Introduction

Christie's announced last week that they will be selling Wassily Kandinsky's Improvisation mit Pferden (Studie für Improvisation 20) or study for Improvisation 20 for an estimated $10m - $15m in the fall of 2017. The appraisers at Christie's likely have direct access to the painting, the documentation associated with it, control over the promotion leading up the auction, and 241 years of experience appraising and selling art. I have none of those things, but I do have a one-of-a-kind analytical art database. So I decided to build on the techniques I used to win 2nd place in the first fantasy art auction to see if I could create a more accurate appraisal than the experts at Christie's.

How Are Estimates Established?

The auction house appraises the work and gets with the seller to establish the lowest price they are willing to sell for, called the "reserve price," which is not made public. The public instead sees a range, with a "low estimate" and a "high estimate." Low estimates are commonly understood to be 25-30% higher than the reserve price. The "high estimate," is what the work would sell for under ideal circumstances for the auction house (a bidding war).

The price announced when a buyer wins the auction is called the "hammer price." An auction house's commission and fees are then added to the hammer price, producing what is called a "premium price."

One study showed that auction houses consistently lowball estimates by 20%. Why underestimate? Lower estimates mean lower reserves, which draws in more bidders, which drives up competition and sale prices, and produces more sales. This also gives sellers the pleasure of seeing the work sell for more than the estimate, increasing the chance they will do more business with the auction house in the future.

If a work does not meet the reserve price, it is not sold, and is listed as "bought in." This is bad for the auction house (no commission) and bad for the seller (works are seen as unwanted or tarnished). Given the consequences, works are "bought in" more frequently than you might expect, around 20-30% of the time.

Evaluating Kandinsky's Body of Work

Wassily Kandinsky, considered to be the father of abstract art, created 1,176 oil paintings in 54 years of painting (1890-1944). This works out to an average of 21 oil paintings a year, impressive when you consider he was also a prolific watercolor artist. Kandinsky painted Study for Improvisation 20 in 1911, just one year after his untitled watercolor, which most people believe is the first purely abstract painting in all of modern art. For this reason, works from this time period are particularly valuable.