reinforced the long-standing preference of Indian, Chinese and Middle-Eastern collectors to hold real assets (art, real estate, gold, etc).18 With this in mind, investors are willing to hold high quality items over time and appear to be willing and perhaps even eager to pay over and above expected value ranges to obtain the property. Additionally, The International Art Market 2007-2009, Trends in the Art Trade during Global Recession report states Wealthy buyers have been switching away from expensive cars, yachts and jets in favour of assets with longterm tangible value such as art and antiques. These investments of passion have meant that, although the world market in art and antiques has suffered during the economic downturn, it has performed far better than expected.19 The report continues As economically recessive conditions in many countries have led to a reduction in incomes, demand for and consumption of many luxury goods has also contracted, says the report, the latest in a
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series of important annual studies commissioned by TEFAF. It adds that the world financial crisis produced a drop in the number of High Net Worth Individuals (HNWIs) people with investable assets of at least US$1 million. Nevertheless the share of art in HNWIs-investments of passion actually rose from 20% in 2006 to 25% in 2008, as investors looked to find assets that had a more enduring value. The geographical distribution of wealth has also worked in favor of the art market. While most of the older Western economies are currently in recession, many of the new art markets are still showing positive growth, with China and India at rates of 9% and 6% respectively in 2009.20 The key point is the wealthy, or HNWIs are buying appreciable assets even in a difficult art market, and many are willing to pay a premium for the right property. This combination of a desire to obtain property as an economic hedge, and the ability to pay over and above the accepted value range can cause price anomalies. Examples Price anomalies are not really that rare, and if looked for, happen quite regularly despite operating in a relatively efficient market. As a result there are many academic and scholarly attempts to explain the vagaries of property ownership and collecting inclinations. As appraisers, we develop and focus our value conclusions on research, standardized methods of valuation, comparable property, market levels and what we see, know and synthesize, and, if apparent, seek the most common denominator. With that, the appraisal report and value conclusions are typically defendable and compliant. Although the process usually does not include the consideration of market anomalies into value conclusions, if discovered and relevant to the assignment they should be examined and noted because, as I will demonstrate, they do occur with frequency across many market sectors. Five relatively recent cases of what I consider price anomalies stand out in my mind, although there certainly are many others. These anomalies include the selling and record price of a Philadelphia pie crust tea table, a Philadelphia compass seat stool, a New York silver punch bowl, a 20th century chair, and a bronze sculpture. Adding further intrigue to the sale of
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the Philadelphia tea table, just a few short months later a similar Philadelphia tea table sells at auction for well below the newly established and previous record. The compass seat stool sale was also followed by a second similar stool only 16 months later. These are two examples which not only reflect a price anomaly but also examine parallel property coming to market within a short period of time for comparison and analysis. Keep in mind we are comparing different property, comparable yes but not the same. The Mei Moses art indexes have become popular in valuing and predicting art prices. The indexes are based upon complex algorithms, yet much emphasis and statistical weight is based upon the change in price of the same pieces of art which has been resold over a period of time. In other words, duplicate sales. As appraisers, we do not always have that option as we compare similar but not exact properties and make value adjustments for the differences. Additional examples include an early New York silver punch bowl which sets a record for American silver and sells for 7 times the high estimate. There is also the recent sale of the 20th century design record for a Dragon Chair with a pre-sale catalog estimate of $2.55 million to $3.83 million selling for $28.24 million. And, finally, a Giacometti bronze sculpture which set an all time high record price for a piece of art selling at auction. A Tale of Two Tea Tables In the 2008 edition of the Journal of Advanced Appraisal Studies I wrote an article entitled Quality Condition Adjusted Mean Methodology: A Comparative Valuation Tool for the Appraiser. The article and formulas attempted to regulate and bring balance to inherent appraiser subjectivity. The following year I jointly wrote with fellow appraiser Dr. Robert Corey on Combining Metrics, Standards and Connoisseurship: A Weighted-Factor Scoring Model which advanced the process even further and included a survey of appraisers for scoring and ranking typically used evaluation factors. These methodologies are fine for the appraiser, helping to balance and regulate comparable values to the subject property but they didnt explain, nor can they rationalize, large price anomalies.

