Buyers Pay Big Prices but Are More Selective

At an auction of Impressionist and modern paintings and sculpture at Christie’s in New York in May, $2.4 million was paid for a Van Gogh, topping the prestigious auction house’s estimate of between $1.5 million and $2 million. Bids exceeding $1 million for works by Gauguin and Renoir also exceeded estimates.

On the other hand, 25 of the 61 works offered that day failed to sell, because bidders were unwilling to pay the minimum prices set by the sellers.

A 1813 English silver honey serving set by Paul Storr fetched $15,400 in June at the San Francisco auction house of Butterfield & Butterfield, far above the estimate of between $1,400 and $1,600.

But many other silver pieces are selling so poorly that they can be bought for as little “as the value of the silver itself,” Butterfield President Bernard A. Osher says.

Fine paintings and silver are not the only types of collectibles where some pieces are drawing high bids while other works languish unsold. The same phenomenon is happening in varying degrees to furniture, rugs, stamps, coins, old cars and other collectibles.

This two-tier market represents a fundamental reversal in collectibles from the go-go years of the late 1970s and early 1980s, a reversal that pleases many collectors and dealers while sparking worries that the 2-year-old recovery in collectibles may be ending.

Searching for Hedges

With double-digit inflation gone, so are the speculators who indiscriminately bid up the prices of nearly all collectibles three to five years ago, searching for sure-fire inflation hedges and quick profits. Many of those speculators subsequently lost thousands of dollars, having been forced to sell today at prices far below what they paid.

“The non-collector has been flushed out of the market,” says Michael Laurence, editor of Linn’s Stamp News, a major stamp collectors’ publication that tracks prices of valuable stamps. “The market has been returned into the hands of the serious collectors.”

Those serious collectors are growing in numbers, spending power and sophistication, however, thanks to the economic recovery, lower interest rates, aggressive marketing and expansion by auction houses and other factors, experts say.

Serious collectors with small budgets can be found combing art galleries nationwide, seeking top-quality works priced at less than $10,000, such as prints by Winslow Homer, Edward Hopper or other American artists.

These collectors, who may have sat out the speculative fever of the late 1970s and early 1980s because prices became unreasonably high, also have returned in force to stamp and coin auctions, or are attending exhibitions and sales of collectibles ranging from Art Nouveau and Art Deco objects to folk art, California art or even 1950s furniture and glass.

Ignoring Many Works

Meanwhile, the super-rich, who never really stopped buying during the recession, have become much more selective, concentrating their bidding only on the very best pieces of each category or artist. They are ignoring much of the flood of works that has been placed on the market in recent months by other collectors and dealers hoping to capitalize on the price run-up in top collectibles.

Consequently, less-than-top-notch works in many price ranges and categories often are going unsold and are falling in price. The percentage of works failing to receive bids that reach the minimum prices set by sellers has run as high as 50% in recent auctions, and averages about 25% to 30%, says Stuart Greenspan, editor-in-chief of Art & Auction, a major trade publication.

A few years ago, a 15% to 20% average unsold rate would have been considered high, experts say. Back then, speculators often bought everything in sight.

“We used to say you could sweep dirt off the floor, put it into a bag and list it in an auction catalogue and people would bid on it,” says Marvin H. Newman, a Butterfield’s executive vice president in charge of its Los Angeles office.

But while today’s buyers are pickier, when they do find something they like--often a rare piece that has been off the market in some private collection for years--what they are willing to pay often can be stratospheric.

$2.3-Million Rolls

The late Beatle John Lennon’s psychedelic Rolls Royce fetched $2.3 million at a rock ‘n’ roll memorabilia auction at Sotheby’s on June 29, far above initial estimates of $200,000 to $300,000. The previous record price for a car sold at auction was $800,000, paid for a 1936 Duesenberg last September (Duesenbergs sold privately may have reached or topped $1 million, some experts suggest).

Buyers at a classic car auction in Scottsdale, Ariz., in January paid a total of $12.6 million, an all-time high for any single car auction, including $32,000 for a 1957 Chevrolet convertible, $5,000 more than the previous record for such a car.

In April, Vincent Van Gogh’s 1889 “Landscape With Rising Sun” brought $9.9 million at Sotheby’s in New York, tops for any Impressionist painting sold at auction. Altogether, Sotheby’s auctioned more than $50 million in works, including the Van Gogh, in three weeks in late April and early May, says John L. Marion, chairman of London-based Sotheby’s North American operations.

“It wasn’t so long ago that ($50 million in sales) would have been a banner year,” he says.

