THE APPRAISAL PROCESS

THE INTERNATIONAL SOCIETY OF APPRAISERS

THE APPRAISAL PROCESS

INTRODUCTIONMEMBERSHIP OR EDUCATION QUESTIONS:

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OUR AUDIENCE

• Professionals – who rely on appraisals and accurate value information

• Community Residents – who purchase appraisals to solve problems, i.e. insurance coverage, estate planning, charitable giving

• Collectors, Librarians, Curators, Registrars – who must wisely manage assets, investments, archives and heirlooms

• Students and Teachers – who research objects in social and historical contexts and design new curriculum

PROFESSIONALS

• Better serve your clients by• Understand what makes an appraisal compliant• Know what you are asking your clients to provide• Be able to qualify the documents for review• In many cases lawyers and estate planners do not understand the

appraisal process

• Reduce the risk of making decisions based on faulty value conclusions or hiring an unqualified appraiser

• Expand your professional practice with additional value added services such a personal property valuation, art advisory contacts, collection management, etc

PROFESSIONALS

Financial Planners and Advisors Need to Look Beyond Real Estate and Securities and Assist Clients with “Other Assets” from the Balance Sheet•Personal Property Values & Passion Investments•Art/Antique Collection•Automobiles•Luxury Goods•Wine•Jewelry/Watches•Coins/Stamps

COMMUNITY RESIDENTS

Solve immediate problems such as•insuring art and antiques•determine estate tax liability•making charitable donations•processing damage claims•distributing assets equitably•settling divorce or bankruptcy litigation

COMMUNITY RESIDENTS

• Become a savvy consumer by knowing what should be included in the appraisal report

• Understand the appraiser’s credentials so you can hire the right appraiser for the job

• Understand the various levels of value for your intended use

COLLECTORS, CURATORS & LIBRARIANS

• Understand the true value of your collection or the holding for which you are the steward

• Learn to increase or downsize collections intelligently by being an informed trader, buyer and/or seller

• Expand your network of resources to become a sophisticated champion for your collection

STUDENTS AND TEACHERS

• Discover new topics for scholarly research• Expand the curriculum by designing new courses and

enhancing existing classes• Be part of the emerging and interdisciplinary academic field

of the study of material culture

DO YOU KNOW YOUR COLLECTION?

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KNOW YOUR COLLECTION

Documenting a collection will not only enhance the value of individual objects in the collection but add context and interest to your collection.

•Where was it purchased, when and for how much?•Is the original invoice on file?•Who owned it previously? Was it inherited?•How did the original owner come by it?•What is known about the maker or artist?

KNOW YOUR COLLECTION

• Has it been appraised? When, by whom and at what valuation (insurance, market, replacement)?

• Has the object been published? Where, and by whom?• Has it been included in any exhibitions? When, where,

curated by whom?• Where is it now?• When was it sold, for how much?• Does it have any unique identifying numbers from previous

owners? (museums call these “accession” numbers)

EVALUATING YOUR COLLECTIONMEMBERSHIP OR EDUCATION QUESTIONS:

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14 POINTS OF CONNOISSEURSHIP FORTHE DECORATIVE ARTS

Developed at Winterthur and published as a book called Evaluating Your Collection by Dwight P. Lanmon from the Winterthur Decorative Arts Series.

14 POINTS OF CONNOISSEURSHIP DEVELOPED AT WINTERTHUR

• Overall Appearance• Does it work• Ornamentation complement the form• Pleasing form• Graceful• Unity of parts to the whole

• Form• Shape• Mass• Proportions


• Ornament• Color• Figure of wood• Texture,• Turnings• Carvings• Engraving• Enameling• Printed design


• Materials• Woods• Surface coatings• Adhesives• Hardware• Know what was used and during each decorative arts period

• Finish• Original• Color• Layers


• Color• Color Changes• Exposure to air• Pollutants• Sunlight

• Craft Techniques• Quality of craftsmanship• Techniques and practices of the period• Congruency of parts (single maker, mixed parts)


• Trade Practices• How items are marked or labeled • Excise and Tariff laws• Craft Organizations

• Function• Reason for existence• Why was the object made• Intent of the artist

• Style• Features define style• Features may link object to a period (i.e. Baroque, Rococo, Neo

Classical)


• Attribution• Signatures• Labels • Stylistic• Take caution as labels can be applied and signatures can be fraudulent

• History of Ownership• Sales Receipts• Sales Catalogs• Exhibitions• Family history