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In the 2008 edition of the Journal of Advanced Appraisal Studies I wrote about the two tea tables: On October 3, 2007 Christies in New York sold an 18th century Philadelphia pie crust tilt top tea table for the record sum of $6.76 million including buyers premium. The table is thought to have been carved by the Garvan Carver of Philadelphia. The previous auction record for a pie crust tilt top table was $2.44 million. The Christies table also exceeded the previous high of $4.62 million for all Philadelphia colonial period furniture. The differences between the two record sales add to the subjectivity and uncertainty of property valuation and connoisseurship, while reinforcing the concept that markets are not perfect. Christies had a 2/3 million dollar estimate on the tea table with access to the previous record auction price of 2.4 million dollars. Was the estimate an intentionally low value? Typically not when international auction houses catalog and estimate the upper market level of property in specialty sales. It ap120 Todd W. Sigety

pears the auction pre-sale estimate was based upon the previous record and possibly an allowance for economic appreciation. Sothebys New York auctioned a similar Philadelphia tea table during Americana Week on January 19, 2008. The similar tea table at Sothebys now carried an expanded pre-sale estimate range of $2/$6 million dollars and was described in the auction catalog as the Acme of Perfection. The tea table at Sothebys was also attributed to the Garvan Carver, was in similar condition and had a strong family provenance dating back to the creation of the table. The Sothebys table failed to reach the low estimate and sold for $1.83 million including buyers commission. These drastic differences in value opinions and ranges versus final sale or hammer prices all support the difficulties and subjectivity in properly selecting pre-sale estimates, and by association potential appraisal valuation conclusions within any given market level. The value of the tea table can be debated by appraisers based upon pre-sale estimates, hammer price, previous sale comparisons and past record prices. The final record selling price of $6.76 million for the tea table remains difficult for the appraiser to rationalize based upon past sales and previous record prices. As such, the Christies tea table may not be a suitable candidate as comparative property for an appraisal, yet the record price should be revealed and analyzed within the report.21 The two tea tables were not exact copies of each other, but they were very similar in style and form and close enough in age, condition, quality, and provenance. In addition, they both were attributed to the hand of the Garvan carver. Certainly the sales of the two tea tables are suitable and appropriate for comparison of price versus value, and price anomalies. The record setting table at Christies merely doubled its catalog pre-sale estimate, nearly tripling the previous record for a Philadelphia tea table and sold for more than $4.3 million over the previous price record at auction. The hammer price over past records and estimates is definitely impressive,

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perhaps a price anomaly as Americana typically does not reach these extremes and multi-million dollar values.

A Tale of Two Stools The sale of the Philadelphia tea table was of course not the first market anomaly to come to my attention but it was the sale that started an interest and thought process on market anomalies and how they should be viewed by appraisers. My next example explores two early Queen Anne walnut compass seat stools from Colonial Philadelphia. The first stool was Lot #117 in the Sothebys Americana sale of September 26, 2008. The catalog entry stated it was a Queen Anne carved walnut compass seat stool, Philadelphia, PA, circa 1750. It measured 15 5/8 inches in height and stated the stool retains a dark rich historic, possibly original, surface. The stool was reupholstered in period fabric. The condition report stated there was a 3 inch by inch patch to seat lip and a 4 inch by inch patch to seat lip; one leg cracked and knee returns with later screws to secure it; one foot cracked with a screw added through backside and plugged. There was excellent provenance to the stool and it was thoroughly listed. The estimate for the stool was $200,000.00 to $500,000.00. The stool sold for $5.23 million including a buyers premium of $634,500.00. The Sothebys stool sold for a multiple of over 10 times the pre-sale high estimate. As appraisers, we are generally told to ignore auction pre-sale estimates but they do, in fact, act as guides and set
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general price parameters. Additionally, actual auction sales results are judged successful or not based upon falling within or above/below the total of the pre-sale estimated range.

