At first glance, non-fungible tokens, or NFTs, would seem to have little place in the world of fine art. After all, they’ve only been around for nine years, and during that time, they’ve developed a reputation as an abstract form of digital currency only fully understood by tech-savvy early adopters. The mere mention of NFTs raises a bit of skepticism in some circles, partly because not many of us comprehend the technology behind them.
Ask someone to explain NFTs and blockchain technology in layman’s terms, and you’re likely to hear plenty of stammering and double talk, but our newest episode of Absolute Trust Talk will provide a welcome reprieve from that. Kirsten Howe’s guest is Claudia Worthington Hess, who brings an unusual combination of 40 years of experience in the art market and a thorough knowledge of NFTs to the discussion.
A member of the Appraisers Association of America (AAA), Claudia is a certified fine art appraiser who works with museums and other clients throughout the US and Canada on insurance, donation, and estate appraisals. After founding Hess Art Advisory in 2010, she eventually broadened her focus to accommodate the rapidly growing role that NFTs had come to play in the realm of fine art, prompting her to co-found New Media Art Advisory. Her new book, NFTs: A Handbook for Art Lovers, results from 17 months of research on this often-misunderstood topic.
In this episode, she’ll explain why NFTs and fine art — two worlds that seem to have nothing in common — are a natural fit for each other and why NFTs are here to stay, becoming more prevalent in the future. She’ll also provide some interesting perspective on just what goes into determining the value of a given piece of art — much like the fundamentals of NFTs, this is a process that also leaves many of us mystified.
We will also discuss:
- The various events that prompt someone to hire an art appraiser and the distinction between “retail/replacement value” and “fair market value” that not only guides the appraisal process, but also result in a different valuation for each of these.
- Why, as entertaining and compelling as it might be, the story behind a given piece of art is often misleading and shouldn’t play a part in the appraisal process.
- The role that NFTs currently play in the world of fine art and why they’re likely to take on an even more prevalent role in the future — some of the statistics that Claudia will provide are sure to surprise you!
- How NFTs can benefit artists in the future by providing solid proof of agreements between artists and galleries.
- Some actual appraisals Claudia has made not only run contrary to the images most of us conjure up when we think of high-price artwork but also resulted in welcome surprises for art enthusiasts who bought wisely and held on for the long run.
We hope you will join us as we take a look at the world of art appraisal, the rise of NFTs and the connection that’s been growing between these two seemingly disparate worlds.
Big Three from Episode #109:
- Not many people request an artwork appraisal on a whim. Claudia is usually called on by clients who fall into two categories. 1) They need to update their insurance coverage and can’t rely on outdated information to determine their artwork’s replacement/retail value, or 2) They must provide a fair market valuation to the IRS for tax purposes in the aftermath of a donation to a museum or other collection. Because these two types of appraisals consider different factors — retail or replacement value factors in immediacy, whereas fair market value is the price agreed upon between a willing buyer and a willing seller under no pressure to transact — they will also yield different conclusions.
- Many of us view the art appraisal process as being entirely subjective, but there are professionally accepted standards to be adhered to. These Uniform Standards of Professional Appraisal Practice (USPAP), include specific steps an appraiser must take to arrive at a legitimate conclusion. Because these steps include thoroughly researching the art market to find similar pieces to use as “comparables” — much as a real estate agent would do — an accomplished art appraiser must have strong relationships with galleries and other sellers of fine art, as well as a thick rolodex of colleagues with different areas of specialization.
- NFTs are effective tools to trade value on the blockchain — an often-misunderstood technology. In essence, the blockchain is a digital ledger system that provides a permanent record of transactions. This permanent, unalterable record makes NFTs an excellent fit for the world of fine art, often fraught with questionable proof of ownership and differing understandings between artists and galleries.
Time-stamped Show Notes:
1:48 Claudia works with museums and clients across the United States and Candida on insurance, donation, and estate appraisals.
3:38 Wondering what goes into appraising a piece of art? It’s a mix of sciences and connoisseurship mixed with being an art detective and psychologist.
4:33 In the art appraisal world, there are three subdivisions – fine art, decorative art, and multimedia art.
5:46 Life events are one of the main reasons why people get their artwork appraised in the first place, like an insurance policy request.
7:33 Here’s why an appraisal may yield substantially different valuations, depending on its objective.
9:04 When dealing with the IRS or evaluating someone’s estate, that’s when you focus on fair market value. Here’s what you need to know.
10:37 Art appraisal may seem subjective, but the USEPAP or Uniform Standards of Professional Appraisal Practice helps professionals like Claudia find comps.
11:35 The most common frustration voiced by those who attempt to determine the value of their artwork without the proper experience is that the values are all over the place.
13:35 The field of art appraisal changes continually. Claudia stays up to date by attending events, networking, and doing a lot of homework to maintain her certifications.
14:27 Here are some of the primary considerations Claudia makes when determining the value of a piece of art.
15:43 While we may be entertained by the story behind a piece of art, what someone is willing to pay for a piece is what really determines its ultimate value.
16:59 Young people seem to value experiences over objects these days, but here’s why artwork will always have appeal.
19:26 For art lovers, NFTs feature these two main categories. Claudia gets into greater detail in her new book, NFTs: A Handbook for Art Lovers, which can be found on her website, www.HessArtAdvisories.com/Book.
21:02 A blockchain is a digital ledger system that keeps adding blocks of information. It never goes backward. It’s always being added on to cryptographically.
22:40 These surprising statistics will underscore how mainstream NFTs are in the art world now – digital art transactions ranged from 78 million per month in April 2020 to an average of 24.7 million in October 2022.
24:28 Future royalties are a main benefit of NFTs, making them especially effective in proving ownership and confirming agreements between artists and galleries.
27:34 In keeping with the digital world, Claudia’s book is currently a digital download, which she is working to turn into a 3D NFT.
28:34 Q&A: Is it more common for people to think their art is worth more than it really is, or are they typically more surprised that they own an expensive piece?
29:12 Q&A: What is the biggest surprise Claudia has seen in her practice?
30:38 Q&A: Where do you show for NFTs? Can they be displayed in galleries?
Get in Touch with Claudia Hess
Claudia W. Hess, MBA, AAA, Certified Member, Appraisers Association of America CEO,
Hess Art Advisory
Resources/Links Mentioned in this Episode:
- To purchase a digital copy of Claudia’s new book, NFTs: A Handbook for Art Lovers, go to https://www.hessartadvisory.com/book.
- Absolute Trust Talk Ep. 097 Estate Planning Lessons from the Rich and Famous
- Absolute Trust Talk Ep. 074 Art Therapy and Dementia
- Absolute Trust Talk Ep. 061 Keys to a Successful Transfer of Wealth
- We’re pleased to provide you with a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
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