Letters to the Editor

Art Business Survey, using the Internet to sell art, Jeremy Holt, Peach Tree Arts, Mount Helena, Western Australia (Sept. 28/96 placed Oct. 27).

The Machinations of the Art Market: Regarding "Contemporary Art as an Investment, Part II: speculation, artifice or magic" (Sept. 24/96)

A Walk on Thin Ice, Re: "Canadian Heritage Collection, using art as a tax shelter" (see News for this article) (Aug. 20/96)

Enough about the Horne Collection: Brent J. Luebke, Lando Fine Art, Edmonton (Aug. 7/96).

Sale of the Horne Collection: Stephen P. Sweeting Appraisal Associates, Toronto (July 2/96).

Art Business Survey, using the Internet to sell art: Jeremy Holt, Artist, Australia (Sept. 28/96)

I found the results of your survey interesting but depressing.

Also the link to the "one successful art site" failed.

On the brighter side, it did get me back into your site and I enjoyed reading your articles. I will try to make sure I revisit regularly.

As I indicated in your survey, in my view is that, unless the items are low cost prints, there is unlikely to be a significant volume of art sales over the Internet, even as Internet commerce expands in the future,

Buyers need to see the physical artwork and have the comfort of dealing with an established gallery of substance (as opposed to one consisting of pixels) with real reassuring warm bodies.

Consequently, I am trying to establish an "accreditation procedure" for my web gallery, which is really an attempt to develop a range of outlets and give buyers better access to my work. I am convinced that this is the only way in which I can effectively utilise the Internet to market my paintings. Perth is as far away from anywhere that you can get, but my paintings unframed are reasonably portable.

You can see the approach I am taking at Peach Tree Gallery:

http://www.peach.asn.au/

I believe that we need affiliations between galleries and artists to mutually market work across the world, so that:

If a potential buyer views my work in my virtual gallery, they can go to a local gallery, who will arrange for the work to be shipped to the gallery and properly presented for viewing and sale. If the sale does not go ahead, they can either return the work or keep it on consignment.

If a potential buyer visits a physical gallery and expresses an interest in, say, Australian landscapes, the gallery can show them the paintings that I currently have available using the Web. If the buyer is interested the work can be air freighted for viewing.

As far as I am aware, this approach is not currently in use. However, theWeb is a very large place and if you have come across any affiliations of this type, I would be interested to learn of them.

At present I am in the process of trying to identify galleries interested in accreditation. You may be able to assist me in this area.

It seems to me that this approach, would lead to a much greater choice and variety of artworks being available to art buyers and could lead to the development of marketing which is much more focussed on the needs of individual buyers. For example:

Investment art high risk but with high growth potential in the $5,000 to $10,000 bracket.

Contemporary art for new houses with blue decor.

Small pieces

Australian landscapes!

With the choice of works coming from galleries and artists across the world.

This opening up and broadening of the art market would benefit buyers, galleries and artists.

Peach Tree Arts
ptg@peach.asn.au
http://www.peach.asn.au/
Naringal Orchard William Road,
Mount Helena, Western Australia, 6082
Phone +61 9 572 1056 Fax +61 9 572 1056

The Machinations of the Art Market: Regarding "Contemporary Art as an Investment, Part II: speculation, artifice or magic" (Features Section): Stephen P. Sweeting, Partner, Appraisal Associates, Toronto (Sept. 24/96).

In reply to Ms. Hendeles's passionate and slightly strange defence of the machinations of the contemporary art market, I quote directly from a letter I sent to the Globe and Mail Letters to the Editor department. The letter was published on Saturday, September 7th, one of a number of letters stimulated by Robert Fulford's perceptive column on the art market.

"Ydessa Hendeles' assertion that it is irrelevant and even dangerous to criticize the mechanisms of the contemporary art market hinges on the cardinal error of confusing fine art with its vehicle in the marketplace. While art can and should be compared with romantic love, passion and the other higher values of humankind, the art market is about something far less ethereal -- the exchange of money for property and the quest for profit.

Although it is important for the art-buying public to believe in the value of exchanging money for art, attempting to insulate this form of commerce from criticism is highly questionable. Ultimately, it does little more than fall headlong into the artifice of "myth, manipulation and showmanship" identified by Ms. Hendeles as the realities of the art market. In my experience, when these devices cluster around commercial activity, blind faith simply is not enough."

Although several of my collegues and business acquaintances agreed with the comments made by Ms. Hendeles, the vast majority thought she was way off base.