Maine Antique Digest reported on the sale of the stool and stated about bidder and Americana dealer, Todd Prickett, who said his purchases were for three different clients, would not confirm or deny that he was the only under bidder on the phones for the compass-seat footstool that sold to nonagenarian Albert Sack for $5,234,500. Prickett said that he had interest in it but would rather have a tea table for that price. The article continued "I knew we would have to go heavy for that stool," said Sack. "In the history of Israel Sack we never owned a Queen Anne stool; there are none outside museums. As an expression of the Queen Anne, it is a brilliant concept; plus the condition is good. It is the rarest form of Philadelphia Queen Anne furniture, gem quality."22 The MAD article sheds a little additional information and insight into the purchase, although undocumented and rumor based which antique dealers find irresistible, there may have only been two serious bidders for the Queen Anne stool at the top end of the bidding and only one who was willing to pay $5.23 million for it, and who according to MAD, was very pleased with his purchase. I understand and agree that the auction estimate could have been undervalued and maybe it was. How would we ever find out if the stool was estimated incorrectly or if the selling price actually reflected true value in the
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marketplace and not only owner value? From an appraisal perspective, it would take a little over a year to potentially answer the question. A second stool emerged probably by the high price realized and by the notoriety gained from the sale at Sothebys of the first stool. The second stool publicly surfaced shortly after the Sothebys sale in a report from Maine Antique Digest on December 17, 2008, published in the January print edition. Christies obtained the consignment for the second Philadelphia walnut compass seat stool. The stool was to sell in the January, 21-25, 2010, Americana Week sale at Christies. The Lot number was 346, described as a Queen Anne carved walnut compass seat stool, Philadelphia, circa 1750. It measured 15 inches high, 18 inches wide and 14 inches deep. Provenance was strong, and the catalog stated A very similar stool, possibly its mate, sold at Sothebys, NY.23 The estimate was $300,00.00 to $500,00.00 (a far less aggressive pre-sale estimate compared to when Sothebys offered the second Garvan carver tea table). Christies probably learned a lesson from the Sothebys Acme of Perfection, Philadelphia tea table mentioned earlier, which did not rise to the level of the earlier similar table in price, and kept the pre-sale estimate reasonable and within the previous value range. Although I can only assume but I would think expectations for many within the antique trade were for the stool to sell well over the high estimate. The condition report stated the stool was refinished with a small rectangular surface patch to one end. Surface patch to face of one side (approx inch x 10 inches), a repair to one leg where broken out and re-glued and repinned. One knee return possibly replaced. Slip seat replaced. Some minor chips and bruising to seat lip. Some bruises and abrasions to legs and feet. Shrinkage crack to top of one leg. The condition report of the Christies stool gives a lot more detail and seems to have some condition issues greater than those of the Sothebys stool. There was also a report the stool was one time upholstered over the seat rail and tack holes were filled in.

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The Christies stool, noted as the possible mate of the Sothebys stool sold for a mere $482,500.00 including buyers premium. Bear in mind, the buyers premium for the Sothebys stool alone was $634,500.00, or $152,000.00 more than the Christies stool and possible mate sold for.

Can we assume if the stools were comparable that there were only two people willing to bid $5 million plus for a stool where both saw suitable or acceptable value at the point in time, and when one had already purchased, the price now drops, as rarity was reduced? With the discovery and announcement of the second stool was supply and demand equilibrium not in balance after the first stool sold? If the $5 million stool actually represented value, why were there no other bidders for the second comparable stool as a purely financial investment opportunity as the top end for appreciation was enormous? The variations and debate of individual value systems is certainly intriguing, personal based and open ended. Although I do wonder if the purchaser of the first stool who made public statements about how pleased he was is now suffering from the Winners Curse and Buyers Remorse. The next three examples of value anomalies sight recent sales, but instead of the value comparison being between two similar items and the

