NAC

Appraisals satisfy a variety of needs and legal requirements. At some point in our lives (or at perhaps at the end of it) we will all need the services of an appraiser. How well this appraiser provides his or her service will directly impact your financial status, tax liability, insurance needs, buying decisions, and perhaps how much time you spend trying to correct the mistakes of an unqualified appraiser. This article will cover the very basics of appraising, appraisals and appraiser qualifications for personal property.

After you read this article you will know more about the requirements of a qualified appraisal than most people who call themselves appraisers. That is a very frightening fact. In addition, there are no laws in any state for personal property appraisals. Anyone can call himself or herself an appraiser -- another frightening fact. The responsibility of selecting a qualified appraiser falls upon you. There are dozens of recent incidents, and court cases, of unqualified people that got themselves and their clients into big trouble by calling themselves appraisers.

An appraisal is a formal, written document, prepared by a qualified appraiser. The report contains an unbiased, opinion of value along with the documentation to support that value conclusion.

Every appraisal has a purpose and an intended use. The use is the reason the appraisal is being conducted. Perhaps the use for insurance coverage, charitable contribution, equitable distribution, estate planning or pending sale. The purpose is the value being provided: Retail replacement value, fair market value, liquidation value.

Appraisals must not mislead the reader. It must report a value conclusion based on proper research and accepted appraisal methodology. Although dealers and collectors may be very familiar with the prices of manuscripts, rare books and autographs, few know the appropriate and required procedures for presenting these values in an appraisal report.

The report must be written so that the client and any third parties will understand the process and procedures used in arriving at the value conclusion stated. All readers of the report must understand any limiting conditions and critical assumptions that may be a part of the assignment.

Generally accepted personal property appraisal practice standards require that the appraiser must always perform ethically and competently and in accordance with accepted appraisal standards. The appraiser is required to act as a disinterested third party and to perform an unbiased appraisal. That means that an appraiser is NOT an advocate. He or she is presenting valuation opinions based on proper research and appraisal methodology.

Appraisers do not determine value. Appraisers report value. The market determines value. Appraisers research the appropriate market using specialty knowledge and market study, then back their opinion with documented research, which is contained in the report.

Professional appraisal organizations and The Uniform Standards of Professional Appraisal Practice require that all appraisers act with impartiality, objectivity, independence and without accommodation of personal interest. Appraisers are required to avoid any action that could be considered misleading. Professional appraisers are required to avoid any possible "perception of impropriety."

If this is an appraisal requirement, and it is, then why are so many dealers offering to provide "free appraisals" of the material they wish to buy from their customers? This is at a minimum a perceived conflict of interest and may be extremely misleading. Moreover, the "service" is most likely not an appraisal.

Based on established appraisal standards, these "free appraisals" do not meet the criteria of a qualified appraisal. They lack both the required "purpose" and the "use." Even if the values provided are accurate the perception of impropriety still exists.

The IRS guidelines are even more strict. In a recent legal dispute, an autograph dealer, acting as an appraiser, provided an "appraisal" of a portion of an estate consisting of many presidential autographs. After the appraisal was completed the dealer purchased the autographs at the appraised value. The IRS heard of the transaction and negated the entire estate appraisal including real estate, fine art, and residential contents. The trust officer had to hire a new appraisal team, pay interest and penalties and resubmit the estate paperwork.

In addition, the appraisal did not cover minimum requirements of the appraisal profession let alone the IRS standards. The IRS will next look to see if the appraiser attempted to undervalue the collection. If so, the estate is responsible for a minimum penalty of 30% of the underpayment, plus the tax and the interest. If fraud is proven the appraiser, the trust officer, and the estate are subject to additional penalties.

If you wish to retain or consult an appraiser consider the following:

1. Appraising is not an art. It is a science. There is formal training, testing and certification available through a variety of organizations. Anyone that holds themselves out as an appraiser should have been trained, tested, and certified through one of three professional personal property appraisal organizations. Personal property refers to anything that is not real estate.

-- There is the AAA Appraisers Association of America, based in NY
-- The ASA American Society of Appraisers, based in DC (Bart Cox is member of ASA)
-- And the ISA the International Society of Appraisers, Head quartered in Seattle.

The ISA is the largest professional organization of personal property appraisers. Check the qualifications of all potential appraisers. And seek out appraisers that have achieved the highest level of certification and training. Don't let anyone tell you there's no place to be a certified appraiser

2. Do not use an appraiser that has an interest in your collection. Professional appraisers are unbiased and will not offer to buy anything they appraise and they don't appraise anything they intend to buy. You can't wear two hats in this business and not get into trouble. Remember the Pickett papers?

3. Do not accept any appraisal fee that is based upon a percentage of the value of the items being appraised. It is unethical for an appraiser to base fees upon a percentage of value reported. Appraisers must always be and remain unbiased.