To be sure, a two-tier market for collectibles is not entirely new. “Great objects sell well no matter what shape the economy is in,” while mediocre works often fluctuate with economic conditions, Art & Auction editor Greenspan says.

But the difference in prices between the top works and lesser items seems to be widening, at least in art, Greenspan contends, noting that many lesser items which are ignored today are falling in price.

Seen as Blessing

Many collectors, dealers and auctioneers say this contrasting market is a blessing. With fewer speculators buying indiscriminately, the market will be more stable and serious collectors, somewhat ironically, now have a greater chance of making money, experts say.

“Speculators give a false reading, they inflate prices artificially . . . which hurts the true hobbyist who knows what the true value of a car is,” says Dennis Schrimpf, technical editor of Old Cars Weekly, a newspaper for car collectors.

“Investors make expensive mistakes, and that causes the market to lose confidence,” says Christopher Burge, president of the North American operations of London-based Christie’s.

Lower prices for some goods also create bargains for less-well-to-do collectors. Such is the case in stamps. After slumping for nearly four years, prices of rare stamps are on average almost half of what they were four years ago.

Linn’s Stamp Index, a measure of prices for rare stamps compiled by Linn’s Stamp News, shows that stamp prices fell to a low point of 498 last February, down from a peak of about 900 in 1981. (The index began at 100 in 1970).

Lower stamp prices have consequently drawn more serious collectors back into the market, leading to five straight months of increases in the index, to 530 in June, Linn’s editor Laurence says.

No Quick Profits

However, collectibles experts warn that such bargains don’t easily translate into quick profits for investors. One major reason is that collectors who buy and sell through auctions or dealers often must pay buyers’ premiums, typically 10% but sometimes as high as 20%. And they probably will have to pay commissions of 10% to 20% when they sell.

“Anybody who buys art as an investment is foolish,” says Gilbert S. Edelson, administrative vice president for the Art Dealers Assn. of America. “People who have done well financially in art are people who bought art without any financial gain in mind.”

In addition, prices can fluctuate as tastes change. “Like any market, from art to real estate, different areas change in popularity,” says Q. David Bowers, chairman of Bowers & Merena Galleries of Wolfeboro, N.H., a major coin dealer. He notes that silver dollars and gold coins are in vogue now, but many experts predict that they may fall out of favor soon.

Some experts also are beginning to worry that the widening two-tier market could signal that another slump is on the way.

“Whenever you are in the strong part of the cycle, you’re not very far away from going over the peak,” Christie’s Burge says. “How long before that happens, I don’t know, but it’s likely to happen.”

Signs of Weakening

“The (art) business is not as strong as it was six months ago,” Art & Auction editor Greenspan says, noting that rates for unsold goods at auctions at Sotheby’s and Christie’s have widened in recent months.

However, he adds, “I don’t think we’re quite ready for a really depressed market for quite a while.” And even if a slump does come, he says, “it won’t be as crushing as it was four or five years ago” because speculators have not bid up prices to unreasonable levels as they did in the late 1970s and 1980s.

The diamond market could be the most dramatic example of a market that has collapsed because of excessive speculative buying a few years ago.

Urged on by promoters promising big profits, investors bid up prices of D-flawless grade diamonds to as much as $60,000 a carat three years ago, Butterfield’s Osher says. Prices subsequently plummeted to as low as $10,000, although lately they have rebounded to between $12,000 and $14,000, he says.

“Diamonds carried a lot of jewelry down with it,” Osher says, noting that other precious gems also are way off their highs of a few years ago. “The jewelry market is as dead as can be.”

The Oriental rug market is also dead, Osher says. A 3-by-5 foot Kashan carpet from Iran which would have sold for between $4,500 and $5,000 about three years ago, now may bring only between $1,200 and $1,500, he says.

Car Prices Slipping

Prices for Model A and Model T cars, favorites in past years among collectors, also have shifted into reverse, car expert Schrimpf says. A 1929 Model A roadster which may have sold for between $23,000 and $24,000 two years now may fetch only about $18,000, he says.

“Today the number of people into car collecting for strictly investment purposes is less than half of what it was five years ago,” Schrimpf says. “People who thought they’d make a killing in cars found out the hard way that it’s not that easy.”

The values of some types of coins also are down. A collector edition 3-cent piece from the 1860s today may fetch only about $1,000, compared to about $3,000 five years ago, coin dealer Bowers says.

But Bowers and other experts say several factors point to healthy long-term growth in collectibles.

