Art Appraisals 101
An art appraisal is the act or process of determining value. An appraisal report is written documentation of the process, which concludes with an appraised value of a work (or works) of art expressed monetarily either as a singular amount or a range. Because appraising is an inexact science, the appraised value of an item or items is, and cannot be, a scientifically proven exact amount.
Yet neither should an appraisal be based on unsubstantiated guesses or speculation. Instead, appraisals are opinions which are based on informed judgments, supported by facts and conclusions which have been derived at via a systematic methodology which incorporates all relevant factors.
There are two primary attributes which define the scope and structure of the appraisal report: the function and the purpose .
The function of an art appraisal report describes how it will be used. I.e. to determine estate tax liability, obtain insurance coverage, determine the allowable tax deduction. The purpose is the type of value which will be determined. I.e. fair market value, replacement cost.
The function of the appraisal report is always determined by the client's requirements, while the purpose is typically determined by the appraiser after consultation with the client.
There are a multitude of reasons why an appraisal may be necessary. Typical requirements are for insurance, tax, investment, liquidation, price confirmation, equitable distribution, loan collateral, casualty loss, and many more.
The amount of insurance needed to carry in order to cover a potential loss is typically determined by the estimated replacement cost of the insured item.
For income tax deduction and estate tax liability purposes, the Federal Government requires value to be determined by a qualified appraiser. For individual item deductions totaling more than $5,000 an appraisal is required.
Individuals may require an appraisal either to help them make an informed purchase decision or to help determine a fair asking price.
In fact, due to the different nature of the various appraisal functions, the same item may have many different appraised values. For instance, the determined value for insurance purposes may be different than a determined value for estate tax or charitable contribution purposes.
Despite all the legal and insurance requirements for appraisal services, there is no government regulation of personal property appraisers. In other words, anyone can claim they are qualified to do personal property appraisals. Yet in a legal or insurance claim situation the credibility and experience of the appraiser will be a critical factor. Choosing the wrong appraiser can be hazardous or even disastrous to an individual's financial health. According to Worth Magazine, in 2002 the IRS reviewed 469 items with an aggregate taxpayer valuation of $100.4 million, on which total adjustments of $46.9 million dollars were recommended. For charitable contribution claims, an average reduction of 60% was recommended , while in the estate tax and gift tax category an average valuation increase of 88% was recommended.
In order to help avoid such financial pitfalls, your best choice is to choose an appraiser affiliated with a professional appraisal Association such as the International Society of Appraisers or American Society of Appraisers. Continuing education in appraisal practices and report writing, as well as ongoing peer review of reports and practices help assure that appraisers who are members of these organizations maintain the highest standards of professionalism. A qualified appraiser thoroughly understands the theory, principles, and standards to make an informed judgment.
Gary Fillmore, Owner-Blue Coyote Gallery
International Society of Appraisers Member.