On my last Alaska cruise as an art auctioneer, my friend Tamara, the ships’ Port Shopping Ambassador, related the following story: a passenger purchased an item of jewelery from a store in Skagway for around $10,000. The following day, the passenger got a serious case of buyers remorse, and sought to return the jewelery on the basis that the item was misrepresented and overpriced. To prove the item was overpriced, she took the item to a second jewelery shop to ask the shopkeeper to appraise the item. The appraisal offered was nowhere near what she paid for the item. In fact, the second shopkeeper told her that she had overpaid, and that she should return the item and then come back, because he could offer her a higher quality item at a lower price.
I’m sure that this situation is as transparent to you as it was to me: the second shopkeeper was trying to make a sale at the expense of the first shopkeeper. That this sales tactic could work is rooted in the passengers ignorance of the difference between an appraisal and an opinion of value. The ignorance of this difference has cost clients of mine thousands of dollars in lost insurance claims and missed opportunities. Knowing the difference between an appraisal and an opinion of value will be to your advantage.
An opinion of value is an opinion offered on the basis of experience and expertise. Such opinions may or may not be valid, depending on the qualifications and ethics of the person offering the opinion. The persons offering such opinions are not required to be independent, impartial or objective. They can, and often do, have conflicts of interest and hidden agendas. An opinion of value has no requirements for documentation or evidence. Those offering an opinion of value are not held to the same legal and ethical requirements as a certified appraiser. Let’s say that you took a Picasso etching to an art dealer who gave you his opinion of its value, called the opinion an appraisal, and then offered to buy the painting for the appraised price. The dealer would have offered you no evidence to back up his claim of value, and clearly had a conflict of interest. His opinion of value is worthless.
The value offered in an appraisal, on the other hand, has been researched and evidence is offered to support the value claimed. Most often, evidence is offered in the form of comparable sales; that is, what items like yours have actually sold for recently in your market. In addition, a proper appraisal follows the format of the Uniform Standards of Professional Appraisal Practice (USPAP) which has been authorized by Congress as the source of appraisal standards and appraiser qualifications. USPAP is generally recognized by the courts and by the IRS. A USPAP-compliant appraisal clearly establishes the details of the appraisal, the appraiser, the intent of the report, assumptions, limiting conditions, and all evidence supporting the conclusion. When done, the appraiser must sign and certify the report. Such a report will stand up to legal and IRS scrutiny and the value offered can be trusted.
Now that I’ve established what an appraisal is and isn’t, let me throw a wrench in the works. If you called five appraisers to appraise the same item, you may get five different appraised values for the item. How can that be? An appraiser must make certain assumptions and adjustments in arriving at the value of your item. Unless sales evidence can be found for an item exactly like yours, adjustments will have to be made to compensate for differences in age and condition. Making adjustments is more art than science, and ultimately depends on the skill and experience of the appraiser. Also, the intent of an appraisal will have a bearing on the value. Appraisals for insurance replacement, estate liquidation, fair market value and cash value will all yield different numbers. If the value of your tangible personal property is important for estate, tax, divorce, or other legal consideration, please don’t rely on an opinion of value to make your claim. Call a certified personal property appraiser.
Originally posted 2009-10-28 16:33:00.