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The saga of Sotheby’s massive 59-ct pink diamond that sold for the second time this Spring for $71m, a $12m discount from the incomplete sale four years earlier, is a stark reminder of the fragility of the very top end of the art market. Exceptional objects have fleeting values.

The value of art and other tangible assets is also social. By that we mean, the value of any object is a product of the common sentiment that the object is important, desirable and only available through competition.

We’ve seen that process play itself out recently in a number of different art sales. Sotheby’s most visible commentators—CEO Tad Smith and Chairman of the Fine Art division Amy Cappellazzo—both remarked last week that market could be divided into two classes of objects: those with increasingly known and predictable values and the rare few objects so desirable that there will be a buyer at almost any price.

For a brief moment in 2013, the Pink Star diamond was such an object. Offered with an estimate of $60m, it sold to diamond cutter Isaac Wolff, backed by a group of investors, for $83m. At the time, Wolff believed he had made a savvy deal on an undervalued asset. Wolff spoke openly having a group of investors backing him on the belief that the stone was worth $150m because of the extreme rarity of colored diamonds of such a gargantuan size.

In an Israeli TV interview, Wolff reminded the host that the Pink Star was one of three exceptional stones in the world and would be bought as a “museum piece” or a collectible, not a simply as a gem or jewelry. Given the interest in non-financial assets at the time, the logic was sound.

Unfortunately for Wolff, his backers fell through. When it was revealed that the sale had fallen through, Sotheby’s implicitly had to admit that the under-bidders who helped push the stone over the $80m mark, no longer had confidence the same valuation they had backed on the day of the sale.

Eventually Sotheby’s found another backer willing to value the diamond at $68.4m, more than the guarantee, who took half of the risk off Sotheby’s hands. In the end, it wasn’t a terrible bet for the backers, they made 4% over a year. Surely they were hoping for more. After all, three other bidders thought $80m was a reasonable price. And all of them anticipated finding an end buyer who would pay even more for such a rare and beautiful item.

Two Kinds of Works

That brings us back to Smith and Cappellazzo who rightly point out that the art market has become much better at pricing works. When both made similar comments during the earnings call about the state of the market, they seemed to be sending signals to consignors that the vast majority of works are not going to be like the untitled Jean-Michel Basquiat head that Sotheby’s sold for $110m or nearly twice the $60m estimate.

Though hardly confined to the Basquiat, Smith and Cappellazzo seem to be making direct reference to the painting’s surprise success in their comments. This is a bit of a double-edged sword. The Basquiat’s success was an inflection point for the auction house. The sale allowed Sotheby’s to steal the limelight (once again) during an auction season when it was considered an under dog.

So it is interesting that Sotheby’s is tempering that success with caution. And rightly so. Before the success of Sotheby’s Basquiat and the previous year’s sale of Adam Lindemann’s record-setting painting to the same buyer, Sotheby’s had helped to broker a sale of Dustheads, the previous record setter.

In 2013, the same year as the first sale of the Pink Star diamond, Dustheads had been bought in a bidding frenzy at Christie’s for $48.8m. After the sale, it was very much considered a similarly bankable work. But when it came to pass that the buyer of Dustheads needed to sell it two years later, the previous value evaporated. Sotheby’s was able to broker a private sale with hedge fund manager Daniel Sundheim for $35m, a 28% haircut on the price paid. In comparison, the resale on the Pink Star was only at a 14% discount from the 2013 price.

Even with these bumpy sales histories, both works are likely to fall into Sotheby’s first category of distinctive works that will remain very desirable. After all, both works were re-sold for substantial prices in trying circumstances. The resales demonstrate the social aspect of price. There are simply times when a valuable object will see the consensus around its value evaporate causing the price to fall. Both are still likely to be sought after and desirable after some time passes, possibly even because of the added notoriety of these market hiccups.

Predictability v. Volatility

Following Sotheby’s lead, we can assume that the market is more predictable because of the prevalent use of third-party guarantees which validate prices but also squelch competition. At the most visible end of the market, where Smith and Cappellazzo seem to be focusing their comments, sellers are being cautioned to hedge their offerings with irrevocable bids and take their chances on having one of the few works that might be the focus of a heedless-to-price bidding war.

Implicit in the comments on greater known value and lesser unknown value is the unstated observation that the works that will provoke “eye-popping prices” or are of the utmost “quality” to use Smith and Cappellazzo’s identifiers, are not self-evident.

In other words, many high quality, fresh-to-the-market works that are in excellent condition will sell for a known price. Neither the consignors nor the auction house specialists are sure which of those works will attract the heedless bids.

Sotheby’s has become expert at pricing for the downside. But no one has figured out how to price for the upside. Which makes it hard to manage an auction house which must plan budgets just like any other business.