The economy, if it remains strong, will continue to boost consumers’ disposable incomes, the main determinant of interest in collectibles, experts say.

Rising incomes, as well as the aging of the Baby Boom generation which studied art in college, have contributed to a surge in numbers of serious collectors, as measured by increased attendance at many exhibitions and auctions and increasing subscribers to catalogues and newsletters.

Interest Increasing

At Stack’s Rare Coins in New York, a major coin dealer, sales of numismatic books doubled in 1984 from the year before, partner Norman Stack says. Sotheby’s reports that subscriptions to its monthly newsletter now total 38,500, up 5,000 from two years ago. Butterfield’s brags that its mailing list has grown to 31,495 from 19,705 in 1981.

“Overall buyers, including collectors and investors, are fewer than five years ago,” coin dealer Bowers says. But the numbers of true collectors, minus speculators, “are higher than ever.”

Lower interest rates have also aided the collectibles resurgence by making money-market funds and savings accounts relatively less attractive. Lower interest rates also have made it easier for collectors to finance purchases and for dealers to carry inventories.

Other factors have aided specific kinds of collecting.

Stamp collecting, for example, has been encouraged in recent years by the U.S. Postal Service’s increased promotion of collecting among elementary school children and other students, stamp expert Laurence says. Consequently, he says, stamp collecting has a strong long-term future as these youngsters become adults with more spending power.

Interest in paintings, sculpture, antique furniture and other art has been spurred by several factors, including the shrinking supply of the rarest items and heavy buying by some museums, particularly the J. Paul Getty Museum in Malibu, the nation’s richest museum.

Paid Record Price

The Getty in April bid about $10.4 million at Christie’s in London for “The Adoration of the Magi,” an early 16th-Century painting by Italian Renaissance master Andrea Mantegna, setting an all-time record for any picture sold at auction. (Export of the painting has been held up under British law while art institutions there try to raise money to match the offer and keep the work in England.)

Interest in art, particularly among Americans, also has been spurred by the growing prominence of the world’s two dominant art auction houses, Sotheby’s and Christie’s. Both houses have expanded greatly in the United States in recent years, a major factor in the growing internationalization of the art field.

London-based Christie’s, for example, only had one U.S. sales representative to cover the entire nation until 1977, when it opened its first U.S. office in New York, joining Sotheby’s. Now, Christie’s has eight offices in the United States, and last year, for the first time, its New York auctions surpassed its London auctions in total sales, Christie’s spokeswoman Lillian Friend says.

While London is still considered the center for major auctions of many types of art, New York has gained increasing prominence. London is still the center for auctions of Old Master paintings--defined as European paintings created up to, but not including, the 19th Century-- but New York has taken an increasing share of that market.

The Big Apple now is seen as the center for auctions of Impressionist paintings, Oriental rugs, French, English and Continental antique furniture, as well as American and contemporary art and such newer fields as Art Nouveau and Art Deco.

Trend Reversed

Auction houses have taken a higher share of total art sales, away from dealers and private galleries. In 1973, between 70% and 80% of art sales were handled by dealers, compared to only between 20% and 30% through private collectors buying at auctions, Christie’s Burge says. “Now, that’s completely reversed,” he says.

“Estates are going to auction much more regularly now,” says Burge, noting that estate trustees often prefer auctions because of their public nature, allowing the world to see that the trustees made a good-faith effort to find the highest bidders for their assets.

These auctions also have made art more popular by attracting media attention. Until 1978, when the New York Times started doing so, there was no regular reporting of U.S. auctions, Burge says. Now, major auction sales receive regular and often hyped coverage by major newspapers and television.

The most glamorous auction during the recently concluded spring season, Sotheby’s sale of Impressionist paintings from the estate of late railroad heiress Florence J. Gould, attracted as many as 16 television camera crews as well as scores of newspaper reporters just for the previews. Private dealers, by contrast, generally don’t publicize sales or prices.

“Always through history, great objects have brought high prices,” says Patrick Cooney, an art historian at New York’s Citibank. But when a Van Gogh sold in the 1950s and 1960s, it more than likely would have been handled in private through a dealer, and thus few would have heard about it, he says.

Seek Publicity

American collectors, more conscious of the status associated with major art collections, also are more likely to seek publicity for their acquisitions, in contrast to their more private European counterparts, editor Greenspan says.

More aggressive and sophisticated marketing by the auction houses also has helped raise interest in collecting. Both Sotheby’s and Christie’s are doing more to reach out to find new customers, holding exhibitions and social events around the country and making their catalogues more informative.