A Walk on Thin Ice -- Regarding the Canadian Heritage Collection, using art as a tax shelter: Stephen P. Sweeting, Partner, Appraisal Associates, Toronto. (Aug. 20/96)

The recent column on the Capital Vision venture correctly suggests that taxpayers should be cautious about schemes of this nature. As a partner in an art valuation firm, I run into these donation scenarios with amazing frequency. We make a point of avoiding them and concur with the growing number of accountants, financial advisors and lawyers who suggest that participation virtually invites Revenue Canada to re-assess a tax return.

From my perspective, the linchpin of the schemes is the valuation approach used to estimate fair market value. (Appraisals are usually provided to the "donors".) As Bruce Cohen pointed out in his April Financial Post article, the fair market value estimates in the Capital Vision scenario were based upon 477 high level sales through Eaton's, American Express and Ducks Unlimited. With sales statistics like this, the market hardly seems fractional. But look again. These 477 sales represent less than 10% of the total collection. And most importantly, approximately 1000 prints sold for only $300 early in 1996 (as part of the venture). Apparently the front end of the donation market is the most common market for these prints.

The loophole being used here is a pivotal Canadian tax court case which states that the purchase price of an article does not necessarily indicate fair market value (Friedburg v. The Queen). The Cultural Property Export Review Board has grappled with the ramifications of this case for some time now and deals with it by insisting that purchases executed within two years of donation date must be reported in the application for certification. They have noted in their guidelines that although purchase price is not necessarily an indication of fair market value, it can be an important factor in certain instances.

In a convoluted way the Board's approach acknowledges the presence of the donation market as a bona-fide marketplace that must be considered in an estimate of fair market value for taxation purposes. Unfortunately, however, this thriving market is often shrouded within the various ongoing schemes.

A more direct approach for both Revenue Canada and the Review Board would be to follow the example of American tax authorities. A number of years ago the Americans shut down print donation scams by focusing on the technical deficiencies of valuations which failed to address relevant market (i.e. the most common market for sales activity). This approach recognized that fair market value is not predicated on the highest possible prices achieved in a fractional number of sales. Rather, it is based on the market level evidencing the highest frequency and aggregate number of sales to the ultimate consumer (who can in fact be a donor), and the most consistency of price.

All this aside, scenarios such as Capital Vision are sure to be examined closely by our tax authorities. Although they may not be illegal, they certainly fly in the face of generally recognized principles of valuation--a body of knowledge well known to the professionally trained review valuators within the ranks of Revenue Canada.

More on the Horne Collection: Brent J. Luebke, Private Fine Art Dealer, Lando Fine Art, Edmonton, Alberta (Aug. 7/96)

The attention given to the Horne Collection sell-off is getting to be a little much. Does anyone, but those people directly affected, really care? Should the general art buying public be concerned? I say no; allow me to explain.

FACT A collector is forced to sell off their collection by their creditors.
POINT Happens daily.

FACT The creditor is concerned with disposing of the collection ASAP; they want their money.
POINT Most often an art dealer who is familiar with such affairs is not contracted to manage the disposition.

FACT Some are surprised the collection is sold for a song.
POINT Why? Poor marketing and possibly too many non-arms-length transactions. Allowing the dealer's who originally sold the works to re-sell them on consignment from the creditor would be one solution.

FACT Some are concerned about what this sell-off will do to the Canadian Art Market.
POINT The values of the various artist's works are not affected, only the price.

The Canadian Art Market will survive, expand and prosper despite the sell-off of another major collector's collection.

Let's get onto more important national art issues. Please.


Sale of the Chris Horne Collection: Stephen P. Sweeting, Partner, Appraisal Assoc., Toronto (July2)

In your coverage of the Horne collection liquidation [Newsroom section], you quoted appraiser Chris Varley's comment that "ultimately something is worth what you can get for it." In my opinion, this rather flip comment demonstrates a very cursory understanding of the value concept - especially when it pertains to a marketplace as imperfect as the art market. Mr. Varley's comment suggests that a liquidation scenario is a property's real test of value. It isn't.

Orderly liquidations such as the Horne scenario are highly restricted sales with little in common with most marketplace activity. Time constraints are in effect, creditors are demanding quick payment, and the receiver has a responsibility to get through it all as inexpensively as possile. In reality, prices associated with forced circumstances define nothing more than liquidation value. To state that art -- or any other type of tangible property -- is worth only "what you can get for it" is just too reductive.