• Condition• Natural aging such as softening of edges• Wear (logical pattern and location)• Patina• Repairs/Restoration –Sympathetic/Unsympathetic• Level of acceptance of wear and damage

• Evaluation• Aesthetic value• Intrinsic value• Is it culturally important• Rarity• Worthy of Purchase


Conclusion and Determinationbased upon the 14 points

APPRAISERS & APPRAISAL ORGANIZATIONS


APPRAISER DEFINITION

• An appraiser is a professional who specializes in providing opinions of value (appraisals) and valuation services in an independent, impartial and objective manner

• Professional appraisers have taken courses and have been trained in appraisal theory and methodology as well as specific product and specialty knowledge

• ISA appraisers must take classes, pass exams, and subject their reports to peer review as well as meet USPAP and minimum experience requirements

WHY HIRE AN APPRAISER

• Purchase Insurance Coverage• Property Damage or Loss Claim• Donations and Gifts• Selling an Item/Purchasing an Item• Estate Planning• Equitable Distribution for an Estate• Estate Taxation• Collateral for a Loan• Desire to know

WHY HIRE A DESIGNATED APPRAISER

• Education• Training• Experience• Legitimacy

• Code of Ethics• Current and up to date

in• Appraisal Standards• Market Trends

FOUR RECOGNIZED APPRAISAL ORGANIZATIONS

• International Society of Appraisers (ISA)• Appraisers Association of America (AAA)• American Society of Appraisers (ASA)• Royal Institute of Chartered Surveyors (RICS)

We recommend to only hire a designated appraiser from one of these four recognized appraiser organizations.

INTERNATIONAL SOCIETY OF APPRAISERS

• Largest personal property appraisal organization• Best appraisal principles, theory and methodology in the

profession• Appraisal Foundation Sponsor• Code of ethics• Only personal property• Training/Annual Conference• Requalification requirements• Professional development

INTERNATIONAL SOCIETY OF APPRAISERS

• National Network of Qualified Appraisers• Industry recognition for the best appraisal theory and

methodology program• Antiques and Residential Content Programs• Fine Art Programs• Specialty Studies Pathway• USPAP Trained and Tested• Website specifically designed to search for appraisers• The best annual conference

OTHER APPRAISAL ORGANIZATIONS

• Typically smaller organizations• Lower standards• Diploma mills• Lack of training• Lack of professional development• Many are dealer-centric (conflict of interest)

NON-AFFILIATED APPRAISERS

• Very Often Lack Training in:• Appraisal Theory• Methodology• Principles• Markets

• Many Times Dealer Associated• No/Limited Professional Development• Limited Contact with other Appraisal Experts and peers

AUCTION HOUSES AND APPRAISALS

• Auction Houses• Used to giving auction estimates and not other levels/standards of

value• May lack appraisal theory and methodology understanding and

experience• Conflict of interest (looking for consignments)

CODE OF ETHICS

Members of recognized professional personal property appraisal organizations, such as ISA, all adhere to a strict societal and USPAP code of ethics and conduct

THE APPRAISAL FOUNDATION

• Establishes, improves and promotes the Uniform Standards of Professional Appraisal Practice (USPAP)

• Disseminates information on USPAP and appraiser qualification criteria• To the profession• State and federal agencies• Users of appraisal services• Related industries

• Sponsors activities relating to standards and qualifications• International Society of Appraisers is a sponsor of the

Appraisal Foundation

USPAP

• Uniform Standards of Professional Appraisal Practice• Comprehensive set of standards for appraisers• Ethics• Competency• Record Keeping• Scope of Work• Jurisdictional Exceptions• Development Standards• Reporting Standards

USPAP CODE OF ETHICS

• Must not perform an assignment with bias;• Must not advocate the cause or interest of any party or issue;• Must not accept an assignment that includes the reporting of

predetermined opinions and conclusions;• Must not misrepresent his or her role when providing

valuation services that are outside of appraisal practice;• Must not communicate assignment results with the intent to

mislead or to defraud;• Must not use or communicate a report that is known by the

appraiser to be misleading or fraudulent;


• Must not knowingly permit an employee or other person to communicate a misleading or fraudulent report;

• Must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value;


• Must not engage in criminal conduct;• Must not willfully or knowingly violate the requirements of

the RECORD KEEPING RULE; and• Must not perform an assignment in a grossly negligent

manner.

