An Introduction Into the Art Market: Complete Guide

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Art has been a subject of market exchanges since antiquity. While the nature of the art market has changed over time, the buying and selling of artworks continues to grow.

The art market is a meeting place for those who wish to buy and sell works of art. Online art marketplaces have been growing in popularity as a way for you to find, sell and collect works of art. Investors are also starting to trade more artwork via online sources.

This guide covers the basics of the art market landscape and legal implications of selling your artworks on an online platforms.

Things to consider before diving into the art market

Before you plunge into the art market, there are a few important things to consider.

The artists themselves play only a minor role in the market for their works. Most artists don’t sell their own work; they sell through dealers or at auctions.

Many artists don’t even know who owns their work; they never kept track of who bought it when they were alive, and when they died it just went into an estate sale and was bought by somebody else.

A few artists have taken control of the rights to their work and handle sales directly, but that’s rare. Yet most articles about art focus on the artist as if he were the one doing the selling, when in fact he has nothing to do with it most of the time.


The art market is small. The total value of art traded every year is only about one to two percent of the value of all international trade in goods. That means that if you’re buying paintings for investment purposes, you should think of yourself as owning shares in a very large company — one that sells just one or two products.

The price moves are thus very large compared to other investments.


If you invested correctly in GE stock twenty years ago, your profit today is something like three times your original investment.

If you invested in art twenty years ago, your profit today is more like 300 times your original investment. So if you want high returns on your money, fine art can’t be your only asset class — though it can be part of it.


But while the potential returns are high, the potential losses are also huge. That means that if you plan to invest in fine art to make money, you need to be right more than half the time; otherwise you will end up losing half your money. (And this ignores transaction costs.)

What are the best ways to get into collecting art?

There are two main ways to collect art. The first is to start young, if you have the money, and buy what you like. But this is hard to do, since at first you know very little about art, and the art market has a lot of insider jargon.

It’s easier to start collecting later in life, when you can afford it and have developed some expertise. But by then the best stuff will be out of your price range.

So if you want to get into art before the real bargains disappear, how should you proceed?

One option is just to buy what appeals to you and hope it does well at auction. You’ll probably do better than if you just invested in index funds, but most people won’t beat the market.

You can also try to become an expert yourself before buying anything. The advantage of this approach is that it forces you to do research on your own time rather than at auctions. This might be harder than it sounds; most experts aren’t willing to share their hard-won secrets with beginners.

The art world is enormous and fascinating and constantly changing. It probably has as many personalities as it does players, and those personalities all seem to want to talk to you.

What’s the best way to get into the art world?

You could start by buying something. There are lots of things wrong with this advice. First, if you want good advice, don’t ask those who will benefit from your purchase; they’ll tell you what they sell.

Second, if you buy without knowing much about art, it really is like going into a casino: the house will win in the long run unless you have inside information. Third, even if your goal is not financial return but rather aesthetic pleasure, the odds are against success: there are so many more bad artists than good ones that most people who buy art never find anything great to hang on their walls.

But there’s one thing wrong with that list of objections that makes it not irrelevant after all: sometimes buying something turns out to be the right move anyway.

How many factors determine whether a piece is marketable or not

Creative pieces that have brought millions of dollars at auction have been considered as worthless as piles of trash by the same artist. It might be because the artist had a sarcastic sense of humor, or was very careless with his work, or had purchased a bad batch of canvas.


In fact, it is not the art itself that makes a piece marketable or not; it is all the factors that go into its creation, including the artist’s motivation and inspiration, the materials used and their quality, and even the location where it was created.

The more complex a piece is, the more factors are involved in its creation, and the greater the chances that something will go wrong.

What makes a work of art valuable? When a painting sells for millions, we assume that its monetary value reflects some combination of its aesthetic value and its rarity. But what exactly is “rare”?

How many people have to want a Picasso for it to be considered rare? And how much does rarity matter?


In other words, how much of the price of a piece of art is determined by the number of people who want it, and how much is determined by the difficulty in obtaining it? Because if I could wave a magic wand and make all the world’s copies of a given Picasso appear at Sotheby’s on the same day, it would have no effect on his market price.

The number of people who want it would double, but the difficulty in obtaining it would also double. The effect on price would be zero.


A key assumption here is that supply and demand are independent: you can change one without changing the other. If everyone wants something and there isn’t enough to go around, then prices will rise; if everyone doesn’t want something and there is too much, then prices will fall.

As long as both conditions hold at once — as long as both supply and demand are out of whack — prices will move until they reach equilibrium.

