When I mention that Lehmann PLC now offers valuation services including fine and decorative art appraisals, people often comment “Oh, you mean like on Antiques Roadshow?” Well, sort of – although I don’t wear a bow tie. While many people are just curious about what their things might be worth, there are times when a formal appraisal is warranted or necessary.
There are several reasons to get an object appraised. The two most common reasons involve insurance. In some cases, it may be advisable to “schedule” (individually list) high-value objects in your home-owners insurance policy; an appraisal will establish the value of the objects for insurance scheduling purposes. If an insured object is damaged or lost, an appraisal is often conducted as part of the claims settlement process. If you want to donate an object to a museum or other tax-exempt organization and take a tax deduction, a donation appraisal may be warranted. The IRS requires you to obtain a “qualified appraisal” from a “qualified appraiser” for any object valued at over $5,000. The same valuation threshold applies to personal property gifted to an individual or inherited from an estate. A qualified appraiser is one who has commensurate education and experience, and a qualified appraisal must conform with USPAP standards. An appraisal may also be necessary as part of a divorce proceeding, in connection with the dissolution of a business, or the division of assets or of an estate among the beneficiaries.
A personal property appraisal involves several steps. Although at times an appraisal can be based on photographs (sometimes referred to as a “desk appraisal”), the better practice is to physically inspect the object in place, photographing and measuring it, and carefully assessing its present condition. Reviewing any documents or other information known about the object is also helpful. After this, the appraiser will research the object, perform a market analysis, and establish an appraised value.
The type of valuation depends on the purpose of the appraisal. If the appraisal is for insurance purposes, the value will be “retail replacement value” – that is, the cost to purchase a replacement. This typically involves research into retail prices for the same or similar objects through galleries, dealers, etc. If the appraisal is for donation or estate tax purposes, a “resale” or fair market value is used. This typically involves research into auction results and other arms-length sales information. Fair market value is also used for divorce, dissolution, and division purposes. For liquidation purposes, discounted fair market value may be appropriate. The important thing is to explain the purpose of the appraisal to the appraiser, who will then determine the appropriate approach to valuation.
The appraiser’s research, analysis, and conclusion as to value are summarized in a written appraisal report. The value is based on a fixed moment in time. The art, antique, and collectibles markets are constantly changing, so insurance appraisals should be updated periodically or when there has been a substantial change in the marketplace.