WARNING SIGNSMEMBERSHIP OR EDUCATION QUESTIONS:

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DO NOT HIRE AN APPRAISER IF

• The appraiser claims to be associated with an appraisal organization and they do not come up on the site’s appraiser search

• The appraiser belongs to a lesser recognized organization or does not hold a designation from a recognized organization

• The appraiser does not belong to an appraisal organization

DO NOT HIRE AN APPRAISER IF

• The appraiser claims to be USPAP “Certified” (USPAP does not certify appraisers)

• The appraiser has no appraisal theory or methodology training

• The appraiser is not USPAP tested and requalified every two years

• Is banned from practicing before the IRS• If the fee is based upon a percentage of the valuation• The appraiser values and offers to buy

THE APPRAISALMEMBERSHIP OR EDUCATION QUESTIONS:

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APPRAISAL DEFINITION

• An appraisal is the act or process of determining value, estimating cost, or calculating the present worth of forecasted earnings

• An appraisal report is a written documentation of the same• An opinion of value which can be express as a specific

amount, a range of numbers, or a relationship to a previous value opinion or set amount

• Appraisals are opinions based on an informed judgment which are supported by facts, analysis and processing of relevant factors

INTENDED USE

• Insurance - Collection• Insurance Damage/Loss Claim• Donation• Estate• Equitable Distribution• Estate Planning• Liquidation• Acquisition• Loan Collateral• Pre Move Inspections

ELEMENTS OF A QUALIFIED APPRAISAL

• Name and Address of the Client• Intended use• Intended Users• Name, Contact Info and Qualifications of the Appraiser• Signed Certification• Scope of Work narrative• Effective date of the report and value• Appropriate Market• Objective• Value Being Sought and Definition

IRS QUALIFIED APPRAISAL (DONATION)

• Detailed Description of the Property• Physical Condition of the Property• The Expected Date of Contribution• Terms of Agreement Relevant to the Property• Name, Address, Tax ID # of Appraiser & Fee Arrangements• Appraiser Qualifications• Statement Appraisal was prepared for Income Tax Purposes• Date of Which Property Was Valued• Appraised for Fair Market Value, Basis for Value, Comps• Method of Valuation used to Determine FMV

IRS QUALIFIED APPRAISER

• Appraisal Designation from a Recognized Professional Appraiser Organization or

• Has otherwise met minimum education and experience• Regularly Performs Appraisals for Pay• Meets other requirements as prescribed by IRS Regulations• Is not been prohibited from practicing before the IRS at

anytime over the three year period ending on the appraisal date

THE APPRAISAL PROCESS

• Initial Consultation• Scope of Work and Intended Use• Inspection & Inventory• Critical Assumptions & Limiting Conditions• Research• Comparable Data• Value Adjustments and Value Conclusions• Report Writing• Compliance and Ethics Reviews

OTHER SERVICES

• Consultant• Brokerage (Acquisition or Disposition)• Advisor• Collection Management• Downsize Assistance• Oversight Services (conservation, framing, shipping storage)• Condition Reports and Annual Inspections

OTHER SERVICES

Litigation Services•Support appraisal report•Appraisal review•Technical analysis•Assist client in a legal matters (integrity and objectivity must be maintained)•Expert Witness•Serve as arbitrators or mediators in disputes

MARKETS AND VALUEMEMBERSHIP OR EDUCATION QUESTIONS:

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PRICE, COST & VALUE

• Value – the monetary worth of something: the amount of goods, services or money that something will command in exchange within a certain market• Value must be justified

• Price – the amount someone is asking for an object• Price is not necessarily justified

• Cost – the amount someone paid for an item• Cost, like price is not necessarily justified

APPROACHES TO VALUE

• Market Data/Sales Comparison• Cost• Income

MARKETS

• Retail• Wholesale• Orderly Liquidation• Distress Liquidation(values can be different in each market place)

AUCTIONS

• Depending on timing can conflate multiple markets• Traditional• Online• Condition• Selling• Buying• Appraisals

MARKET TRENDS

Changes in Values due to•Economics•Changes in Taste•Geography

STANDARDS OF VALUE

• Fair Market Value• Marketable Cash Value• Liquidation Value• Market Value• Actual Cash Value• Salvage Value• Liquidation Value

INSURANCE COSTS

Estimating the cost to replace an item of personal property with an exact duplicate, suitable substitute or manufacture with exact duplicate or suitable substitute

• Replacement Cost• New• Used (Comparable)

• Reproduction Cost• Repair or Restorations

Cost

AFFECTS ON VALUE

• Condition• Provenance• Markets• Individual Item vs Collection• Singular or Group (i.e. single chair or set)• Value In Place / In use• Appreciation• Depreciation• Authentication

EXPERTISE AND COMPETENCYMEMBERSHIP OR EDUCATION QUESTIONS:

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GENERALIST APPRAISERS

• A generalist is an appraiser who appraises a broad range of properties

• Generalists are critical to the appraisal profession, often appraising large estates and other complex assignments that encompass many areas of knowledge

• When necessary, a competent generalist consults with and acknowledges specialists and experts in creating a thorough appraisal report.

