What Is An Appraisal?

An appraisal is an opinion of value. An appraisal can also be defined as the act or  process of developing a thoroughly researched and well supported opinion of value  by an impartial and properly qualified individual. The opinion can be expressed as  a specific amount, a range of values, or in relationship to a previous value opinion.  Appraisal may also be used as an adjective (i.e., of or pertaining to appraising and  related functions such as appraisal practice or appraisal services).

Why Are Appraisal Reports Required?

Appraisal reports are required for uses such as estate planning, charitable  contributions, estate or gift tax preparation liabilities, insurance or damage and loss  claims, equitable distributions, fair rental and sale decisions, collateral loans, and  legal disputes.  Appraisals conducted for fine and decorative art and antiques enable owners to  obtain an independent opinion of value with descriptions of the appraised property  included in the report. Clients may need values for paintings, photographs, prints,  maps, sculpture, furniture, rugs and carpets, ceramics, china, silver and silver-plate,  metalware, lamps, candelabra, glassware, textiles, object d’art (miscellaneous  items), and antiques. Clients who own or manage such objects, including individual  collectors, advisors, institutions, galleries, insurance companies, lending institutions,  and attorneys, should engage a professional personal property appraiser with  expertise in fine or decorative art and antiques.

What Is Personal Property?

Personal property is defined in the Uniform Standards of Professional Appraisal  Practice (USPAP) as:

identifiable tangible objects that are considered by the general public as  being “personal”—for example, furnishings, artwork, antiques, gems and  jewelry, collectibles, machinery and equipment; all tangible property that is  not classified as real estate.

The main characteristic of personal property is its ability to be moved without  damaging either itself or the real property to which it may be attached. Personal  property can be tangible or intangible.

Fine Art
Fine art generally refers to the media of painting, sculpture, drawing, original prints,  photographs, and architecture. Fine art is distinguished from other art forms in which  the aesthetic or intellectual expression is more prominent than the utilitarian purpose. Professional appraisers of fine art have extensive training in their area of expertise.

Decorative Art
Decorative art includes objects that are primarily utilitarian in form or function, but  that have aesthetic value provided by the design, decoration, or embellishment.  Objects classified as decorative art include ceramics, furniture, textiles, glass, leather,  metalwork, silver, arms and armor, clocks, and other household or utilitarian objects.

The term “antiques” is traditionally applied primarily to works of fine or decorative art  and furnishings, but is currently employed for any type of man-made object of a past  era. U.S. customs laws define antiques as artifacts whose date of initial purchase  was at least 100 years before the present. All three categories are defined as  personal property.

What Is The Appraisal Process?

First, your appraiser will interview you regarding the reason you require an  appraisal. Many people consult an appraiser saying, “I just want to know what it  is worth.” The appraiser will explain the many levels of “worth” or value, such as  what an item of fine art would be worth if you were going to sell it, and even then,  where you are considering selling it. Your appraiser must know who the intended  users are and the intended use of the appraisal, in order to correctly develop an  appropriate appraisal.

The Scope of Work, which is the type and extent of research and analyses  required to prepare the appraisal, is determined by the appraiser at this time. In  each appraisal, an appraiser must identify the problem to be solved, determine  and perform the scope of work necessary to develop credible assignment results,  and disclose the scope of work in the report.

The client and appraiser will schedule a date for an on-site inspection. The  client may provide the appraiser with information relevant to the objects being  appraised. On-site, each object is inspected, other information is gathered and  photographs taken to fully document the condition and appearance of the object.

After data collection and analysis is complete, the appraiser determines the best  approach to value each object. The three traditional approaches to value are the  cost approach, the sales comparison approach, and the income approach.

The cost approach reports the present cost to  reproduce the item or create a property with  similar utility and marketability. This approach  is often used when appraising items that are  still in production or can be reproduced using  contemporary artists or makers.

The sales comparison approach utilizes recent  sales of similar items, and is accomplished by  researching all relevant and available sales records and asking prices. The  appraiser analyzes comparable sale characteristics that include age of the object,  material or medium, style, maker, manufacturer, artist, quality, rarity, exhibition and  publication history, and the market in which they were sold. Careful research and  analysis is required for the appraiser to reach a credible value conclusion.

The income approach produces an opinion of the present value of anticipated  monetary benefits for income producing objects such as fine or decorative art  objects that are being leased, or are part of a rental loan collection.

