We review each investment for an updated valuation every quarter after a certain period following each offering (How Often Are My Investments Valued). This process involves a valuation of the artwork within your investment and the shares you invested in themselves.
Valuing Artwork
The first step is a valuation of the artwork within each investment. We value artwork based on a Fair Market Value appraisal. Fair Market Value is a very common definition of value used frequently by the IRS. Essentially, it is the price achieved between a willing buyer and seller in an ordinary, open market deal, with neither party being forced and having all the facts about the deal. (IRS Publication 561)
Artwork is typically valued using a comparable sales approach, which means sales of other similar artwork can help inform about the estimated value of a particular artwork. Similarity might be a matter of who painted the artwork, when did they paint it, what is the imagery within the artwork, condition of the artwork and so on. This is similar to how an appraiser might value your home, in which its location, when it was built, its condition, etc are important factors to value your home.
We arrive at a Fair Market Value for each artwork by reviewing all the comparable sales that have taken place in the market. As the largest art market buyer, Masterworks has unique perspective on sales that happen in public auctions (such as Sotheby's and Christie's), and, very importantly, also in private sales (such as at art fairs, in galleries or between dealers), where prices generally aren't known to the public. Our team includes USPAP-certified appraisers and art market professionals with extensive experience in evaluating artwork. Annually, an independent appraiser reviews our appraisal work.
Valuing My Shares
Once we come up with a Fair Market Value of the artwork, we then calculate an estimated Net Asset Value per share (or estimated NAV) for the shares in each investment. This is a purely mathematical calculation that takes into accounts all the shares outstanding shares (some of which Masterworks earns overtime for administering the investment) and our profit share when the artwork is sold. This lets us convert the artwork value into a per share value for each investment.***
Keep in Mind
You might not see your investment get re-valued right away. This is normal. We start revaluing investments 6 months after the first closing of each offering.
How Often Are My Investments Valued
For more information on Masterworks appraisal methodology and other important considerations, click here.