Appraisals satisfy a variety of needs and legal requirements. At some point in our lives (or at perhaps at the end of it) we will all need the services of an appraiser. How well this appraiser provides his or her service will directly impact your financial status, tax liability, insurance needs, buying decisions, and perhaps how must time you spend with an IRS auditor. This article will cover the very basics of appraising, appraisals and appraiser qualifications for personal property.
After you read this article you will know more about the requirements of a qualified appraisal than 98% of those calling themselves appraisers. That is a very frightening fact.
In addition, there are no laws in place in any state, as of the writing of this article, for personal property appraisals. Anyone can call himself or herself an appraiser -- another frightening fact. The responsibility of selecting a qualified appraiser falls upon you.
An appraisal is formal, written documentation of the research and reporting of a specific value for a specific intended use. It must be an unbiased, qualified, arms-length report. Appraisals must not be misleading and must report a value conclusion based on proper research and accepted appraisal methodology. Dealers and collectors may be very familiar with the prices of manuscripts, rare books and
autographs, but few know the appropriate and required procedures for presenting these values in an appraisal report. The report must be written so that the client and any third parties will understand the process and procedures used in arriving at the value conclusion stated. All readers of the report must understand any limiting conditions and critical assumptions that may be a part of the assignment.
Appraisals are used for a variety of "functions" (intended uses). Some examples are: to establish estate tax liability, to establish value for insurance coverage, to report and document a casualty loss, to document charitable contributions, to provide for equitable distribution, to determine asset valuation, or to understand the values of potential purchases and sales of items or collections.
Appraisals must also include a stated purpose. The "purpose", in appraisal terminology, is the value being researched and reported. Examples of appraisal purposes are: retail replacement value, forced sale value, fair market value, market value in place, retail value less depreciation, etc.
Generally accepted personal property appraisal practice standards require that the appraiser must always perform ethically and competently and in accordance with accepted appraisal standards. The appraiser is required to act as a disinterested third party and to perform an unbiased appraisal. That means that an appraiser is NOT an advocate. He or she is presenting valuation opinions based on proper research and appraisal methodology. Appraisers do not Determine value. Appraisers Report value based on proper research, knowledge and market study.
Qualified appraisers must act with impartiality, objectivity, independence and without accommodation of personal interest. They must avoid any action that could be considered misleading. That means they must avoid any possible "perception of impropriety." If this is true, (and it is) then why are so many dealers offering to provide "appraisals" of the material they sell to their customers?
Based on these standards, that appraisal does not meet the criteria of a qualified appraisal. If it is written for the "intended use" of determining insurance coverage for example it will most likely be rejected by a knowledgeable insurance underwriter because it is probably not unbiased nor is it impartial. Even if it is accurate the perception of impropriety still exists.
The IRS guidelines are even more strict. In a recent example an autograph dealer, acting as an appraiser, provided an "appraisal" of a portion of an estate consisting of many presidential autographs . After the appraisal was completed the dealer purchased the autographs at the appraised value. The IRS heard of the transaction and negated the entire estate appraisal including real estate, fine art, and the residential contents. The trust officer had to hire a new appraisal team, pay interest and penalties and resubmit the estate paperwork. Guess who was sued for the cost of penalties, interest, and the cost of additional appraisers? Yes, the dealer/appraiser was sued.
In addition, the appraisal did not cover minimum requirements of the appraisal profession let alone the IRS standards. The IRS will next look to see if the appraiser attempted to undervalue the collection. If so, the estate is responsible for a minimum penalty of 30% of the underpayment, plus the tax and the interest. If fraud is proven the appraiser, the trust officer, and the estate are subject to additional penalties.
The following list will provide you with an idea of what questions to ask potential appraisers.
What formal tested training has the appraiser taken?
Can he or she provide the documentation to back it up?
Twenty years in the autograph business is no indication of appraisal competence. Nor is a degree in history. Historians, archivists and curators are not necessarily appraisers. Look for appraisal qualifications.
To what professional appraisal organizations does the appraiser belong?
Are they tested members or can they become a member by just writing a check? You can call the organization to find out if they are active and what classes they have passed.
The three primary organizations are: The American Society of Appraisers, The American Association of Appraisers and the International Society of Appraisers.
Can they provide a sample report for your review?