How should you be investing in your favorite artists Collectibles

One problem with collectibles is that it is hard to know what the price should be. It’s not like buying a used Volvo, where you can go online and see what other people are asking for their used Volvos.

The best you can do with a painting is look at what other people have recently paid for paintings by artists who are, or were, in the same league as your artist. But this approach has two problems.
First, how do you define the league? Second, what if your artist isn’t in any kind of league? He may just be an eccentric genius who doesn’t play well with others.

The problem with the first point is that it looks at price as static. The second point looks at price as dynamic: it tries to figure out the direction of the curve.

If you don’t think there’s much reason to expect prices to go up, you get more downside than upside from buying a painting–but less downside than upside from not buying one. If you think prices will go up a lot, then not buying a painting has more downside than upside–but buying one has more upside than downside.

In general these pricing strategies seem more useful for common stocks than for art works because there’s so much more public information

Art that is bought and sold as a collectible is not the same thing as art intended to be appreciated in its aesthetic qualities. A painting you buy to hang on your wall is not the same thing as a painting you buy to put in your portfolio.

If you are thinking of buying a painting or sculpture or photograph with the intention of reselling it, you should approach the purchase differently than if you are buying it for its aesthetic value. Aesthetically you should prefer things that are beautiful, interesting, or otherwise meaningful. Collectibly, you should care more about what others will want in the future.

The most obvious difference between art for appreciation and art for investment is that the latter category includes prints and other reproductions. What makes a work of art collectible is that there are fewer originals than there are people who want them; otherwise anyone could just make their own print.

The supply of prints can be artificially limited by copyright and patent laws; this is why one day your children may be able to inherit only very expensive limited editions of books and art prints rather than cheap paperbacks and posters. But even if all such artificial limits were abolished, there would still be fewer original copies of a popular film than there were people who wanted to see it; everyone.

Know the different art market value chains

You can think of the art market as a system with three different value chains:

  1. the primary one, which is supply;
  2. the secondary one, which is distribution;
  3. the tertiary one, which is consumption.

Each of these value chains has its own dynamics and its own ecosystem of players.

The primary value chain starts with artists and ends with collectors. It’s an ecosystem of creators. An artist makes something and shows it to someone who likes it. If that someone buys it, he or she becomes a collector. The collector might keep it or sell it.

If they sell it, they become a dealer. Collectors and dealers are the two parts of this chain that manage to extract money from art: if you’re not one of them, you’re not making any money on your art, just spending time and energy making new art to try to get someone to buy that instead.

The secondary value chain starts with collectors and ends with people walking into museums. It’s an ecosystem of curators, critics, scholars, dealers, auction houses, arts foundations — all the people whose job it is to explain why art is important so that everyone else will see its importance too.

The difference between these roles is blurred on purpose by the art world. The reason for this blurring is to keep the art world small and manageable. The larger the number of people who can play a particular role, the more it gets played. And the more it gets played, the less valuable it becomes.

So each role within the art market is like an exclusive club; one way to make sure you don’t overpay for art is to make sure you don’t underpay for artists or dealers or collectors or brokers or anyone else along the way.

Be aware of how art is sold

Art is sold by auction houses and galleries on behalf of artists who are delighted to sell any work at all.
What’s true is that the art market is not entirely rational. The prices work out in ways that are often disturbing to people who know how markets are supposed to work.


The conventional wisdom among economists is that prices in an efficient market reflect the underlying value of what is being sold. This doesn’t seem to be how the art market works.


One notorious example involves Andy Warhol’s “Silver Car Crash (Double Disaster),” which sold for $105 million in 2013. The painting depicts a car accident, which it turns out was based on a photograph from a newspaper article about a real accident in Virginia in 1964. A man driving a Lincoln Mark IV hit a Ford Tudor head-on, killing two passengers in the Lincoln and a four-year-old boy in the car with them. The driver of the Lincoln survived.

Art does not sell for what it’s worth, but for what people will pay.

This is more obvious in some parts of the art market than others. In the world of the Abstract Expressionists, for example, a lot of money was made by selling art that didn’t increase in value over time.

Prices were set by the people who had been in the market longest, and if you could get a lot of their money at once, they would sell you a picture for a high price even if they thought it wasn’t any good.

The prices did not reflect the intrinsic value of what was being sold so much as who was selling and who was buying.

A similar thing goes on in the world of contemporary artists. Prices are set by galleries, not by collectors or curators or critics. Galleries that get into bed with artists early get to charge more when the artist becomes successful, and that success seems to depend more on how well connected the gallery is than on how good an artist he or she is.

