As the art market enters its fifth year of expansion, few clouds are seen on the horizon. You hear none of the usual dealer complaints about high prices, scarcity of material or greedy collectors. A harsh reality has set in for those who sell art for a living. If you want to continue to deal on the secondary market, you have to be willing to buy at the new price levels, recalibrated upward after each round of auctions. If you panic and say, "These prices are absurd," then you’re out of the game.

As a dealer who is uncomfortable paying $100,000 for a five-inch-square Andy Warhol "Flowers" painting, I’m no longer "in the game." Now I broker everything -- rather than owning inventory, I put buyer and seller together and extract a commission for the service. The funny thing is that if you’re careful, you can earn just as much as you did buying inventory and flipping it every six months. Prices have become so high that collectors no longer force you to buy things outright from them. They’re often happy to let you broker works of art for a smaller percentage. The standard brokerage fee for a dealer used to be approximately 10 percent. Now it’s often less. But five percent of $1 million is the same as 10 percent of $500,000.

The whole secondary market business is based on knowing where the "bodies" are -- that is, who owns desirable artworks. For that reason, whenever possible, a dealer will avoid selling to other dealers. Who knows where the artwork will end up? When a client wants to sell something, assuming you sold high-quality works in the first place, you’re thrilled to get it back and have the opportunity to make money a second time. For instance, if you’re a veteran of the 1980s art-market boom, chances are you dealt the odd Richard Diebenkorn work here or Wayne Thiebaud there, and now these pictures are worth a fortune. The typical strategy is to call collectors, inform them of how valuable their paintings have become, and convince them that now is a good time to sell. Most will turn you down, delighted to have gotten a free appraisal. But once in awhile, a savvy collector will opt for "taking some off the table."

I had this experience recently when I suggested a client let me sell his Andy Warhol 24-inch-square "Flowers" painting. The story begins back in 1993. During the nadir of the art market, Warhol’s two-foot "Flowers" had fallen from $225,000 to $75,000 -- for a good one. That day, right before meeting the collector for lunch in SoHo, I had stopped by O. K. Harris Works of Art. I walked into Ivan Karp’s office and saw the best "Flowers" painting I had ever seen. It was also a great Pop work -- the flowers were screened in fuscia, orange and red on a green background. In fact, Ivan informed me it was the very first "Flowers" sold from Warhol’s first show at Leo Castelli in 1964.

While having lunch with the collector, I told him about this incredible painting. Though he wasn’t a Warhol fan, he couldn’t resist taking a peek at a picture I was raving about. We walked into O.K. Harris, Ivan offered him a cigar, one thing led to another, and he bought it for $75,000.

Flash forward to April 2006. Rumor had it that "market-making" art dealing family, the Mugrabis, were offering one of their 24-inch-square "Flowers" for $1.2 million. Once I confirmed the story, I called my client and told him about it. Though he knew his painting had appreciated dramatically, he was still shocked it had crossed the million-dollar threshold. The collector was also receptive to a gentle inquiry about selling his picture. Although he was a wealthy individual to begin with, he was still astute enough to know it made sense to take his profits in an outrageously high market.

Working quickly, I was able to slip the painting into Sotheby’s London sale last June, where it sold for $1.8 million (including the premium). The collector’s take was over $1.5 million -- not bad for a $75,000 investment. The other day, I asked him how he would feel if a "Flowers" painting brought $2 million this November. His response was pretty much along the lines of "if it does, it does." He expressed his delight that his money from the sale was in the bank, earning interest -- an impressive example of the rewards of selling "too soon."

The antithesis of selling too soon would be, of course, selling too late. Along those lines, here’s another Warhol market story. The Perry Rubenstein Gallery recently ran a handsome ad in Artforum magazine advertising a show of "Skulls" and "Hammer & Sickle" paintings. It turns out the show contains only one "Skull" painting that’s actually for sale, priced at $1.3 million. It’s a pretty wild price, especially considering that the painting was last seen at Christie’s only a year ago, in a day sale on Nov. 9, 2005. It was one of a group of four "Skulls" that sold for $1 million.

Word has it the painting was consigned to the Rubenstein Gallery for $1.2 million. If you do the math, that means the buyer is attempting to make almost a $1 million profit in only a year’s time -- and still have three pictures left.

With that in mind, I called a Los Angeles painter who owned a "Skull," knowing that he had received it in trade for one of his own paintings. I told him about the current show in New York, along with their asking price for a "Skull." His first comment was, "Get me $1 million and it’s yours." I told him that wasn’t realistic. Then I made a few phone calls and was able to secure a firm offer of $800,000. I called him back and said, "Look, I can get you $750,000 for your Warhol -- immediate payment."

The painter hemmed and hawed. Finally, he said, "Let me talk to my accountant." A few days later, he calls me back and says, "Nah, I don’t think I want to sell it. My accountant told me the capital gains tax would be 38 percent, which means I’d have to give the government $285,000."

My response was, "That’s true. But since you have no cost basis in it, you’d still be left with $465,000, all of it profit."

Then I said, "I know it sounds self-serving, but this is a moment in time. This is the absolute peak of the market. I seriously doubt you’ll see these prices again, unless you own something iconic. The "Skulls" are nice paintings, but they’re hardly Warhol icons."

Despite my efforts to convince him, the painter turned the deal down. While it’s his prerogative, chances are when he decides to sell, he will sell too late. You may say this is "sour grapes" on my part. It’s not. In the art business, only about one in ten deals pans out, so a failed sale like this is just taken in stride.