They can and should have a sample available. Check it against the Appraisal check list below.
What is their area of expertise?
Appraiser cannot be experts in all fields. Recently an appraiser told me she did "baby bottles to battleships" Oh yeah? How many battleships do you think she appraised this year? Appraiser must know their limitations.
Do they consult others?
If so, who do they use as associates and what are their qualifications?
How do they research the market?
Many "appraisers" guess, or look at auction results and dealer catalogs. That is certainly not enough. The appraiser must know if the item actually sold and who bought it. Did it sell to a dealer or a retail collector? How many people were at the auction? Was it bought back? What is the scope of their research? In our office we maintain over 1,476,000 records of manuscripts rare books and
collectibles. Each item is cross-referenced by subject date, condition and content.
Do they subscribe to an appraisal standard? Do they know what that standard is?
The accepted minimum standard includes:
The appraiser must not provide a value that favors the client over other parties. His or her advertising must be accurate and not exaggerated or misleading. The appraiser must not disclose information about a client or the assignment and always maintain the highest degree of confidentiality. An appraiser must have
the knowledge and experience to perform the assignment and must disclose his or her lack of knowledge prior to accepting the assignment.
A competent appraiser must carefully consider the purpose and intended use of the report and carefully determine the intended readers and third parties related to the use of the report. He or she must also continuously review legislation related to valuation and appraisals and keep up to date on all IRS, federal, state or local regulations.
All of these requirements should, if followed, result in a qualified appraisal. To meet these standards our appraisal reports, for example, contain 13 pages of information in the cover letter alone. The cover letter and body of the report describe the markets selected, methodology utilized, appraiser's qualifications, appraisal dates, definition of the value being reported, limiting conditions, compensation method, and any critical assumptions that may be a part of the assignment.
Each appraisal must contain a certification statement that includes the following information:
That the statements of fact contained in this report are true and correct.
Any limiting conditions must be clearly stated in the report; eg. item not removed form the frame, poor lighting. the appraiser has no present or prospective interest in the property that is the subject of the report, and that he or she has no personal interest or bias with respect to the parties involved.
The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client.
The appraiser's analyses, opinions, and conclusions were developed, prepared and reported in conformity with the Uniform Standards of Professional Appraisal Practice and the appraiser's professional society..
The appraiser has (or has not) made a personal inspection of the property that is the subject of this report.
No one provided significant professional assistance to the person signing this report.
In addition, items must be described so that anyone reading the report would be able to identify the item being appraised. Most qualified appraisals include photographs of the items being appraised. The report must be signed and the appraiser's qualification should be included in the report.
As you may notice, the primary focus of the appraisal is on describing what value conclusion is being provided, how that value was researched, what methodology was employed, and the statement of why the appraiser is qualified to report that value. Anyone can report a value. Only a qualified appraiser can back that value up with research, defensible expertise, and formal training.
Selecting an appraiser can be a long and tedious process. Reviewing an appraisal also takes great time and effort. The alternative however, is to take your chances and pay the potential consequences later. For warned is for armed -- perhaps now you are both.
ABOUT THE AUTHOR: Brian G. Kathenes, ISA
Brian is the Managing Partner of National Appraisal Consultants, L.L.C. He is Chairman of the New York Winter Antique Show Vetting Committee on Autographs, Manuscripts & Rare Books and is responsible for vetting all autographs, documents and manuscripts displayed and sold at this most prestigious show. Mr. Kathenes has presented seminars and symposia for over 172,000 participants and clients including the International Society of Appraisers ISA CAPP Course 101 and Appraisal Techniques and Practical Information for Archivists and Librarians from the National Archives and the Library of Congress in Washington, D.C.
Mr. Kathenes has appeared on over 160 television and radio programs and has been quoted in over twenty magazines and newspapers including the New York Times, Business Philadelphia, Successful Meetings, and USA Today. He is also the author of the syndicated column The Autograph Detective and is the host of Hobby World, a weekly Cable TV program relating to hobbies and collectibles.
He is past President of the New Jersey Chapter of the International Society of Appraisers, the First Director of Education for the Universal Autographs Collectors and a member of the American Philatelic Society Appraisal Committee. His expertise includes stamps, coins, sports memorabilia and paper collectibles.