This market is priced by dealers. They will price work according to its size and the reputation of the artist. The reputation of the dealer as well as the status of the client is all taken into account to place a numerical value on art. A new artist's work will be priced according to the dealers reputation therefore a mainstream gallery will price an artist with no history at about $5000 - $10,000. This builds trust between dealer and client. From this point on the dealer will increase art prices to build an illusion of success.
To invest in the art world it is always good to be well informed. Just like investing in stocks it is good to diversify by buying several art pieces instead of putting all your money on one artist and one painting. Here is a helpful link to check auction prices: http://www.artnet.com/?gclid=CPGB3IuO86oCFc465QodFCcZNg
While a Picasso or Monet may be sound investments there is little room for greater appreciation compared to a new up and coming artist. According to a professor of economics David Galenson the most valuable artwork is created at the beginning or at the very end of a successful artist's career.
Some people claim that contemporary art is a better way to create wealth in comparison to investing in stocks, gold or governmental bonds. They base this on the Mei/Moses art index http://www.artasanasset.com/main/. The problem is that the index has a few flaws one being it does not take taxation into consideration.
One interesting point by Mei/Moses is that financial markets and art markets do not move in unison. When stock markets crash investors liquidate their stocks and invest in museum quality art.
Here are a few facts from art experts:
A portrait of an attractive woman will appreciate better
Colors that sell most are red,white and blue least saleable colors green and black
Pale colors don't sell as well as bright colors
Nudity seems to sell more than modesty
Paintings with cows don't do well
Roses sell better than other flowers
When it comes to superstar artists some of these rules can be broken
Art Pricing Game: See if you can accurately guess what these artworks sold for click on link for answers
Small Torn Campbell's Soup Can - Andy Warhol
White Center (Yellow, Pink and Lavender on Rose) - Mark Rothko
A. $11.5 million
B. $72.84 million
C. $84.52 million
Bloodline The Family No.3 - Zhang Xiaogang