“We can persuade more sellers to go with us if we can convince them we can reach buyers.” Burge says.

Both houses also are trying to offer a more complete range of services for clients. Christie’s, for example, recently began offering study tours for collectors to view works and talk with experts. Both auction firms also are in the real estate business, figuring that wealthy individuals selling or buying fine art also are prime buyers and sellers of expensive properties.

Sotheby’s also has begun to offer long-term financing for clients, something that dealers have done for a long time. The auction house arranged to offer credit for up to a year for buyers at its well-publicized Gould auction in April, although no buyers are believed to have taken it up on the offer.

Banks More Involved

Banks also may be increasing their involvement in financing of art. Citibank has been the most aggressive in this area, setting up an art advisory service with three full-time art historians to service affluent clients interested in loans to buy art or in using art as collateral for other loans.

The growing presence of American collectors has spurred interest in new areas of collecting, as buyers look for the finest-quality pieces of any category or artist and as many are priced out of categories that have been popular for some time, such as Impressionist art or French furniture.

One once-neglected area that has shown phenomenal growth in recent years has been American art.

“People in America are finally discovering America,” says Butterfield’s Osher, citing the growing popularity of such artists as Winslow Homer.

Even California art has become popular. Paintings by such California artists as Edgar Payne and Thomas Hill “used to sell for $30, $40, $50, you practically had to give them away,” Butterfield’s Newman says. “Now they’re selling for $2,500 or $3,000.”

As top pieces in English and French furniture also are going for hundreds of thousands of dollars, less-wealthy collectors are turning to other styles. One such style is Biedermeier, popular in Germany and Austria during the early 19th Century. Christie’s last fall auctioned a Biedermeier upright desk for $154,000, far above the previous record of $36,000 for that genre.

Some Pitfalls

But the growth in popularity of art has not alleviated some pitfalls.

As is the case with real estate and other types of investments where each property is unique, some categories still have only a handful of buyers, a factor which leads to price volatility and to difficulties in selling pieces.

The number of serious collectors of top-notch Old Master paintings, while growing, still may total only a few dozen or so in the United States, experts say.

“The collectors are very serious and very active, but there are just fewer of them,” art historian Cooney says.

The increased sophistication of buyers also is making it harder to sell some items.

These educated buyers often visit many auctions and dealers, and “if they see something that hasn’t moved in six months or a year, then they think that maybe something’s wrong with it,” editor Greenspan says.

That may have been a factor at the Christie’s auction of Impressionist and modern paintings and sculpture in May, where Van Gogh’s “Allee des Alyscamps” fetched $2.4 million but 25 of the 61 other works did not sell.

Many of those items had been “shopped around” among dealers for some time, Christie’s Friend says, “so a lot of people just weren’t interested.”

HOW COLLECTIBLES PERFORM AGAINST OTHER INVESTMENTS Compounded Annual Rates of Return (% as of June 1) OVER ONE YEAR

Bonds 42.9 Stocks 28.7 Old masters 13.6 U.S. coins 11.5 Treasury bills 9.5 Chinese ceramics 5.9 (Consumer Price Index) 3.7 Housing 2.5 Diamonds 0.0 Oil -4.5 Stamps -9.6 U.S. Farmland -10.0 Foreign Exchange -11.3 Gold -20.3 Silver -34.3

OVER 5 YEARS

Stocks 15.2 Bonds 13.2 Treasury bills 12.0 (Consumer Price Index) 5.7 Housing 4.3 Old masters 1.5 Diamonds 1.2 Chinese ceramics 1.0 U.S. coins 0.1 Stamps 0.1 U.S. farmland 1.7 Oil -5.4 Foreign exchange -7.9 Gold -11.0 Silver -15.9

OVER 10 YEARS

U.S. coins 20.4 Chinese ceramics 17.1 Stamps 14.5 Old masters 10.7 Stocks 10.4 Treasury bills 10.0 Diamonds 9.5 Bonds 9.3 Oil 8.0 Housing 7.9 (Consumer Price Index) 7.3 U.S. farmland 6.9 Gold 6.9 Silver 3.5 Foreign exchange -0.6

OVER 15 YEARS

Oil 19.7 U.S. coins 17.7 Gold 15.5 Chinese ceramics 14.3 Stamps 14.1 Diamonds 10.4 Old masters 9.1 Treasury bills 9.1 Bonds 8.7 Silver 8.7 Stocks 8.5 U.S. farmland 8.5 Housing 8.2 (Consumer Price Index) 7.1 Foreign exchange 2.0

Source: Salomon Bros.