Galleries have every incentive to hype new artists; their livelihood depends on it. The same phenomenon can be seen in Hollywood in its early days; many starlets were famous mainly because they were famous;

Saving money on fancy art

If you are not a billionaire, the only thing to do with art is to buy it for less than it’s worth.
Buying great art at a bargain price is not just a matter of luck. The people who take the time to understand art are the ones who get the bargains.

Art appreciation is an insider’s game. The market for paintings runs on rumors, flattery, fads, snobbery, and petty scandals. It is dominated by rich people trying to outdo other rich people, and gallery owners trying to make a living by appealing to that desire. Art insiders prosper by exploiting this.

The public doesn’t know much about art, but they do know what they like, and they can tell when they are being scammed. If you try to sell them something too far from their experience or their taste or their budget or all three, they know it immediately.

 It’s like the stock market: prices are set by insiders trading among themselves in ways that seem mysterious to outsiders. Prices can remain irrational longer than you can remain solvent; but if you act rationally, you have at least a chance of getting in at the right moment.

People who spend a lot on art are not the same as people who save money. In some ways, you can think of them as opposites . This is because saving money is a way of avoiding risk, and someone who spends a lot on art has chosen to take a lot of risks.

The way to make the most money in the art market is to buy good art when it’s cheap and sell it when it’s expensive. But this means knowing what pieces will turn out to be good. How do you know what will be good? You don’t. But if you try to predict anyway, your predictions will only be based on your prejudices and guesses. And if you act on those guesses, you’ll probably lose money.

The market rewards boldness in prediction, but the best strategy is to avoid prediction whenever possible.

The person who buys cheap and sells dear has taken a big risk: that price will go down instead of up. So they must have thought things through carefully, trying to identify the least risky way to get rich quick in the art market.

The secret they use is that there isn’t one . The people who succeed at this game are not super-predators; they’re ordinary people with jobs and families taking advantage of tiny loopholes.

Making a profit off of your hobby

The modern art market now consists of people with a lot of money buying stuff they know is overpriced.
The works are often described as investments, but this is another instance of the same general phenomenon.
If you want to make money off of your hobby, you can’t just buy stuff at the hobby store. You have to go to a place where amateurs and enthusiasts and collectors will pay you for things that amateurs and enthusiasts and collectors like.

The opportunities for amateurs and enthusiasts to make profits from their hobbies are therefore limited by what kinds of things people who don’t care about the hobby will pay for.

This applies not just to art but also to wine, cars, coins, stamps, sports memorabilia, and anything else that gets collected. The more popular these get, the harder it is for non-experts to get in.

If you live in a big city and have a well-developed aesthetic sense, it is easy to feel overwhelmed by the vast quantities of art available to you. This is especially true if you are young and ambitious and getting your education at a fancy art school. You may find that even though you like almost everything you see, art that moves you is rare.

To get over this, take a tip from the world of business: specialize. If you’re interested in contemporary drawing, buy only drawings. If you’re interested in video art, go to all the video shows. The more narrowly and deeply you focus your attention, the more likely it becomes that something will move you (and the less likely it becomes that something will bore or irritate you).
And when something moves you, buy it. It’s good to support artists whose work moves you; besides being generous, this gives them an incentive to keep making work that touches people.

When buying art for yourself, don’t think of it as an investment or an expense. Think of it as sampling. You can always resell it later on if you want to get rid of it, but the whole point of collecting is not being concerned about short-term profit but about long-term enjoyment.


Don’t over-pay for a work of art

Art is a bet on the future. How can you tell whether you are over-paying?

The first rule of art is that you should buy only what you love. If it doesn’t attract you, if it doesn’t give you pleasure, if it doesn’t inspire you, then don’t buy it.

The second rule of art is that you should not pay more than the art is worth to you. If an art dealer claims to know what an art work is “worth,” treat that claim with skepticism. The dealer may be trying to manipulate you, or he may be sincere in his belief about what price will maximize his profit, but either way he is not your friend.

He has an interest in selling the work for as much as possible, which may or may not coincide with your best interest in buying it for as little as possible. You are looking for a bargain; he’s looking for a score.

Another thing to watch out for is the “reputation trap.” The history of taste in art runs in cycles; what was prized in 1900 looks different from what was prized when Picasso was alive, and both of those look different from today’s taste. So when an artist’s reputation rises quickly after her death, there is reason to suspect.

