Personal Property Appraising Advice for Collectors

When on the Resource Panel, I helped write this information on BEST PRACTICES FOR PERSONAL PROPERTY APPRAISERS. All people looking for appraisers should read it! 

The Personal Property Owner’s Guide to Appraisal Services, written by members of the Appraisal Foundation’s Personal Property Resource Panel: Best Practices

IRS DONATION REQUIREMENTS

The IRS requirements for donors of gifts of art to museums can be confusing to the donors, the donee museums, and the appraisers who prepare the donation appraisal reports. Many of the issues were clarified for me in a virtual presentation by IRS counsel and a recently-retired IRS appraiser who worked for the Art Appraisal Services department that I attended.  Below are some key take-aways from that meeting:

1. Donors are allowed to have an appraisal report prepared prior to the formal donation date (to be discussed below) but only up to 60 days prior. However, the IRS highly recommends that the report not be prepared until after the donation date. That is because sometimes preparing it too soon will result in missing the most relevant sales comparables, which are the ones closest in date to the donation date. The report only needs to be submitted to the donor in time for them to submit their tax returns for the year of the donation. 

2. The IRS actually allows the use of sales comparables that post-date up to two years after the donation date. 

3. The FORMAL DONATION DATE is always tied to dates on the Deed of Gift. The donor and the museum both sign this legal document and the date the last person signs it is the formal donation date. The museum’s board collections committee meeting date at which the donation is approved is NOT the donation date. This can cause problems if the objects are year-end gifts but the last signor of the Deed does not do so until after the first of the new year. In those cases, the donation is counted as a gift in that new year and is not a year-end gift. 

4. The donation will be disallowed and no tax deduction will be granted if the person who writes the donation appraisal report is not a qualified appraiser according to their criteria, which includes adherence to the principles of USPAP (Uniform Standards of Professional Appraisal Practice), even if the values assigned for the donated objects are correct.

5. An appraiser can put all the items donated to a single museum on the same date into one report, BUT if these are of multiple types of media (paintings, prints, sculpture, photographs. etc.), even if by the same artist, then divide them into “sections” and separate 8283 forms need to be prepared for artworks of each different media. If the total values for one of these groups falls below $5,000, then a formal appraisal report need not be prepared for that group. NOTE: if the same types of objects are donated to multiple institutions and the total values for all these gifts exceeds $5,000, even if those donated to each museum fall below the $5,000 threshold, then appraisals for all are still needed.

6. Appraiser compensation cannot be a percentage of the value of the donated items. 

7. The 8283 forms can be signed digitally but the printed report itself needs a “wet” signature. 

8. The IRS does not require, but recommends, inclusion of the Deed of Gift in the appraisal report. 

9. Comparables should come from the same market type (auction or retail) in which the art was acquired. So, for example, just searching for comparables in auction sales databases is sometimes not sufficient if the art was acquired in the dealer market and dealers should be consulted. And it is okay to cite dealer asking prices to give a general picture of the market for the type of art being appraised, but asking prices should not be used as direct comparables. If the artist’s works are only available in the primary market, that is the market in which to find comparables. But if appraising an older work by an artist, and the demand at the time of the donation is only for the artist’s most recent work, then that issue needs to be discussed and accounted for. 

10. Discussion of provenance in the report and dates of acquisition of the art is critical. Lack of this is a red flag to the IRS to look more closely at the donation. The IRS allows increased valuation of art over the purchase price only if owned for a year and a day since the purchase date. Another red flag to the IRS is a huge increase in value after ownership of only a year and a day. 

11. Just listing the donated items and their appraised Fair Market Values in an appraisal report is not sufficient, justification for these values need to be discussed in a market analysis section of the report generally and specific comparables need to be listed and their relationship to the donated items needs to be clearly described, with more detail required for higher valued items. The most relevant comparables are usually but not always those with sale dates closest to the date of the donation. If using older comparables, the reasons why need to be clearly stated. 

The IRS publications 561 (Determining the Value of Donated Property) and 526 (Charitable Contributions), both available online, contain much of this information, as does the instruction sheets for the 8283 form. 

