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Before the Auction: Approaching Appraisals

What do you think of when you hear the word appraisal in the context of personal property like antiques and collectibles? The simple Webster's definition--"an estimate of value or worth"--brings up a number of questions. Value or worth by what standards? Aesthetic value? Resale value? In what marketplace? To whom do we entrust the task of making this estimation? Does an object's value, once appraised, change over time? Here's an overview of the complex and rapidly changing world of personal property appraisals.

Informal Appraisals
Appraisals are used for different purposes. A casual, over-the-counter or verbal appraisal can satisfy curiosity about the identity, history, and value of an antique or work of art. This opinion, which is only as good as the expertise of the individual rendering it, can be verbal or in written form. The Antiques Roadshow appraisal is one such example.

Within this category falls the auction value appraisal, which is just what it sounds like: an expert's estimate of what an object would bring at public auction. The practice started as a way for auction houses to acquire property to sell, so they were often free of charge. Later came the appraisal days now common at some auction houses, and the benefit appraisal clinics held at museums. People line up at these events, clutching their porcelain vase, silver bowl, or heirloom painting for an expert's scrutiny.

Unlike formal appraisals, which require hands-on examination, initial auction appraisals can be made from photographs (subject to further examination). The online appraisal process (like Vendio Appraisals) also belongs to this educational/informational category. The market and historical information people receive from these informal "photo" appraisals can be remarkably accurate (depending on the quality of the photographs and data the appraisers receive), yielding important information that may lead users to seek a formal appraisal and the documentation that accompanies it.

Formal Appraisals
In the early, orange-crates-and-roommates stage of life, who needs an appraisal? It is at life's later crossroads that we might find ourselves in need of one. In traditional auction-world shorthand, it is usually one of the "three Ds" (death, divorce, or debt) that brings about the need for an appraisal.

While the darker moments do indeed tend to summon the appraiser (divorce, with its legally supervised division of property, or a natural disaster, such as a flood, and the resulting insurance claim for loss or damage to household contents), this juncture could also be a joyous event, like the birth of a child, prompting a reevaluation of one's estate planning, or the acquisition of a valuable object, like an engagement ring, that requires documentation for special insurance.

Formal appraisals vary in scope, format, and purpose. To render a formal appraisal, a qualified appraiser must examine an object in person. This takes place either onsite or in the appraiser's office. The fee for this work is fairly steep, usually between $150 to $500 per hour, per appraiser. When you witness the exhaustive study and mountains of documentation that formal appraisals can entail, you can understand why it's so expensive.

Here's a rundown on some of the different types of appraisals.

Estate appraisals, for which fair market value (the likely selling price of property on the open market, between a willing, informed buyer and seller) is used, have different purposes. They can be sought by a living person in preparing for distribution of property to heirs (in an estate plan or will) or can be required when a person dies, as part of the probate tax process. Since market conditions vary over time, appraisals can also be required to confirm or update the figures on an estate document.

A tax appraisal can be used for preparing net worth or capital gains statements, as part of an audit or legal process, or to establish the value of a charitable donation for which a deduction is being made. Insurance appraisals reflect retail or replacement value, recorded when coverage is extended. When fine art is insured with a special "rider" added to a policy, an appraisal is required. This is usually substantially higher than auction value. Insurance appraisals must be updated every three years to accommodate changes in market value. Appraisals are also used in the insurance industry to establish the salvage and recovery value of property. When a person declares bankruptcy, an appraisal can be required to determine the liquidation value of personal property. Liquidation value is different than fair market value as it takes less-than-ideal market conditions into consideration.

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