People tend to over-value art because they don’t understand how little it has to do with the art market. They think the value of a work is something like the value of an ordinary object, multiplied by its beauty. Or maybe they don’t think that exactly, but they are vaguely aware that works by famous artists tend to be worth more than ones by unknown ones, so maybe it’s something like that.

But actually the value of a work of art is almost completely unrelated to its beauty or fame. Works that are beautiful or famous are in some way just easier to sell, so their owners are willing to pay more for them. And since buyers are willing to pay more for things they are used to paying more for, art dealers have an incentive to promote the idea that there really is something special about the object, no matter what it is.

But in fact this system makes most works of art worth less rather than more. The economics of supply and demand predicts that when supply goes up, prices go down; and when supply goes down, prices go up. If our theory about supply and demand is right, there should be a lot of good pictures out there whose price is artificially kept down by the fact that there are too many mediocre pictures getting sold instead.

What are the hottest types of art at the present

If you want to know what the hottest art is, you should probably ask an artist. Lots of journalists do that, and then they report that paintings are selling for millions of dollars.

Recently I read that the hottest art has “something to do with the Internet.” I think this is right. But it’s not because the Internet is so hot right now. It’s because the Internet has made it cheaper to produce art than ever before.

Until recently, producing art was very expensive. If you were an artist, you had to spend years learning how to draw or sculpt or paint, and then you had to buy materials, which would cost hundreds or thousands of dollars—and then if at last you created something amazing, there was no way millions of people could see it except by buying a copy for themselves.

And yet millions of people did just that. Art galleries sold millions of copies of famous works by artists like Van Gogh and Picasso.

This situation started to change around 2007 thanks in large part to the popularity of two new technologies: digital cameras and home computers connected to printers. If you can take pictures with your cell phone and print them out on your inkjet at home, why pay someone thousands or even hundreds of dollars to take your picture?

Getting started as a buyer

Many people ask how to start a collection, or how to go about buying a piece of art. The question doesn’t make sense. It is like asking how to start breathing, or how to go about losing weight.

It’s surprising how many people never buy any art. In America, maybe eighty percent of households don’t own a painting or a print. In surveys, most people say they would like to own art, and many say they wish they could buy more. But most don’t even try.

The reason is that the art market seems mysterious and complicated and intimidating, and they think it is not for them. And that leads them into a self-fulfilling prophecy: because the art market seems complicated and intimidating, they don’t try to buy any art; but if they were more confident buyers, they would discover that it isn’t so complicated after all, and maybe it is for them.

The first step is just to buy something — anything — as long as you enjoy looking at it and you can afford it. If you have no idea what you want to buy, look at pictures online or in catalogs and magazines. Go to galleries and museums and look around there too: the price tags will tell you what things cost.

The art market is a good place for a new collector to start. There are plenty of works available at prices that don’t threaten your financial stability. You can learn what you like and what you don’t without making a huge investment. And the more works you buy, the more fun it gets — shopping for art is addictive.

That doesn’t mean it’s easy, though. There are plenty of pitfalls, and because the market is unregulated, if you make a mistake you have little recourse. It’s hard to know what a work is really worth, and even experts can disagree.

The price of a work is set by a combination of supply and demand for that work at that moment. The supply may be described as the number of copies of that work that exist, and the demand as the number of people who want those copies at that moment.

The price can change as one or both factors change: as one artist’s work becomes more fashionable, his prices will rise as people compete to buy his stuff; as an artist becomes less popular, his prices will fall until there is no market for his work at all.

There are other complications: for example, collectors tend to pay more attention to an artist whose style they like than to one whose style they don’t

Where to find art by your favorite artist

Art dealers and collectors can be a big help in finding art by your favorite artist. But first, ask yourself: Why do you like this artist? Is it because of the quality of his work or because of something else?

The quality of the work is the only thing that matters. So look for more art by this artist as if he were someone you had never heard of. If you like his work for reasons other than its quality, you will probably end up disappointed.

If you don’t know enough about art to tell whether something is any good, then you will need some help from those who do. A good place to start is with auction catalogues. Some are better than others, but most are good enough to give you a rough idea, at least at the price ranges where fine art becomes interesting to amateurs.

You can also find art in museum collections, in books on artists’ lives and works, at gallery exhibitions, and on dealer websites.

Where to buy original art

If you have a particular artist in mind, then your first step should be to visit that artist’s website. Some websites have a list of galleries that represent the artist, and some galleries also have a page about their artists. If the gallery is one that represents many artists, there may be a section on their site devoted to helping people find the right artist for them.