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pre-sale estimate, these are only against previous sales records and pre-sale estimates. Silver Punch Bowl

On Friday, January 22, 2010 at the Sothebys Important Americana sale, an American circa 1700 silver punch bowl made by Cornelius Kierstede (New York) was offered for sale. The pre-sale catalog estimate was $400,000.00 to $800,000.00. The previous auction record for American silver was $775,750.00 set at Sothebys New York in 2001. The Kierstede produced punch bowl on a good auction day may very well have been expected to top the previous record as it was an excellent example of early American silver. A new auction record for American silver was set that day at Sothebys for an amazing $5.9 million. The final price was more than seven times the previous record for American silver, and is the second highest price ever paid for any piece of silver at auction. How do we get from $800,000.00 on a good day to $5.9 million? Conspicuous consumption, perhaps the Veblen effect? Dragon Chair During the Christies sale of the Yves Saint Laurent property and Pierre Berge collection on February 23-25, 2009, a new record was set for a piece of 20th century design, and a world record price for a chair. The Dragon Chair designed by Eileen Gray (1878-1976) was estimated to sell in the value range as determined by Christies of $2.55 million and $3.83 million. When the hammer came down, the final selling price including buyers premium was an amazing $28.24 million. This is a multiple of almost
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over 7.3, and over $24 million above the catalogs high estimate. Did the selling price represent true value on the marketplace, or was it a price anomaly? From the pre-sale estimates, and pre-sale discussion the chair was not expected to do so well.

The Walking Man There have been numerous analysis and rationale as to why the Alberto Giacometti bronze sculpture LHomme qui Marche sold at a record price for an item at auction of $103.4 million. This was against a catalog presale estimate range of nearly $19 million to $28 million. The sale occurred in London on Feburay 3, 2010 at the Sothebys Impressionist and Modern sale. The Antique Trade Gazette stated LHomme qui Marche is considered Giacomettis most iconic figure the first time he experimented with the theme of the walking man on a monumental scale. But, crucially, this 6 ft. (1.83m) high bronze was a lifetime cast and represented a buying opportunity that may never come again. It is one of only six casts made by the sculptor in 1961. Three others are in public collections and the other two are said to be unlikely to appear on the market in the foreseeable future.24 This quote certainly adds to the rationale of rarity in the market place in explaining the price anomaly but the statement was made in retrospect after the sale. Why after the sale and not before, the iconic nature of the piece was the same pre and post sale. Bloomberg noted the Giacometti results were based upon an auction phenomenon Thats the auction phenomenon, said Christophe Van de Weghe, a New York-based dealer. When wealthy people compete against
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each other they dont want to lose. 25 In this case the price continually goes higher with each billionaire trying to out bid the other. A recent NY Times opinion piece by Eduardo Porter weighed in on the Giacometti record with Works of art are among those peculiar commodities whose appeal grows as their prices rise. They are Veblen goods, named after Thorstein Veblen, the economist who posited that conspicuous consumption has an inherent purpose as a signal of status.26

