U.S. Bankruptcy Judge Steven Rhodes rejected on Wednesday Jan.22 the request of Detroit's creditors to establish an independent committee to evaluate the worth of all of the DIA's assets, as Detroit Free Press reports. The creditors were claiming that Christie's valuation was insufficient and inappropriately low, and they wanted to include not only works bought with city funds but also those donated to the museum or bought with money from other sources.
Also on Wednesday Michigan Gov. Rick Snyder and legislative leaders announced a proposal to match the funding of a group of Foundations, which have promised $350 million to the city of Detroit to help financing the pension system and avoid the sale of Detroit Art Institute's works of art.
But how much is the art of the city of Detroit really worth? ArtEconomy24 asked valuation expert Beverly Schreiber Jacoby, Harvard graduate and President of BSJ Fine Art in New York.

What do you think of the valuation made by Christie's of the art works from Art Institute of Detroit?
There is a basic conceptual mistake and that is that Christie's has made an assessment based on the market value (fair market value), while it should be based on the liquidation value.

And what about the figure offered by the foundations?
$350 million to secure the DIA collection suggests a liquidation price valuation level, exactly as we suggested.

Could you explain the difference?
The first thing to note when it comes to the valuation of works of art is that there is not a single unique value that fits all circumstances. The value of the work varies depending on the context and the purpose for which the assessment is made. The valuation of a work of art for tax purposes has, for example, a different value of the valuation of a work for insurance purposes.

How many types of value exist?
In the United States we distinguish between an insurance value, which is the highest and should be sufficient to cover the cost of the work if it is damaged and you decide to replace it immediately with a similar one ("a work of like kind and quality"); the market value (fair market value), also used for tax purposes, defined as the amount for which a willing and knowledgeable seller is willing to sell and a willing and knowledgeable buyer is willing to buy; a market value applied in the event of divorce (divorce value), which is lower because it represents the amount left in the seller's pocket after all sales expenses are deducted; the value in the event of bankruptcy or liquidation (liquidation value) when time is of the essence to make a sale, and finally salvage, which represents the value left after a work is damaged. If, for example, you value a work to use it as collateral for a loan, you consider the fair market value and then the lender will typically grant a loan equal to 40-50-60% of the fair market value, because in this case the question is: how much is the work worth tomorrow if i have to sell?

Can you give us an example?
In 2012 we dealt with the famous work Robert Rauschenberg's "Canyon" (1959), which belonged to the heirs of Ileana Sonnabend, recently donated to the Museum Of Modern Art. In that case, the U.S. tax authorities claimed an inheritance tax calculated on a fair market value of the work at $ 65 million, while I and my daughter and collaborator, Elizabeth E. Jacoby, imposed our own professional opinion according to which the value of the work was zero, because the value of the work for tax purposes is based on the fair market value and in this case the work is not marketable because of the presence of a painted American bald eagle, a legally protected species as a component of in the work.

In which percentage do values change one from another?
It is not easy to determine in which percentage the value of a work changes depending on the context because in the art world there is no designated upper limit which represents the 100%. The maximum value may rise or fall overnight and create a new benchmark for the work itself and for similar works.
In addition, there are several factors that affect the value, such as the desirability of the work, condition, provenance, taste, the state of the market, not only of the art market but also of the global economy. Because the art market is very psychology driven, and even if the rich stay rich, they are Less likely to feel comfortable spending in a situation of uncertainty.

Let's go back to the Detroit case. Could you explain better ...
The process of valuation of the art belonging to the City of Detroit included in the collection of the DIA does not consider that THIS art is brought on the market as a result of a declaration of bankruptcy. It is a forced sale. This is not the case of a collector who decides to sell his collection and is authorized to do so. In this case, the museum do not want to sell. On the contrary, it fights for the integrity of the collection; the city owns a portion of the collection because a long time ago it paid for the works; while those who want to sell are the creditors of the city who want to monetize any asset of Detroit, but the creditors are not the owners of the collection. The generally accepted conditions required to apply the "fair market value" standard are not evident in a distress situation. It is a situation that looks more like a divorce, with the warring parties one against the other.

What other factors could negatively affect the sale?
All this controversy has made the art less desirable. It will be more difficult to entice a large pool of potential buyers and this will further limit the upside for prices. American museums will be inclined to stay away because they will not wish to take advantage of the distress of another museum. While speculators from emerging countries could benefit from the unfortunate fate of the museum they will win no friends for doing so.

So you do not recommend the sale of the art of DIA to pay off creditors?
This idea is misguided and it is unlikely that it will benefit any of the parties involved. creditors have a too positive financial outcome scenario in front of their eyes, but they have not considered that these works depend upon having a value in the art market and in the art market the potential sale is considered negatively.

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