Why Selecting Credentialed Appraisers Matters & What Qualifications to Ask About When Selecting an Appraiser

A recent tax court ruling reveals why it is important to hire a formally-trained, dedicated appraiser rather than an auction house specialist or dealer. For the article, see  https://procedurallytaxing.com/the-perils-of-a-discredited-appraisal-critical-insights-on-kollsman-v-commissioner/

The article also lists useful criteria for what to look for when selecting appraisers.

The Washington, DC-based Appraisal Foundation also weighed in supporting the court's ruling, stating:
“Consumers are the biggest beneficiaries of this ruling. Personal property assets will be better protected when a qualified and independent appraiser is retained to value one’s personal property assets,” said John Brenan, vice president of appraisal issues at The Appraisal Foundation. “This also means wealth managers and estate attorneys now have a greater fiduciary duty to their clients to fully understand appraiser qualification criteria and appraisal standards when vetting personal property appraisal experts.”

The ruling arises from the case of Estate of Kollsman vs. Commissioner. The Estate hired a premiere auction house to conduct an appraisal of the estate’s art collection. The U.S. Tax Court rejected the valuation of the auction house expert because of bias and a lack of objective evidence. The IRS retained the services of a personal property appraiser, who met the qualifications established by the AQB and completed an appraisal that was compliant with USPAP.

The IRS appraisal expert found two of the paintings were significantly undervalued. The court also found that the auction house expert had a conflict of interest as the appraiser in question also sought to represent the paintings at auction. The 9th Circuit Court took the case up on appeal and agreed with U.S. Tax Court opinion.

Selling Your Parents' Possessions is Harder than You Think

I've been getting a lot of queries recently from people who need to dispose of family possessions. Sadly, much of what I am asked to evaluate have only minimal decorative value. That is because lifestyles of younger people have changed and they are simply not so interested in antiques, Western or Asian, unless the pieces are really, really special. I am happy to look at things, for my minimun fee, and advise on where things can be sold. But it is important for people who contact me to understand they need to have realistic expectations and in most cases, sales will not be able to pay for care of elderly loved ones.

Much has been written on this issue lately, including this interesting, basic article, Sorry, Nobody Wants Your Parents' Stuff

PERSONAL PROPERTY APPRAISERS AND YOU

The Appraisal Foundation has produced a short (2-page) brochure (download it here: PERSONAL PROPERTY APPRAISERS AND YOU), that very succinctly and clearly offers the general public and others who recommend appraisers to individuals (librarians, museum curators, bank trust officers, attorneys, insurance companies, etc.) advice on what qualifications appraisers must have and how to find appropriate specialist appraisers.

Advice on Selecting a Qualified Appraiser

Many thousands of persons hold themselves out to the public as appraisers but few are actually properly trained to do the job. The IRS and knowledgable insurance companies, bank asset managers, and attorneys have been requiring all appraisers they hire to adhere to USPAP as well as Appraisal Foundation standards when selecting appraisers. Members of the general public should as well.

For a good discussion of what it takes to be a qualified appraiser, see this article PERSONAL PROPERTY APPRAISER QUALIFICATION CRITERIA

Although the new standards described in the article above will not go into effect until January 1, 2018, you should be mindful of them now. You can download the Appraisal Foundation brouchure on these new criteria HERE

APPRAISAL FOUNDATION GUIDE TO APPRAISING

The Appraisal Foundation (based in Washington, DC), that oversees the appraisal profession, has produced a fine introductory brochure for the public on what proper appraisals should include and how to find a competent appraiser. You can download it here

THE PERILS OF SHIPPING ART

ARTNET NEWS had an interesting and informative primer about pitfalls to watch for when shipping art today. ART SHIPPING NIGHTMARES AND HOW BEST TO AVOID THEM

1. Don't pack the art yourself
2. Get advice on a shipper - ask the registrar department at a local museum, gallery, or collectors
3. Get a professional to write a condition report (and include photos) before the object ships and after it arrives
4. Clarify if the shipper you choose will subcontract in transit and vet the trans-shipper too
5. Make sure loans get returned in the same crates in which you shipped them to the borrower
6. Shipping ephemeral materials have special challenges
7. Check shipping details like making sure the crate fits in the receiving location's elevator

8. (not included in the article, but always a good idea) - prior to shipping art you own, make sure your insurance coverage is up-to-date. Insuring for purchase price when the sale took place several years ago is not a good idea, because insurers may only pay damages on stated amounts and prices may have risen since then. In addition, purchase prices are not the same as insurance value, which includes additional fees such as potential taxes, commission fees, shipping, and insurance for the purchase of a replacement object if yours gets lost or damaged in transit.