Porter continued, Evolutionary biologists argue these conspicuous purchases do the same job as peacock tails signaling to peahens that they are fit enough to expend an inordinate amount of energy on producing colorful feathers. The French sociologist Pierre Bourdieu argued that aesthetic choices are social markers with which the powerful signal their power and set themselves apart from other, inferior groups. Anybody can buy stocks. Hedge fund managers can buy pickled sharks by Damien Hirst. Thats why the record set by Giacomettis Walking Man I is so significant. Not only does it signal that the plutocracy believes it successfully eluded financial Armageddon. At a stroke, the sale made clear that the rich are back
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in their rightful place at the apex of the world.27 The Giacmoetti is said to have been purchased by Lily Safra, the wife of the late billionaire Edmund Safra. London based Fine Art Fund Chief Executive Phillip Hoffman stated in a Bloomberg report, It was a freak result. But there are wealthy people out there desperate to buy rare pieces and when something important comes up with a sensible estimate the bidding goes crazy. The next one will make 20 million pounds. Its not an investment piece. I cant see that being worth 200 million in 10 years time.28 This explanation refers back to many of the effects of the market place explained earlier in this paper including snob appeal, the Veblan effect and conspicuous consumption to name a few. It also infers that the price was manipulated by the auction with a low estimate on a rare piece. Conclusion In conclusion, I have discussed in this paper some basic concepts in regard to what defines and separates price and value; what affects value and several worthy examples of recent price anomalies. So the question is asked, should the appraiser consider price anomalies in developing value conclusions? In general terms, unless the number of anomalies substantially increases or there is a specific relationship and relevance to an appraisal assignment, the answer is normally no. That does not mean price anomalies cannot be mentioned or discussed within an appraisal report, especially if relevant to the subject property or perhaps can be shown to influence the market. The appraiser must use caution when considering price anomalies, explain why these drastic shifts in prices may be important and apply to assignment development and relate the anomaly to the subject property. Market forecast and projections such as predictions for future market variances may have some connection although there may be no real substantive or definitive answer. As appraisers, we are often contracted for opinions of market knowledge and what direction the market may be moving such as assisting clients with decisions on collection accessioning and deaccessioning. Other examples may be able to assist in situations such as price justification when brokering or assisting in a private sale or when dealing with property with extremely high values and few comparables.
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Although this paper has focused on pricing anomalies at the upper end of the fine and decorative art markets, price anomalies do occur at all market levels. Many times small and regional auction houses offer pieces of art or furniture which may sell for multiples above the expected reasonable and fair value range. In household content appraising there is typically more variety and a larger quantity of property for comparable selection, and therefore, price anomalies in the lower and middle markets have less impact and importance to the appraiser when compared to the upper market levels. With the current state of the economy and high unemployment, many appraisers have been receiving calls about selling property, especially for the middle and lower market segments. When valuing standard household property or middle market fine and decorative arts, the answer is generally to not use price anomalies as there are typically numerous other properties to select for comparison. In rare cases, as in the upper market levels, if relevant to the outcome of an assignment an anomaly at any market level should at the least be considered and perhaps noted. In instances of truly rare and exceptional pieces at the top of the market many specialists, appraisers and dealers currently believe the market is strong. In a strong marketplace price anomalies may support value conclusions or perhaps more loosely stated, value directions, although we have seen by the tea tables and the compass seat stool the price anomaly does not always extend to the next sale or start an upward pricing trend, it is just an anomaly. Price anomalies may give indications there is strength in a given market or in a particular type of property. For example, I would now expect the value of Giacometti art has increased because of that one record breaking sale. Beyond collectors, certainly the notoriety of the artist has increased across multiple demographics. With that concept in mind, the price anomaly over and above the excepted pre-sale value range now has the ability to influence the Giacometti futures market. According to USPAP, self contained and summary appraisal reports are required to disclose economic property characteristics relevant to the assignment. Standard 7.3 (c) states In developing a personal property appraisal, when necessary for credible assignment results, an appraiser must: analyze the relevant economic conditions at the time of the valuation,
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including market acceptability of the property and supply, demand, scarcity, or rarity.29 As in this case, the record Giacometti price would be relevant to discuss when appraising other works by the artist specifically bronzes in the Walking Man series of sculptures. In a practical sense for appraisers, anomalies may only have a narrow range in developing value conclusions. Beyond intellectual debate, practical applications about price anomalies should have a place within our profession as they may be important price and value markers. When considering using a price anomaly, do so with circumspection and caution. As Edwin Hubbel Chapin stated, Through every rift of discovery some seeming anomaly drops out of the darkness, and falls, as a golden link, into the great chain of order. Well, perhaps not always. Todd W. Sigety, ISA CAPP owns Washington Square Antiques, Inc. and WSA Appraisals, located in Old Town Alexandria, VA. Mr. Sigety is a certified personal property appraiser with the International Society of Appraisers, editor of the Journal of Advanced Appraisal Studies published by the Foundation for Appraisal Education, a partner in the Appraiser Workshops and a member of the International Society of Appraisers board of directors. His shop specializes in American and English antique furniture, fine art, and decorative accessories. Contact info: 425 South Washington St, Alexandria 22314 or toddsig01@gmail.com