SPECIALIST APPRAISERS

• A specialist is an appraiser who primarily concentrates on a specific property and regularly performs appraisals of that property type

• A specialist often has additional education in a limited and dedicated field

• A specialist usually has more knowledge and experience than a generalist in a particular property type, but is not as knowledgeable as an expert in the field

EXPERT APPRAISERS

• An expert is an appraiser with comprehensive and authoritative knowledge of or skill in a highly concentrated field as a result of extensive education and experience

• Expertise is normally gained after many years of formal education, self-study, market experience, scholarly research, presentation and publication, or a combination thereof

• Only an appraiser working at the highest levels within a field should be considered an expert

APPRAISER VS AUTHENTICATOR

• An appraiser is usually not the authenticator but in certain instances can be

• Training in the logic and reasoning required to support the opinion

• Has proper credentials and experience in the appropriate specialty

• Appraisers identify• Many clients and collectors assume the appraiser is also an

authenticator

PROVENANCE

• French term meaning history of ownership of a valuable object

• Previous Ownership• Dealers• Collectors• Auction houses• Dates

• Exhibition History• Mention in Books and Magazines• Catalog Raisonne• Impact on value

PROVENANCE

A full provenance provides a documented history that can help•prove ownership•assign the work to a known artist•establish the work of art's authenticity

AUTHENTICATION

• Broadly, the act of proving that something is true or genuine• Market may determine authenticity• Dealers may warrant authenticity• Object deemed authentic or

• Fake• Forgery• Copy• Misattribution

AUTHENTICATION VS IDENTIFICATION

• Qualitative• Scholarly• Imprecise• Opinion• Subjective• Extrinsic• Inexact• Subject to change

• Quantitative• Scientific• Measurable• Factual• Objective• Intrinsic• Exact• Fixed

WHY AUTHENTICATE

• When provenance is not clear• Valuable work being donated• Value would change after authentication• When fakes and forgeries are known to exist (Dali prints)• Important works being offered• Client needs to know• Insurance• Historical accuracy

NOT ALWAYS RELIABLE SIGNS OF AUTHENTICITY

• Signatures• Older Attributions• Unvetted Exhibitions• Auction Sales• Gallery Sales• Certificate of Authenticity (COA)

CERTIFICATE OF AUTHENTICATION (COA)

• Beware• Not always what they appear• Some will have inappropriate values connected to them• Some COAs are self-serving and used to deceive

FAKES, FRAUDS, COPIES &MIS-ATTRIBUTIONS


FAKE/FRAUD/FORGERY

• A forgery is normally defined as a work of art presented to a buyer or audience with the intention to deceive

• Fraudulent intention is necessary for a work to be a forgery• this distinguishes forgeries from honest copies and merely mistaken

attributions

• Usually a forger creates in the style of a famous artist and tries to sell it, often in collusion with an unscrupulous dealer

• Forgers rarely execute an exact copies of existing authentic original object• such works are in most cases impossible to sell to informed buyers.

MARTIN JOHNSON HEADE, BY KEN PERENYI

FAKE/FRAUD/FORGERY

FAKE ON THE LEFT (CHIPSTONE COLLECTION)

FAKE/FRAUD/FORGERY

FAKE ROLEX ON THE RIGHT

FAKE/FRAUD/FORGERY

COPY

• Reproduction• Revival example

• In the sytle of

• Not intended to deceive• May be marked as a

copy

MISATTRIBUTION

• Incorrectly Identifies an object• Authentication not done by an expert• Scholarship changes• Error or mistake based

INSURANCEMEMBERSHIP OR EDUCATION QUESTIONS:

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INSURANCE POLICIES

• Homeowners Policy• Scheduled “All Risk”• Blanket “All Risk”• Art Title Insurance

HOMEOWNERS INSURANCE POLICIESAND APPRAISALS

• Unscheduled• Typically limited to 50% of dwelling coverage• A “Deluxe” Policy may be needed for collection coverage• Deductible typically applies• Determine value after loss• May have sub-limits for collectible classes• Policies differ by company