What You Need to Know When Getting Your Personal Property Appraised

This short article has some good advice for people looking for a personal property appraiser for the first time and want to know more about how to locate a qualified professional.
Advice from the president of the Appraisal Foundation

How to Find a Qualified Appraiser

For the past year I have been involved with the Washington DC-based Appraisal Foundation that oversees the appraising profession (business, real property, gems, and personal property). I am on a resource panel for personal property appraisers charged with helping the Appraisal Foundation enhance public trust in personal property appraisers. We are examining ways appraisers get accredited and  are attempting to determine if a universal accreditation/certification system is feasible, considering the creation of a "national registry" for valuation specialists/appraisers in various disciplines, seeing if developing discipline-specific standards is possible, and considering methods of oversight of the profession. 

At present, there is no universal set standard to which appraisers must adhere. It is also a self-regulated profession, with appraisers of the various organizations setting admissions policies for their own members. Moreover, only a small number of appraisers belong to the big three appraiser organizations (AAA, ISA, ASA) at all--most are independent, with many being dealers or auction house staff members. Still, while many members of these organizations are very good, membership in these national appraiser organizations does not guarantee that appraisers are really qualified in the areas they appraise.

I would strongly recommend that when searching for a qualified appraiser make sure to hire only appraisers who truly have specialization in the fields for which they need appraising services. Also, remember that if your collection is large and diverse you might have to hire several appraisers or an appraiser who works with colleagues in several specialties (as I do). Perhaps the hardest thing for an appraiser is to know when to call in a consultant. Many generalists don't know the best dealers or auction houses to recommend to clients who want to sell their collections. Often for large and diverse collections I recommend selling at several  venues, that I select depending on where the client lives and the quality of the objects. Also, and this is most important, when choosing an appraiser always ask when they last took a USPAP (Uniform Standards of Professional Appraisal Practice) class. USPAP (initially a 15 hour 2-day class with exam and 7-hour update classes every 2 years thereafter--to coincide with regular updates to USPAP) is required of appraisers who do appraisals reviewed by the IRS. Many appraisers do not even know what USPAP is and do not comply with its standards.

Considerations for Insuring Your Art Collection

A thoughtful, but somewhat simplistic, article in the NY Times, October 4, 2013: With Prices High, Insuring Art a Risky Business
At least it suggests getting an outside opinion of value from someone other than your insurance agent, but does not actually advise consumers to seek valuation advice from appraisers (like me), who possess specialized training in determining appropriate levels of coverage for their needs.

NEW: The Experts' Guide to Collecting

The Appraisers Association of America (AAA) has recently produced a very useful small booklet (31 pages) for art collectors that anyone can purchase. I highly recommend it.

For a preview, information about the AAA, and to order the booklet, click HERE.

Appraising Methods

People often ask how I arrive at valuations for their art. To determine a value I draw upon my experience over many years of looking at art similar to the types of materials I am assessing, and also knowledge of the art market for this art. These days the art market is global, thanks to the internet. So valuing art is a complicated business. Some art sells publicly, at auction, other types sell privately through dealers. My 30+ years of studying Asian art provides me with the experience to understand which markets serve as appropriate comparables to the art I am assessing.

I often start by checking the auction market, and to do this I rely on a number of internet sites, some are free, others require payment by subscriptions. I like to look at the websites for large international auction houses where Asian art is regularly sold such as Bonham's, Christie's, and Sotheby's. Also, the main auction houses in China and Japan, and regional houses in Europe and the USA.