How Mike Platt and Joe La Placa took over the contemporary art world | Life & Style. http://www.thisislondon.co.uk/lifestyle/article-23816751-market-forces.do. 2 International Valuation Standards 2007. 8th ed. Appraisal Inst, 2007. 3 Ibid 4 Ibid 5 International Society of Appraisers. Core Course in Appraisal Studies, 2005. 6 Ibid 7 Ibid 8 conspicuous consumption. BusinessDictionary.com. WebFinance, Inc. http://www.businessdictionary.com/definition/conspicuous-consumption.html (accessed: February 04, 2010). 9 buyers' market. BusinessDictionary.com. WebFinance, Inc. http://www.businessdictionary.com/definition/buyers-market.html (accessed: February 04, 2010). 10 seller's market. BusinessDictionary.com. WebFinance, Inc. http://www.businessdictionary.com/definition/seller-s-market.html (accessed: February 04, 2010).
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David J. Maloney, Appraising Personal Property: Principles and Methodology - 3rd Ed., 3rd ed. (Appraisers Press, 2009). 12 Bandwagon effect - Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Bandwagon_effect. 13 The Winner's Curse and Optimal Auction Bidding Strategies - Graziadio Business Report, http://gbr.pepperdine.edu/092/biddingstrategies.html. 14 Snob effect. BusinessDictionary.com. WebFinance, Inc. http://www.businessdictionary.com/definition/snob-effect.html (accessed: February 04, 2010). 15 Nostalgia. In Merriam-Webster Online Dictionary, http://www.merriamwebster.com/dictionary/nostalgia (accessed: February 04, 2010). 16 Veblen effect. BusinessDictionary.com. WebFinance, Inc. http://www.businessdictionary.com/definition/Veblen-effect.html (accessed: February 04, 2010). 17 How Mike Platt and Joe La Placa took over the contemporary art world | Life & Style. http://www.thisislondon.co.uk/lifestyle/article-23816751-market-forces.do. 18 Could the art market be undergoing a fundamental restructuring?, The Art Newspaper, http://www.theartnewspaper.com/articles/Could-the-art-market-be-undergoing-afundamental-restructuring?/20028. 19 TEFAF Maastricht - News. http://www.tefaf.com/DesktopDefault.aspx?tabid=78. 20 Ibid 21 Sigety, Todd. Journal of Advanced Appraisal Studies - 2008. San Antonio, Tx: ISA Education Foundation, 2008. 22 Cohen, Lita Solis. Maine Antiques Digest, http://www.maineantiquedigest.com/stories/index.html?id=894 23 Christies catalog 24 Antiques Trade Gazette - What makes the 58m walking man so special?, http://www.antiquestradegazette.com/news/7425.aspx. 25 Graff Buys Picasso as Sales Double, Giacometti Clues Revealed - Bloomberg.com. http://www.bloomberg.com/apps/news?pid=20601120&sid=aCgtwVlgLWeo. 26 Eduardo Porter, The Power of Art, The New York Times, February 16, 2010, sec. Opinion, http://www.nytimes.com/2010/02/16/opinion/16tue4.html?emc=tnt&tntemail1=y. 27 Ibid. 28 Lily Safra Paid $103.4 Million for Giacometti, Dealers Say - Bloomberg.com. http://www.bloomberg.com/apps/news?pid=20601088&sid=aoeAOb3JZ7ME. 29 The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice 20102011 USPAP (The Appraisal Foundation, 2010).
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