The appraiser develops the opinion of value, prepares the report, and  communicates or delivers the report to the client. The supporting information  may or may not be included in the actual appraisal report; however, it must be  contained in the appraiser’s workfile.

Essential Elements of a Credible Appraisal

A credible appraisal report clearly identifies the objects appraised, the scope of  work performed by the appraiser, the client and other intended users, and the  intended use of the report. The appraisal report must also include the definition of  value (e.g., fair market or replacement value), the effective date, and the subject  object’s relevant characteristics. The data and analysis required to support the  opinion of value must be effectively communicated.

There is no single standard appraisal report form, format, or style. Regardless of  the type of appraisal report used, all reports must contain sufficient information to  enable the intended user to properly understand the conclusions and to be credible.

Regardless of the intended use of the appraisal report, the appraiser should  prepare the report in compliance with the Uniform Standards of Professional  Appraisal Practice (USPAP) and include:

  • A complete description of the item in sufficient detail to identify the object (may  include photographs).
  • Methods of analysis and data used to provide a value conclusion and the rationale  for value.
  • A signed certification similar to the one included in USPAP which includes  a statement that the appraiser is not biased and does not have a present or  prospective interest in the property.
Self-Regulated Appraisal Profession

Professional appraisers are trained to deflect any attempt to influence the  appraisal or opinion of value, and to remain independent, impartial and objective.  Since the appraiser has the sole responsibility for the analyses, opinions, and  conclusions contained in the appraisal, his or her independence is a critical  element to enhance the public trust that appraisals contain credible opinions of  value. Appraisers complying with USPAP are required to maintain this level of  independence, to perform assignments without bias and to include in the appraisal  certification the following statement.

I have no bias with respect to the property that is the subject of this report or  to the parties involved with this assignment.

Components of Value

Age – Dating an object determines whether an object is from the period or is a  reproduction.

Authorship – The artist/maker and their reputation might greatly affect value;  if a work is not attributable to an artist or maker, it is likely that its value will be  impaired in the marketplace. Formally resolving issues of authorship is outside  of the appraiser’s scope of work and expertise. Resolving issues concerning the  identity of the maker, manufacturer, author or artist may be completed with the  assistance of experts.

Condition – Physical characteristics and condition of materials are extremely  important to the market value of an object. Generally, objects in good and stable  condition are more valuable. Works that have been damaged beyond normal  wear and tear, or have been improperly restored do not retain their value in the  marketplace.

Functionality – Generally, functional objects are made in multiples, and nonfunctional  works of art are unique. With the economic aspect of the market’s  reliance on supply and demand, functional objects are more readily available and,  commonly, these objects hold less value in the marketplace.

Historical Importance – The documented and historic importance of an object  and its role in history can establish or increase the value of an artifact.

Maker/Artist – The individual who produces works in the visual arts. The maker’s  (or visual artist’s) reputation adds value to an object. If was it made by a wellknown  or collected artisan or craftsman, or is produced a highly desirable maker  name, it will likely be more valuable. Signed works can also have higher values.

Material – The material used to create an object may affect value; higher  quality and rare materials may add value to the object. A qualified appraiser  must determine whether rarity outweighs material value and whether quality of  workmanship outweighs rarity.

Provenance – An object’s history of ownership, or its association with a  significant collection, can increase the value in the market. Provenance can also  help to establish authenticity.

Quality – An aesthetic concept, quality is used in judgment of inherent merit,  worthiness, or excellence in a work or an object. A determination of whether the  object is exceptional, unexceptional or mass-produced must be made. The qualified  appraiser must be experienced and trained to recognize these differences.

Rarity – An extremely rare object may be quite valuable in spite of condition  issues. Since the market is determined by supply and demand, the rarer an object  the more valuable it may be in a competitive market.

Size – Sizes of objects can vary from era to era, from country to country, and from  casting to casting. Being familiar with such information may help to conclude a  date or locate the region where object was made. Additionally, size can affect the  desirability and demand of objects; large-scale paintings or sculpture may have  less value than smaller works by the same artists.

Style and Trends – Collector tastes change from generation to generation. These  changes may affect an object’s collectibility, and understanding these styles and  trends is needed in order to produce a credible opinion of value.

What happens during an appraisal inspection?  The appraiser first gathers all available documents and verbal information (this  can be done previously, but is often completed on-site). Whenever possible,  the appraiser physically inspects fine or decorative art objects, sometimes  using a flashlight or UV light, and through magnification. The appraiser takes  measurements, weighs metals, and locates and records any signatures or other  identifying marks on the object that may affect value. The appraiser inspects the  condition and structural integrity of the objects for any needed repairs or former  alterations. Finally, the object(s) are photographed.