If you can’t find information about where to buy art by your favorite artist, it doesn’t mean there aren’t any places to buy it. It just means they aren’t listed online. You can try talking to friends and family members and see if any of them know an art dealer who might represent the kind of work you’re interested in buying.

You can also ask friends and family if they know any collectors or curators who deal with original art. And don’t forget local museums; many of them sell pieces from their permanent collections through their gift shops or other sales outlets.

If you want to own original art but don’t know where to start looking, the best thing I can recommend is to find an experienced collector and ask them for advice. Many collectors will be happy to share their knowledge with you and will probably even invite you over so you can see what kinds of art they collect.

Getting started as a seller

Selling art is hard to get started with, but if you enjoy making art, it can be a rewarding way to spend your time. If you have a skill, or an interesting story to tell, or if you have something you think that other people will want, then trying to sell it in the art market is probably worth doing.

If you’re like me and like both making and selling art, then the question becomes: what do I do with my time? I could make stuff and give it away; I could sell it; or I could do both.

It’s tempting to want to make everything and sell everything, but in fact there are some works that seem like they ought not be given away for free. If you’re going to try selling your work, why not choose some things that make sense as products?

The art market is interesting because it’s one of the few truly free markets left. There are no government restrictions on who can buy or sell. The dealers aren’t organized into cartels. There are no official rules about what art is worth or who can say so.

There are two big differences between the art market and the other free markets you’ve probably heard of, like the stock market or commodities futures. One is that there are relatively few people who really understand the art market, while everyone has an opinion about stocks or commodities.

The other is that while there are plenty of stocks worth under ten dollars, there are very few paintings worth under ten million dollars, which means that if you want to trade in the art market, you need to be rich.

This makes it hard to get started as an art dealer. If you’re not rich already, it’s hard to become rich enough quickly enough to start dealing seriously before your money runs out. For most people that means starting small: buying and selling paintings only a few million dollars each in value.

If you can’t buy and sell paintings for millions of dollars each, how do you get experience? One way is by dealing in prints instead of originals; prints cost much less than originals, so this gives you more exposure.

Be aware of the value when you resell

If you buy a work of art, you have to answer three questions:

  • What is it?
  • How much is it worth?
  • Does it have any meaning for me personally?


Art dealers are well aware that these questions can be answered independently. The price of a work of art is not the meaning. And although meaning is not the same as price, they do tend to go together.
It is possible for an artist to charge whatever she likes for her art, and even to make money doing so.

But the prices charged by artists don’t always make sense. That does not mean they are stupid people taking advantage of rich fools (although it does happen). It means that the art market doesn’t know what the art is worth either.

What an artist asks for her art may reflect how much she needs or wants at that moment, or how much she thinks she can get away with charging. What a collector pays may reflect how much he wants (or can afford) to spend.

Usually—except perhaps in speculative bubbles—these two amounts meet in the middle and the market moves on, leaving no one too unhappy about where things settled.
As long as you know what you paid and why, this kind of mispricing doesn’t matter much

Which platform to sell on

The last generation of art buyers, who grew up in the 1980s, never had to consider which platform they were selling on. If they were artists, they sold their work through galleries; if they were collectors, they bought through galleries. They didn’t know that this kind of centralized control had existed only during the postwar years.

The first generation of postwar collectors—people like Paul Mellon or Catherine and Joseph Pulitzer—had grown up in an age of oligarchy. Before World War I there were only a few dealers who had enough money and taste to organize the kind of sales that made fortunes for collectors.

Dealers like Durand-Ruel or Knoedler bought up thousands of paintings by small unknown artists, then held sales where they offered them off at prices that seemed like bargains to people used to paying through the nose for Old Masters.

Which meant that everyone who wanted to buy or sell art was entirely at the mercy of these dealers. Dealers controlled prices; they selected what was shown in their sale rooms; and if you were an artist, you had no choice but to show them your work and hope they would decide to represent you (which almost never happened).

If you want to sell a piece of art online, where should you go?

The answer that comes to mind is eBay. After all, it’s the biggest auction site around. And because auctions are a well-understood format for selling things, it has the look and feel of a site built for artists. But there are a lot of other candidates out there: Artnet, Saatchi Online, Artsy, Paddle8, and so on. Which one should you sell your work on?

In fact, I’d argue that most artists shouldn’t sell their work online at all; they should sell it in person. But if you do decide to go online, I can help you make an informed decision about which site to use.

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