In this new series of blog posts, I’m going to outline basic concepts and terminology used by appraisers that will help you understand the methodology behind the appraisal process.
My favorite light-hearted marketing phrase is, ‘Be sure of identity and value. Call your appraiser.’
I often use this caption under some wildly misidentified thing, and humor abounds. But it begs a deeper question – just what is an appraisal- really?
Someone tells you ‘what something is worth,’ right?
Well, not exactly.
Of course, there’s usually also at least one smarty-pants orbiting the conversation that will spout ‘it’s only worth what someone will give you for it,’ and then ‘har har har’ with an air of unearned self-satisfaction.
Definition: Appraisal is the act or process of developing an opinion of value, estimating cost, or calculating the present worth of future earnings; a written or oral report documenting same; of or pertaining to appraising and related functions, e.g. appraisal practice, appraisal services.
Pretty simple, eh?
It is. Where it can get complicated is in the application, when we put this process to work for a client’s unique needs – and every appraisal project is different in some way.
It may be in the objective – meaning the client wants to obtain insurance coverage, settle an insurance claim, make a charitable donation for tax purposes, split up personal property equitably (in short: equitable distribution), resale, or simple curiosity. Or it could be in how the properties are being administered during the appraisal process.
Each of these objectives brings its own approaches and parameters. Your appraiser should listen carefully to your needs, decide which form of appraisal will suit your needs best, and explain in great detail how their work is going to address those needs.
The appraiser should also be available after the appraisal is finished to be sure everyone understands the scope and limitations of the appraisal report, and answer any questions you or your authorized agent might have.
Your appraiser should also have a confidentiality clause in their report, meaning they will not share the details of your report with anyone without your written permission, or unless ordered to by a court of law.
For instance, while my website shows many objects I offer appraisals for, none of them have been subject to any appraisal done by myself.
An appraiser should also be honest with you if what you have is within their specialty areas. After all, it’s not possible to know everything about everything. Legitimate appraisers outline their specialty areas clearly and should have a network of other appraisers they can call in to assist in a project that has components outside their competency.
Appraisals should always be USPAP certified. USPAP, or Uniform Standards of the Professional Appraisal Practice, are quality control standards – ethical and performance – for personal property, intangibles, and business valuation appraisal analysis and reports in the United States and its territories. The IRS requires appraisals written for their use to be USPAP-compliant for certain amounts.
Formally educated appraisers that are also members of professional appraisal associations like ISA are required to maintain USPAP compliance in all reports, and keep current with changing rules through continuing education. For more on USPAP, click here.
Compliance involves an initial two-day 15 hour class (including exam), and a 7-hour update class every two years. Whether or not you need an appraisal that will be reviewed by the IRS, full USPAP compliance along with affiliation with a professional appraisal association are the truest indications of an appraiser’s seriousness and professionalism.
Does it always have to be such a big, costly deal?
Not every appraisal has to be a ponderous, weighty process. Sometimes you may only want to know if what you have has any value before deciding your next step. Your appraiser should be willing to consult with you freely for item identification or value discovery.
Next up: Value Discovery