Saturday, September 29, 2007

Thinking About Appraisals?

If you've been thinking about getting a professional appraisal of your artworks, many qualified appraisers understand the different values, assigned uses, and market levels of assessments. Be forewarned though, appraisals can also carry risks.

Not one of us wants to sell too low, pay too much, or find ourselves over or under insured. Almost all of us want to get our fair share in property division, escape the risks of incurring tax penalties, avoid audits for works we gave as charitable contributions, and go to sleep at night knowing our estate taxes were properly calculated.

How do you ensure your item is being appraised at the correct value? The answer lies in how you plan to use the appraisal. There are ten major types of valuation. Utilizing a professional from the International Society of Appraisers or the American Society of Appraisers will go a long way to giving you piece of mind. Members of these societies are normally certified in using the Uniform Standards of Professional Appraisal Practice (USPAP).

Types of Appraisal Valuation:

1. Insurance

2. Estate Tax

3. Consumer Resale

4. Charitable Contributions

5. Investment

6. Liquidation

7. Price Confirmation

8. Equitable Distribution

9. Loan Collateral

10. Casualty Loss

In addition to the types of valuation, it is important to understand why the valuation is being developed. Are you as the client seeking cash, a financial arrangement equivalent to cash, other precise terms, non market financing, or financing with unusual conditions?

When you start looking for an appraiser who understands your ultimate motivation and goal, you'll want to be sure the appraiser is going to provide you with some basic report items. These are critical in chronicling your fair attempt to obtain a qualified report.

Report Items:

1. The purpose of the report: What type of value is being sought? Who is the appraisal being conducted for (the client's name)?

2. How the appraisal is to be used: The function of its assigned use.

3. Methodology employed by the appraiser.

4. Resources used by the appraiser.

5. Appraiser's market analysis.

6. Market selected.

7. A full description of the property so it can be identified without photographs.

8. The date and location of the inspection (I also like to see any weather or other considerations).

9. The effective date of value.

10. A statement that the appraiser has no financial interest in the property or that such interest is disclosed in the report.

11. Appraisers qualifications & signatures. At times, an appraiser who is untrained in a specific area may elect to collaborate with another appraiser with greater skills in that discipline. If this occurs, you will want a disclosure statement from both appraisers. Also when this occurs, it is common practice for the appraisers to split the appraisal fee. You may wish to inquire about the financial construct of the report.

Always remember, an appraisal is ONLY a professional OPINION of the economic exchange value of the legal rights inherent in ownership of property. Make sure your appraiser has spent a reasonable amount of time with the item in order to establish: specific identity characteristics; the relative quality of the item; and the physical and economic attributes with a material effect on value. Does the appraiser know the condition, style, size, quality, manufacturer, author, and materials?? Or how about the origin, age, provenance, any alterations, or restorations?

It's no secret that particularly in matters of estate, property division can be very tricky. Your appraiser should be asking you whether there are any restrictions, encumbrances, leases, covenants, contracts, declarations, special assessments, ordinances, or other items impacting your claim to ownership.

An appraiser's negligence qualifies as failure to exercise a standard of care which a reasonably prudent person would have exercised. This is failure brought by carelessness or intention.

An appraiser's incompetence qualifies as a lack of knowledge and ability in distinguishing the relevant from the irrelevant. This is often discovered and exhibited in the scope of work decisions where the level of research and analysis are most evident.

One of the ways an appraiser determines the value of your item is by analyzing a host of factors: what's the wholesale level of trade; the retail level of trade; the auction conditions, the economic conditions at the time of valuation; the market acceptability of the property; the supply; the demand; the scarcity; and the rarity. Many appraisers will use a sales comparison approach, comparing cost data of the item in new condition and the cost of the present work (with accrued depreciation).

There's a joke in the appraisal world called I-IBISIT. Don't be taken in with the It-is-because-I-said-it-is approach to your property valuation! As with many other things in life, in the appraisal world, you often get what you pay for. Appraisal of your artwork IS NOT the time to try to cut corners. Ask questions and be sure YOU understand the historical value, aesthetic value, intrinsic value, and economic value of your loved items.