David Sleeman, director of Winston Art Group in New York City, says that in 2007 and 2008, before the stock market crashed, people were buying art in a sort of frenzy that did not always lead to good decisions.
"People were overpaying for things," he says. "They were buying perhaps not the best examples of the works of a given artist, but the market was so strong, people were competing and that was driving prices up.
"As art advisors, we are finding that a few people did get their fingers burned. Sometimes, we learn lessons the hard way."
The lessons can be very expensive.
Sleeman tells the story of a woman whose mother had told her that when she died, the daughter could have her Frederick Arthur Bridgman painting. So when the mother died, the daughter took the painting home and hung it on her wall before the estate was valued and closed.
After the closing of the estate, the daughter decided the painting didn't match her décor and sold it to a local dealer for $400,000. At tax time, her accountant asked about that money and the daughter told him. The accountant sought help from Winston because of the tax implications. The firm's research found that the dealer had resold the painting at auction for $850,000.
The daughter made several mistakes, including taking the painting before its value was included in the estate and not getting an appraisal on the painting before selling it.
"The IRS could have filed charges against her," Sleeman says. "The estate was reopened and the estate paid taxes on the $850,000. That's what the IRS deemed it was worth. ... During her life, her mother could have gifted it to her and there would not have been this catastrophic tax burden."
It's important to get the right kind of appraisal. The type of appraisal will vary based on its use. To insure a piece of art or fine furniture, for example, it should be appraised at its retail replacement value so it is covered if stolen or damaged.
"When an individual owns any things of value, you need to have it insured. We do hundreds of appraisals every year," says Anita Heriot, head of the appraisals department at Freeman's, the nation's oldest auction house, based in Philadelphia.