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APPRAISAL METHODOLOGY~Theory & Principles
The objective of Appraisal Reports is to determine appropriate value of your items at the date of inspection relating to function and purpose of the Appraisal. The intent of the Appraiser is to comply with accepted societal and governmental standards of development and content as well as to professional ethical standards in the preparation of this report.
There are different types of appraisal reports depending on your needs such as Summary, Self-Contained, Restricted Use, Hypothetical and Interim. Relevant information is summarized in the report with the details maintained in the client work file along with a backup CD.
An appraisal is not a precise measurement, nor a guess, but rather a relative estimate of value: Relative to the degree of similarity between the subject and the comparable property, Relative to the market conditions at the time the comparable was sold and the effective date of the subject property appraisal; and Relative to the degree of similarity of value characteristics between the subject and comparable properties.
The science of appraising requires the understanding of the basic principles and appraisal standards that pertain to valuation and evaluation. The science of appraising is an inexact science (albeit an inexact science based on facts.) Appraisal principles are axioms which apply to the majority of cases, but for which there may be exceptions.
Personal Property is anything one possesses that is both tangible and movable. In addition, certain intangibles (goodwill, legal rights, securities, copyrights, stock certificates, trademarks, customer lists, patents, etc.) are considered personal property as well.
In written appraisal reports, some of the property being appraised may be considered Depreciable Personal Property such as furniture and kitchenware. Other items such as art and antiques may be Non-depreciable Personal Property. Many of these types of items increase in value.
COMPARABLES "Comps" is property having qualities and characteristics sufficiently similar to the property in question that it allows for comparison.
VALUE is the monetary worth which an informed purchaser would offer in exchange for an item of personal property taking into consideration a given market condition, i.e. it is a consensus among interested buyers of what is a reasonable price for that property; that property has value can be attributed to the fact that its owner anticipates the enjoyment of future benefits based on the rights he holds to the property. Note: VALUE is an opinion of monetary worth that is ALWAYS JUSTIFIED by substantiating facts (i.e. comparable sales.) Theoretically, however, cost and price are known with certainty from an analysis of the market, but they may or may not be justifiable.
FUNCTION and PURPOSE: Two important appraisal concepts are incorporated in the terms appraisal function and appraisal purpose. The first identifies how the appraisal is to be used, while the later identifies what information the appraiser has been asked to provide. The appraisers choice of markets and values to explore hinge to a large extent on the appraisal function and purpose.
In appraisal reports, the appraiser may choose to use the secondary markets most often used to buy or sell ANTIQUES, ART, RUGS, SILVER, COLLECTIBLES, DECORATIVE ARTS and RESIDENTIAL CONTENTS. The appraiser also may choose to use retail "new" markets for some items such as china, glass, new silver, appliances and such. The markets considered are whichever market is MOST APPROPRIATE for EACH ITEM being appraised.
DEPRECIATION: Depreciation is also considered in evaluating a few of these items. In appraising, depreciation is a loss in property value between the difference of reproduction cost or replacement cost new an the current market value. Determining accrued depreciation from all causes is subjective and extremely difficult to measure. The appraiser considers depreciation tables used by moving companies, the federal government and USA States Assessors when applicable.
APPRAISAL DEFINITION: BLACKS LAW DICTIONARY defines an appraisal as "a valuation or an estimation of value of property by disinterested persons of suitable qualifications." BLACKS goes on to say that an appraisal is "the process of ascertaining a value of an asset or liablility that involves expert opinion rather than explicit market transactions."
REPLACEMENT COST NEW is the cost to replace an item with another having similar qualities within a rasonable amount of time in the most relevant marketplace. Where applicable, this takes into sonsidertion costs incurred by engaging an interior designer, shipping, and the costs associated with purchasing from a specific source.
REPLACEMENT COST USED (comparables) is the cost necessary to replace an item of personal property with an equivalent item having similar appearnace, quality, condition, age, authorship, and utility.
REPRODUCTION COST is the total cost of constructing an exact replica by a qualified artist or craftsman using the same materials and construction techniques as the original,(When applicable such as with original art, handmade furniture, and decorative arts or textiles that are handmade).
