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

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.

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

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.

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