What information is useful for the appraiser?  The more information the appraiser can gather about an object, the more credible  the appraisal will be. The appraiser will need to know what the intended use of the  appraisal will be, or how clients will use the report when it is completed.

During the process of conducting the appraisal, the appraiser may request any  available background information about the property being appraised. This could  include, but is not limited to, the provenance, restoration records, exhibition,  publication, sales history, the property’s title, and previous appraisals.

How does the appraiser develop the opinion of value?  After the appraiser inspects the object(s) being valued, he or she researches the  appropriate marketplaces to locate the amounts asked, offered or paid for properties  similar to the object(s) being appraised (sales comparison approach). The cost and  income approaches are considered, and if appropriate, are developed. The market  data is studied, including public, gallery and private sales records. The appraiser  may consult additional experts to resolve authenticity issues. After all material  research relating to the value of object(s) is carefully considered, the appraiser  develops an opinion of value and prepares an appraisal report.

What is a comparable sale?  Opinions of value are frequently based on sales of similar or like objects (sales  comparison approach). Comparable sales enable the appraiser to render an  opinion of value for the subject property by comparing similar properties that  have sold or are being offered for sale in relevant marketplaces. The comparison  may include considerations of age, physical characteristics, functional attributes, attribution, provenance, and location of the sale. Realized sales of comparable or  like properties may provide the strongest evidence for an opinion of value.  Auction houses, galleries or artists are the sources most commonly-used for obtaining  records for fine and decorative art properties. The appraiser often has to pay for  completed sales information, such as the sales information available online.

What might attorneys look for and expect from an appraiser?  Attorneys who engage fine or decorative art appraisers should expect to receive  a defensible and credible appraisal report. The report prepared should meet the  requirements of USPAP and those of any government entity that may be involved  in the assignment. Attorneys, as well as all clients, should seek an appraiser  with verifiable education and experience in valuing the type of property being  appraised.

What can you do if you believe a correction is needed to the appraisal report?  If, after reviewing an appraisal report, the client believes the appraiser did not  consider information about the subject property that could affect value, the client  should discuss the matter with the appraiser. The client should submit his or her  concerns in writing to the appraiser, providing factual evidence that supports the  position, and request that the appraiser address them. If the appraiser agrees that  pertinent information was omitted and should be included for a credible valuation,  he or she may provide a revised appraisal report with commentary.

After asking for a reconsideration of value, the appraisal remains flawed. What  are my options?  A client may request an appraisal review assignment or a second appraisal report.  A different appraiser may perform an appraisal review, which will include an  opinion about the quality of the other appraiser’s work. If the review appraiser  does not agree with the opinion of value in the original appraisal report, a new  opinion of value may be provided in the form of an appraisal report completed by  the review appraiser.

What is appraiser competency?  The COMPETENCY RULE in USPAP requires that the appraiser be competent to  perform the assignment, or acquire the necessary competency to perform the  assignment, or withdraw from the assignment.  Generally speaking, competent professional appraisers may fall into two general  areas: (1) appraisers who are specialists and have training in principles of  valuation and knowledge of the markets with knowledge focused on a specific  area of expertise; and (2) appraisers who are generalists and have training in  principles of valuation and knowledge of the markets with broad experience in  many areas. It is essential for clients to seek appraisers with expertise relative to  the marketplace and type of objects to be appraised.

Why doesn’t The Appraisal Foundation  enforce the Uniform Standards of Professional  Appraisal Practice (USPAP)? While the Uniform Standards of Professional  Appraisal Practice are standards  for developing and communicating appraisals,  it is not within the purview of The Appraisal  Foundation to enforce USPAP, as it was not  granted such authority by Congress.

Formal enforcement of appraisal standards  is provided by personal property appraiser organizations, such as those that are  Appraisal Sponsors of The Appraisal Foundation. Courts and/or case law may  also serve to enforce USPAP.

Appraisers may also simply choose to comply with USPAP, even if they are not  otherwise required to do so. Enforcement of USPAP in these situations may depend  on jurisdictional or other legal matters. If an appraiser is not required to comply  with USPAP but otherwise chooses to comply, a client should ask the appraiser if  any enforcement entity oversees the appraiser’s practice.