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IDENTIFY or AUTHENTICATE?
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Identification is the scientific determination of quantitative or intrinsic elements.
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Authentication is the scholarly determination of qualitative or extrinsic opinions.
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Identification is the first step in the authentication process. When appraisers identify property, special emphasis is given to those characteristics that contribute to or detract from its value or cost. The presence of certain characteristics or components of property may add to value. An antique table designed with poor proportions is less valuable than one designed with good proportions. Items of property exist which are known to be authentic. These genuine items exhibit certain known distinguishing features with which the subject property can be compared. If the subject property exhibits identical distinguishinig features, then it too can be deemed to be authentic. Appraisers must be able to identify these distinguishing features in order to arrive at a complete understanding of what the property is and whether or not it is authentic. The identification of the nature of the property, along with its distinguishing characteristics, permits the appraiser to rank the subject property alongside similar properties in order to arrive at a sense of relative value. Identification is seldom subject to dispute because it deals with scientific and measurable features.
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The public assumes that, by virtue of estimating the value or cost of a property, the appraiser has authenticated the property. On the contrary, while an appraiser must always identify, FEW APPRAISERS AUTHENTICATE! Authentication is rarely definitive or absolute, but rather is a matter of informed and reasoned opinion. Authentication can be facilitated if provenance can be verified. Provenance is the origin and history of the property: past ownership, exhibitions, literature notation and other relevant information.
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Authentication is timely and expensive. For most appraisals an accurate identification will suffice. If the property is deemed to be created by a famous artist or cabinetmaker for instance, then an authentication would be in order.
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As a client of the Appraiser, it is beneficial to both if you provide all the information available on your subject property including documents, prior appraisals, certificates of authenticity, provenance, and family or historical background that might be known.
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WHAT IS AN APPRAISAL?
An appraisal is the act or process of determining value, estimating cost, or determining the present worth of forecasted earnings. An appraisal is an independent, unbiased estimate of value that often serves as a cornerstone in a transaction. Professional appraisers value property with independence and objectivity. An appraisal report is written documentation of the information discovered in an organized format.
Appraisals should be clear and descriptive. They should contain good pictures of the property if at all possible.
APPRAISAL REPORTS SHOULD:
Adhere to the Ethics and Guidelines of the appraisers chosen Professional Organization.
Follow the mandates of the Uniform Standards of Professional Appraisal Practice,(As Authorized by Congress as the source of Appraisal Standards and Appraiser Qualifications as set forth by THE APPRAISAL FOUNDATION).
Include the methodology used and sources relied upon for value conclusions including market analysis and markets selected.
Include an explanation detailing what type of value is being sought-PURPOSE, and how the appraisal is to be used- FUNCTION.
Include a complete and accurate description of the property written in such a manner that it can be identified easily.
Include the date and location of inspection, and the effective date of value.
Include a disclaimer by the appraiser that he or she was no financial interest in the subject property, or that such interest in the property is disclosed in the report.
Include the appraisers qualifications, professional profile, seal and signature.
DO NOT ACCEPT AN APPRAISAL IF:
It is handwritten or unsigned or not dated.
It is not written in a professional appraisal format, (Jotted down on an Antique Dealers sales slip)
The appraisers fee is based on a percentage of the value of the subject property being appraised or based on contingency of sale of subject property.
The appropriate PURPOSE and FUNCTION are not stated; or if the pages are not numbered.
The appraiser is not willing to defend their report in court.
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This property was destroyed in a forest fire. Many of the items were collectibles, like old gas pumps, wagon wheels, mining carts and milk cans.
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For this Divorce Appraisal, the Appraiser had to make "stills" from video to appraise the property. The items were no longer available for examination by the Appraiser as they had "left the State".
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Many Famous Artists works are copied or forged. Determining authenticity can, at times, be challenging and time consuming.
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This Piano was destroyed in a house fire at Christmas time. The Appraiser had to do a "hypothetical-retrospective" appraisal on this property.
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