I also rely on databases of auction sales results. But among these, I have found no single site sufficient, each seems to specialize in different types of art or includes results from somewhat different worldwide auction houses. I list the ones I use most often for Asian art below, but I caution readers of this blog to realize that when I look at objects on these sites, I do so with greater knowledge than you possess about your materials, and so I am more easily able than you to make judgments regarding the quality of what I see in the sites' little online pictures.

Artnet
Artprice
Artron (in Chinese)
Blouin
Invaluable
LiveAuctioneers

Information Needed for Initial Consultation

If you have found me through my website and wish for me to assess your art, please tell me the following in your initial contact with me:

1. your full name and where you live

2. the reason you want your art assessed (do you want to sell it, are you curious about what it is, do you need an insurance or estate appraisal, etc)

3. the type of art you have and the number of pieces

4. where you acquired the art

5. If you want me to assess your art from photos, please inform me about the type and quality of the photos you have.
PLEASE DO NOT SEND LARGE JPG ATTACHMENTS WITH YOUR INITIAL EMAIL QUERIES.

Thank you!

Written Appraisal Standards

Many people think preparation of appraisal reports is a simple matter of the appraiser stating in writing what they think their properties are worth. But I do not do those sorts of overly simplistic appraisals. All my written appraisals conform with standards established by USPAP (Uniform Standards of Professional Appraisal Practice), promulgated by The Appraisal Foundation, a not-for-profit organization dedicated to the advancement of professional valuation, which has been authorized by The US Congress as the source of appraisal standards and appraiser qualifications. Although preparation of USPAP compliant appraisal reports are quite complex and time consuming to produce, this diligent preparation is necessary because the resulting reports serve as legal documents that protect both the client and appraiser, and as such need to carefully explain the reasoning behind the stated valuations and attest to the competence of the appraiser to undertake such assessments. These stringent standards and guidelines are described on the website of the Appraisers Association of America, which, with good reason, requires all their members to use them.

Although I also do other types of appraisals, I am most frequently asked to complete appraisal reports for insurance, charitable institution donations, and estate settlements. Each has different requirements for written reports, which I describe in general terms below.

INSURANCE APPRAISALS

*header/footer on every page with: client name, appraiser name & contact info, appraisal purpose, valuation system used, effective date, pagination (include # of photos)

*cover page

*table of contents

*valuation summary

*disclaimers, limiting conditions, assumptions (authenticity), hypothetical & extraordinary assumptions

*appraiser's certification (include compliance with USPAP, fee structure)

*appraiser's CV & qualifications for appraising the type of art in the report

*client name

*clearly defined scope of work -- includes the following:

-description of the appraisal assignment
-purpose of appraisal: insurance

-type of report (appraisal report or restricted appraisal report)

-intended users (client & insurance co)

-valuation type: Retail Replacement Value

-definition of value & source

-market approach: comparative (state why used)

-marketplace: retail

-market analysis

-date & place of inspection

-effective date (same)

-date of report

*inventory of objects noting locations (if appropriate)

*description of objects, noting when Fine Art Breakable, Sterling Silver, Fine Art, nationality, artist, type of art, date, size, relevant inscription & marks, boxes -for Asian objects & scrolls-, material, technique, condition, prior publications, artists' bio, relevant references

*provenance (optional but useful)

*discuss authenticity if relevant

*include comparables (optional): if under $100 each--group together, $5000 & above--comps preferred, groups over $10,000--comps preferred

*Firm Valuation for each object

*photographs

*SIGNATURE

IRS DONATION APPRAISALS
*Need appraisal for donations over $5000, over $50,000 IRS art committee reviews appraisal report, over $500—taxpayer must submit IRS form 8283 (no appraisal needed)
*note: client can deduct cost of appraisal fees from income

*header/footer with: client name, appraiser name & contact info, appraisal purpose, valuation system used, effective date, pagination (include # of photos)
*cover page
*table of contents
*valuation summary
*disclaimers, limiting conditions, assumptions (authenticity), hypothetical & extraordinary assumptions
*appraiser's certification (include compliance w/USPAP, fee structure, disinterest, acknowledgment that misrepresentation will incur penalties, & appraiser not disqualified by IRS)
*appraiser's CV & qualifications for appraising the type of art in the report
*client name

*clearly defined scope of work -- includes the following:

-description of the appraisal assignment

-purpose of appraisal: donation
-type of report: appraisal report (the most comprehensive type)
-intended users (generally client & accountant & donor organization)
-valuation type: Fair Market Value
-definition of value & source
-market approach: comparative market analysis (state why used)
-marketplace: auction and/or retail
-market analysis
-date & place of inspection
-effective date: date of donation
-donee organization and appropriateness of object to that organization
-date of report (cannot be more than 60 days prior to donation)
*object list
*inventory & description of objects (noting nationality, artist, type of art, date, size, relevant inscriptions & marks, boxes -for Asian objects & scrolls-, medium, format, technique, condition
*artist bio, references, other notes
*provenance & price paid
*discuss authenticity if relevant
*Firm Valuation for each object
*photographs
*ownership interest
*COMPARABLES REQUIRED with discussion for: single items & groups over $5000
*SIGNATURE & Tax ID#
*Completion of appraiser's section of IRS form 8283

IRS ESTATE APPRAISALS
*single items over $3000 appraisal required; group of like items over $10,000 appraisal required, over $20,000 IRS art committee reviews appraisal report
*note: client can deduct cost of appraisal fees from income

*header/footer on every page with: client name, appraiser's name & contact info, appraisal purpose, valuation system used, effective date, pagination (include # of photos)
*Cover page
*table of contents
*valuation summary
*limiting conditions, disclaimers, assumptions (authenticity), hypothetical & extraordinary assumptions
*appraiser's certification (include compliance with USPAP, fee structure, disinterest, acknowledgment that misrepresentation will result in penalties, & appraiser not disqualified by IRS)
*Appraiser's CV & qualifications for appraising the type of art in the report
*client name

*clearly defined scope of work -- includes the following:

-description of the appraisal assignment

-purpose of appraisal: estate valuation
-type of report: appraisal report (the most comprehensive type)
-intended users (generally client, accountant, estate executor)
-valuation type: Fair Market Value (if using auction results, include buyer's premium)
-definition of value & source
-market approach: comparative market analysis (state why used)
-marketplace: auction or retail
-effective date: date of death or 6 months later
-date & place of inspection
-report date
-market analysis
*Inventory & description of objects (noting nationality, artist, object type, medium, format, technique, date, size, relevant inscriptions & marks, boxes-for Asian paintings and object-, ownership interest
*references, artist bio, other notes
*provenance & price paid
*discuss authenticity if relevant
*COMPARABLES REQUIRED with discussion for: single items over $3000, groups of like items over $10,000
*photographs (mandatory for over $20,000)
*Firm Valuation for each object *SIGNATURE &Tax ID#
*Completion of appraiser's section of IRS form 8283

NY Appraisers Association of America lecture on Copies and Forgeries in Chinese and Japanese Art

New York, NY, October 6, 2008, 6PM
Chinese and Japanese Arts: Antique or Not, Authentic or Fake?
Lecture sponsored by the Appraisers Association of America at the National Arts Club, 15 Gramercy Park South, New York City (20th Street between Irving Place and Park Avenue South). Lecture from 6:00p.m. to 7:00p.m. Receptions follow lectures from 7:00p.m. to 8:00p.m. Jacket and tie required. For reservations call 212.889.5404 ext. 11. AAA/ISA/ASA Members free; General Admission $15

Lecture description: The production of copies is part of the tradition of East Asian visual culture. Not all copies are fakes and many have monetary value, sometimes more than the original. Understanding the different contexts in which copies were produced helps understand how to evaluate them. This presentation introduces the wide variety of Chinese and Japanese arts that are commonly copied, showing how some are copied for legitimate reasons, and others for deception. I draw on my experience as both a scholar and appraiser of Asian art, using examples of objects I have seen and studied over the years. Discussion will focus on some of the most popular types of Chinese and Japanese arts collected in the USA since the late 19th century, including secular paintings, Buddhist painting and sculpture, Japanese prints, ceramics, cloisonné, Peking glass, jade, and netsuke, and show comparisons of real and fake examples. Currently, the issue of forgeries is particularly pertinent and vexing because these have increased substantially and become more difficult to discern in recent years, due to technological advances.