Contrary to what many may believe art can be purchased in two different types of markets: the primary and the secondary market.
The primary market refers to when an artwork hits the market for the first time, maybe being sold at a gallery, or direct from an artist’s studio. The secondary market is the world of re-selling artworks, perhaps through a dealer or at auction.
Understanding how these markets work is crucial to building an art portfolio that works for you and your financial future.
Rayah Levy, founder and director of Mill Valley, CA-based fine art investment company ArteQuesta, explains the appeal of the primary market:
“One of the greatest distinguishing factor about the primary market is that the work available for purchase comes directly from artists’ studios. With the exception of Damien Hirst’s “Beautiful Inside My Head Forever” which was offered for charity, primary auctions are unheard of.
“Primary market collectors often have closer relationships with artists than secondary market collectors. Getting to know the artist is not only part of the excitement of collecting, but an essential researching tool for the development of a collection.”
She says this relationship-building creates confidence between the artists and collector. Often artists resent the high fees and prices that collectors take from them on the secondary market by flipping their work at auction. A dealer in the secondary market focuses on achieving the highest price possible. If the sale doesn’t go as planned at auction they move on to promoting the next person, even though this can be career-ending for the artist.
“In contrast, primary dealers generally stay quiet about their asking prices as to not inflate prices, creating stability in the market,” she says.
She says a key point about the primary art market is that prices are generally lower than secondary ones because there is not an opportunity for them to become inflated at auction. Although the prices are lower, there is more risk-involved for a collector that does not have training in art investment criteria or refuses to consult an expert.
“In just a few years’ time a purchase may be worth ten times what was paid for it; conversely, a collector may not be able to sell it at all,” she says. “The success of a sale greatly depends on the investment quality of the artist in question. Because of this potential risk, it is important to work with an expert to find artists whose dedication and talent will have longevity in the market.
“Within the primary market there is a sense of passion, interest and possibility for both the artist and collector. The primary and secondary art markets are very much intertwined, and it is important to follow both as you build your appreciation of art. Visiting art galleries and art institutions will help you discover new art and build your own knowledge and preferences.”