What Kind of Appraisal?

You know you need an appraisal, but what kind of appraisal?
What are the options? And what are the differences?
 
The quick answer is that the kind of appraisal you need depends on your intention. Do you want to know the value simply out of curiosity? Do you need to have a collection appraised for insurance? Do you want to liquidate? Are you in the process of estate planning or distribution? 
 
CURIOSITY
If you are simply curious about the value of an artwork or collection, a restricted appraisal will help you. A restricted appraisal is a written appraisal that provides a valuation, but information is for the client only and cannot be shared with anyone else. For example, a client cannot use a restricted appraisal as a basis for a sales price with an auction house or antique dealer. Likewise, it cannot be used for insurance purposes. It is for your information only.
 
SAFEGUARDING YOUR COLLECTION
A full appraisal report can be shared with specified entities, such as an insurance company, a lawyer or legal firm, accountant or anyone specified in the contract. It is the type of appraisal report we most commonly provide for our clients. Whether the appraisal report is for insurance, estate or donation purposes, every report should include good documentation and a detailed description of each item along with the valuation. However, the methodology and type of valuation varies depending on the intention.
 
For insurance purposes, the appraisal report is written for replacement value. For one-of-a-kind artworks, the basis for comparables is usually other works by the same artist, or artwork of similar renown, age, materials and genre. An insurance appraisal is also used for estate planning purposes, as well as insurance policies and claims.
 
FAIR MARKET VALUE VS. MARKET VALUE
In the situation of an estate distribution, the appraisal report is written to determine Fair Market Value, which is slightly different from Market Value. The term Fair Market Value is defined by the IRS as: “The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.” In other words, Fair Market Value is the value at which an object would change hands between a knowledgeable seller and a knowledgeable buyer, where both parties are willing and comfortable with the transaction. Comparables for Fair Market Value are relatively recent, actualized sales of pieces by the same artist or artwork of a similar renown, era, materials and genre. It is not used for forced sale or bankruptcy situations. On the other hand, Market Value takes into account the more specific circumstances of a sale, and is used for the intention of liquidation.  Similar to Fair Market Value, Market Value uses a sales comparison approach of recent, actualized sales to determine the value.
 
CHARITABLE DONATIONS
Fair Market Value is also used for non-cash contributions. Although there has been much discussion regarding non-cash donations and the eligibility for tax deductions in the past few years, they are still allowed. Furthermore, any non-cash donations over $5,000 require an appraisal by an IRS qualified appraiser.
 
While methodologies and terms differ for each kind of appraisal I hope this article provides an overview understanding to help you determine what kind of appraisal you need. Please contact us with any questions you have at [email protected].