4. When making a charitable contribution, be certain the items have a related use. The IRS frowns upon allowing tax deductions for items that are unrelated to the purpose of the institution. Donating a cow to the Gemological Society of America is probably an unrelated use.

Here are some questions to consider when selecting an appraiser:

• What formal tested training has the appraiser taken?
• What training, testing and certifications does the appraiser hold?

Can he or she provide the documentation to back it up? Twenty years in the autograph business is no indication of appraisal competence. Nor is a degree in history. Historians, archivists and curators are not necessarily appraisers. Look for appraisal qualifications.

• To what professional appraisal organizations does the appraiser belong?
• Are they tested members or can they become a member by just writing a check? You can call the organization to find out if they are active and what classes they have passed.
• Can they provide a sample report for your review?

They can and should have a sample available. Check it against the Appraisal check list below.

• What is their area of expertise?

Appraiser cannot be experts in all fields. Recently an appraiser told me she did "baby bottles to battleships" Oh yeah? How many battleships do you think she appraised this year? Appraiser must know their limitations.

• Do they consult others?
• If so, who do they use as associates and what are their qualifications?
• How do they research the market?

Many "appraisers" guess, or look at auction results and dealer catalogs. That is certainly not enough. The appraiser must know if the item actually sold and who bought it. Did it sell to a dealer or a retail collector? How many people were at the auction? Was it bought back? What is the scope of their research?

In our office we maintain over 2,476,000 records of manuscripts rare books and collectibles.

• Each item is cross-referenced by subject date, condition and content.
• Do they subscribe to an appraisal standard?
• Do they know what that standard is?

The accepted minimum appraisal standards include:

• The appraiser must not provide a value that favors the client over other parties.
• Appraisal advertising must be accurate and not exaggerated nor misleading.
• The appraiser must not disclose information about a client or the assignment and always maintain the highest degree of confidentiality.
• An appraiser must have the knowledge and experience to perform the assignment and must disclose his or her lack of knowledge, prior to accepting the assignment.
• A competent appraiser must carefully consider the purpose and intended use of the report and carefully determine the intended readers and third parties related to report.
• He or she must continuously review legislation related to valuation and appraisals and keep up to date on all IRS, federal, state or local regulations.

All of these elements are a critical part of a qualified appraisal. Typically, the first 9 to 12 pages of a qualified appraisal report contain required information on the appraisal process, market research, methodology used, markets selected and the appraiser's qualifications. The balance of the report is the detailed description of the items being donated and the value conclusions.

Each appraisal must contain a certification statement that includes the following information:

• That the statements of fact contained in this report are true and correct.
• Any limiting conditions must be clearly stated in the report; e.g. item not removed form the frame, poor lighting. the appraiser has no present or prospective interest in the property that is the subject of the report, and that he or she has no personal interest or bias with respect to the parties involved.
• The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client.
• The appraiser's analyses, opinions, and conclusions were developed, prepared and reported in conformity with the Uniform Standards of Professional Appraisal Practice and the appraiser's professional society..
• The appraiser has (or has not) made a personal inspection of the property that is the subject of this report.
• No one provided significant professional assistance to the person signing this report.

In addition, items must be described so that anyone reading the report would be able to identify the item being appraised. Most qualified appraisals include photographs of the items being appraised. The report must be signed and the appraiser's qualification should be included in the report.

As you may notice, the primary focus of the appraisal is on describing what value conclusion is being provided, how that value was researched, what methodology was employed, and the statement of why the appraiser is qualified to report that value. Anyone can report a value. Only a qualified appraiser can back that value up with research, defensible expertise, and formal training.

Selecting an appraiser can be a long and tedious process. Reviewing an appraisal also takes great time and effort. The alternative however, is to take your chances and pay the potential consequences later. For warned is for armed -- perhaps now you are both.

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ABOUT THE AUTHOR: Brian G. Kathenes, ISA, S-CAPP

Brian is a Certified Appraiser of Personal Property in Autographs, Manuscripts and Historical Documents. He is the Managing Partner of National Appraisal Consultants, L.L.C., a full service appraisal firm. He is Chairman of Ethics for the International Society of Appraise, and has served as Chairman of the New York Winter Antique Show Vetting Committee on Autographs, Manuscripts & Rare Books.

Mr. Kathenes is a radio talk show host, a published author and has presented seminars and symposia for over 272,000 participants and organizations including: The International Society of Appraisers, The Manuscript Society, Universal Autograph Collectors and The American Philatelic Society.

Mr. Kathenes has appeared on over 160 television and radio programs and has been quoted in over twenty magazines and newspapers including the New York Times, Business Philadelphia, Successful Meetings, and USA Today.

He is past President of the New Jersey Chapter of the International Society of Appraisers, the First Director of Education for the Universal Autographs Collectors and a member of the American Philatelic Society Appraisal Committee. His expertise includes stamps, coins, sports memorabilia and paper collectibles.