Speaking of million-dollar pictures, one phenomena of the current boom market is the number of younger and mid-career artists who sell at this level at auction. Artists such as Luc Tuymans, Richard Prince, Marlene Dumas, Lisa Yuskavage, Cecily Brown, Christopher Wool and Elizabeth Peyton, whose work has yet to survive the test time, have been bringing tremendous money. While I realize that many knowledgeable collectors have been buying these artists, $1 million is still an awful lot of money. As a dealer, I would be very cautious buying at these levels.

Then again, a gallerist on 57th Street was recently quoted off the record as saying, "$2,000,000 a year in income is the new middle class for art dealers." I guess that makes me lower class.

If the art market does experience some problems in the auctions this November, one group I’ll be watching is the "cartoon" artists. Prices have simply gotten out of hand for works by the Japanese art superstars Takashi Murakami and Yoshitomo Nara. Murakami especially is an artist whose style is more suited to designing bags for Louis Vuitton, as was proved by the recent craze for his works. Despite the strength of his current market, in my view his long-term prospects are grim.

In this sort of "wacked out" market, the question becomes, "Who’s a comparative bargain?" Try the 1980s for the answer. Suddenly, David Salle looks pretty good. He’s been around a while, he’s still affordable, he has strong representation and his work "holds the wall." Julian Schnabel also looks good, if you’re willing to be discerning in picking a painting. His works can be relatively cheap at auction. Philip Taaffe is a highly original painter whose technique and imagery elevated the meaning of the word "decorative." I would also look at Francesco Clemente. His pastels and watercolors are especially worthwhile.

Others from this period are stuck in neutral and likely to stay there. This group includes George Condo, Kenny Scharf, Ross Bleckner, Jennifer Bartlett, Peter Halley, Terry Winters and Elizabeth Murray. Those who might break from the pack include Carroll Dunham, Susan Rothenberg and Donald Baechler.

Finally, the most mystifying market of any 1980s artist belongs, in my view, to Mike Kelley. Sewing together stuffed animals and claiming that the resulting tableaux address such heavy topics as "love, longing and loss" is absurd. I’ll never forget seeing a work by Kelley at an art fair about ten years ago. It can be described as a 2 x 2 foot cardboard box, placed on the floor, with a square "mouse hole" cut out of the front and the name "Pooter" written on it with black marker. The dealer explained that it had something to do with a cat belonging to the artist’s girlfriend. Oh, and it was priced at around $15,000.

A number of serious abstract painters, who emerged during the 1980s, are also worth collecting at their current prices. Among the best are Richmond Burton, Karen Davie, Caio Fonseca, Mary Heilman, Jonathan Lasker, David Reed, David Row and Juan Usle. The painter Sean Scully can be placed in this group as well. While I’m a fan of his work -- though an acquaintance referred to it as "necktie art" -- he’s now approaching $1 million at auction, which seems steep. I would also include an artist who’s totally unknown, the New York painter Eric Erickson. Though I will confess he’s a personal friend, I find his work to be an effective cross between Cy Twombly and Philip Guston. Check him out.

Another small group, known loosely as "appropriationists," has been doing well at auction. This success should continue for best of the group, Elaine Sturtevant and Richard Pettibone. It’s interesting to note that both these artists have their roots in the 1960s, as opposed to Mike Bidlo and Sherrie Levine, who came of age in the 1980s.

If I had to come up with a comprehensive list of art-market recommendations, I’d tender the following:

10 Short-Term Buys
Blue-chip contemporary artists who are undervalued, listed in alphabetical order, include Carl Andre, Richard Artschwager, John Chamberlain, Joseph Cornell, Sam Francis, Robert Gober, Ralph Goings, Howard Hodgkin, Frank Stella and Tom Wesselmann.

10 Long-Term Buys
Blue-chip contemporary artists who will continue to appreciate, despite prices that are already high, include Willem de Kooning, Philip Guston, David Hockney, Jasper Johns, Donald Judd, Roy Lichtenstein, Brice Marden, Robert Rauschenberg, Cy Twombly and Andy Warhol.

10 Holds
Blue-chip artists whose prices are maxed out but who are nevertheless worth hanging onto because of the high quality of their work include Jean-Michel Basquiat, Alexander Calder, Maurizio Cattelan, Chuck Close, Lucian Freud, Andreas Gursky, Ellsworth Kelly, Joan Mitchell, Gerhard Richter and Ed Ruscha.

10 Sells
Blue-chip artists whose prices are maxed out and may actually sink at auction include Keith Haring, Robert Indiana, Alex Katz, Robert Mangold, Louise Nevelson, Kenneth Noland, Chris Ofili, Lucas Samaras, George Segal and Donald Sultan.

5 Sleepers
Mid-level artists who will eventually be considered Blue-chip include John Baldessari, Ed Moses, Ed Paschke, Ken Price and Richard Tuttle.

5 Wild Cards:
Blue-chip artists with narrow markets whose future prices are too difficult to call include Matthew Barney, Louise Bourgeois, Vija Celmins, Tom Friedman and Bruce Nauman.

Overall, as November rolls around, art-market watchers should bear one thing in mind -- the art market is unlikely to go down. It seems more possible that the market will level off. On the surface, plenty of dealers would gladly settle for stable prices. But there’s a catch. If November’s prices only equal those of last May, speculators will be disappointed. If prices stall and don’t go up, then the boom is over. The psychology of investing is usually, "If it’s not going up it’s going down," because your money is no longer working for you. That means even if art prices stay at this frothy level, they will be perceived as going down. And we all know perception becomes reality.

RICHARD POLSKY, author of I Bought Andy Warhol, is a private dealer based in Sausalito, California. Comments can be directed to: Polskyart@msn.com