Summertime and the Art Buyin’ is Easy: Asking Questions about Art Transactions
August 6, 2015
In the art market, a work of art is often carefully scrutinized and questioned by collectors and their agents concerning its style and substance. The art sale, however, may receive far less careful review. Given the prevalence of fraud, conflict of interest and lack of transparency in such transactions, one should adopt the habit of asking hard and direct questions before committing to a deal – particularly concerning price and associated fees.
While a buyer often intuitively knows to ask for the price of a work of art or service, the basis for the asking price, and a discount, the inquiry should not end there.
In the event that the price of a work is especially low relative to market, a buyer should ask the seller why. In some cases it may well be that the market commands a reduced price (e.g., unsold inventory, comparable sales). On the other hand, a buyer should be aware that bargain basement prices often serve as red flags for lack of authority (or title) to sell, the possibility of forgery or other fraud. See Davis v. Carroll, 937 F.Supp.2d 390 (S.D.N.Y. 2013).
A buyer should also consider and ask (i) who, aside from seller, stands to gain financially in connection with a sale and (ii) whether the sale price is being split with anyone else. The identity and financial interests of undisclosed third parties will help a buyer better understand all of the parties involved in the transaction . Fee splitting and/or sharing arrangements commonly inflate the price of a work of art.
A buyer should also ask about any costs closely or peripherally associated with the transaction. Novice and sophisticated collectors alike often overlook and fail to consider storage, insurance, shipping, framing, appraisal, and other associated expenses. If the buyer intends to resell the work, brokerage fees and income tax may be added to the list of expenses. Such expenses will invariably add to the total cost of the transaction and accordingly are considerations that a buyer should be cognizant of in order to get a fuller picture of the transaction.
Awareness of these possible costs will lead to asking questions that will shed more light on, inter alia, the inner workings of the transaction, which are often not advertised at the time of sale. The answers will typically invite further inquiries, providing the buyer with pertinent information.. It happens far too often that referral fees, multiple party fees, and other foreseeable and associated costs and expenses are disclosed only after the deal has been made. Dodging a shady deal rather than trying to get out of one after the fact will avoid the possibility of dispute, litigation and further expenses.Taking on an assertive role as a buyer and conducting the appropriate level of independent research should be the approach taken in any transaction involving artwork.
*About the Author: Daniel S. Kokhba, Esq. is a Partner at Kantor, Davidoff, Mandelker, Twomey, Gallanty & Kesten P.C. and focuses his practice in the areas of art law and business law. He may be reached at Kokhba@kantordavidoff.com or 212-682-8383
Disclaimer:This article is intended as general information, not legal advice, and is no substitute for seeking representation.