SCHEDULED “ALL RISK” COVERAGE

• Sometimes called Fine Arts or Valuable Articles Policy• Is in addition to homeowners policy• Predetermined or agreed amount (losses are pre-qualified)• Each item listed individually (an appraisal may be necessary)• Typically includes breakage coverage for fragile items• Typically automatic coverage for new acquisitions• Typically no deductible• Markets may change and client may become over/under

insured

BLANKET “ALL RISK”

• Written on total dollar amount• Items not individually listed• No deductible• Breakage coverage for fragile items• Burden of proof of value falls on insured (In event of a loss an

appraisal may be crucial and/or necessary)• Per-item dollar limit (many times set at $2500 unless

increased based on client needs, or is combined with a scheduled policy)

ART TITLE INSURANCE

• Art Provenance/Chain of Title Risks• Theft - contemporary or historical (e.g., WWII)• Illegal import or export

• “Classic” Title Risks• Security interests• Creditor liens • Authority to sell

• Coverage is for the face value of the policy plus the cost to defend against a claim.

• Appreciation of the value of the art can be addressed via policy endorsement.

ART AS AN INVESTMENTMEMBERSHIP OR EDUCATION QUESTIONS:

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ART AND ANTIQUES AS AN INVESTMENT

Three Schools of Thought•Buy Art for the Love of the Art•Buy Art as an Investment•Buy for Cultural Significance


For Financial Returns•Emerging Artists•Art From Emerging Countries•Portfolio Diversification•Alternative Investment•Undervalued and un-identified objects•Buy and Hold (Long term investment strategy)•Buy and Sell (typically contemporary art which is has a more volatile trend, than other segments such as old masters)


Passions Investments•More than a traditional financial investment

• financial return• Enjoyment of ownership• Potential Tax Benefits (i.e. foundations)• Social Benefits

•More than philanthropy• Socially responsible• Involvement beyond financial such as decisions, participate in the

management, etc. far more than a straight-forward charitable donation in the past


Investing in Art•Art is a commodity, with risk and volatility•Requires knowledge and $$$•Buyer Beware – Research, know value and what the artist is known for•Additional cost of ownership/buying/selling such as appraisals storage, insurance, maintenance, and auction or gallery fees•Invest in art through an art fund•Insurance and possibly art title insurance•Estate Planning (trusts and foundations)


If you are a novice or even a seasoned pro•Research•Train your eye•Be an informed and savvy buyer•Hire an art consultant•Hire a qualified and experienced art appraiser such as a designated member of the International Society for Appraisers


Mei Moses All Art Index – repeat sales index


• Given the recent prices at the top of the market, there is more interest from collectors, investors, banks, wealth managers, estate planner and the IRS to look at art as an investment

Francis Bacon, “Three Studies of Lucian Freud”, oil on canvas, in 3 parts, painted in 1969, sold in Nov, 2013 at Christie’s NY for a record price of $142.4 million

WHY HIRE AN ISA APPRAISERMEMBERSHIP OR EDUCATION QUESTIONS:

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ISA APPRAISERS

ISA Appraisers have all of the necessary appraisal skills, including•Connoisseurship•Experience•The professions “gold standard” of Appraisal Training

ISA APPRAISERS

ISA has three designation levels, our highest and most demanding level is the

•ISA Certified Appraiser of Personal Property (CAPP)

ISA APPRAISERS

The other two ISA Designation Levels are•ISA Accredited Member (ISA AM)•ISA Member (ISA)

ISA AND CONNOISSEURSHIP

• Product knowledge acquired through hands on experience• Not necessarily classroom related • Hands on study, examination and comparison of the relevant

material over such a sufficient period of time that the appraiser is able to effectively discern the relative quality, condition, craftsmanship, market level and authenticity/authorship, if applicable.

• Competent to pass critical judgments in an art, particularly one of the fine arts, or in matters of taste

ISA AND EXPERIENCE

• Appraisal Experience• Theory• Principles• Methodology• Report Writing

• Observation of Property• Product Experience• Practical Contact• Comparison of objects• Identification

ISA AND APPRAISAL TRAINING

• ISA Appraisal and Educational Programs are considered the best in the profession, including

• Appraisal Theory• Appraisal Methodology• Appraisal Principles• Testing• Peer Review• Requalification• Classroom Programs• On line Learning Management System Opportunities

HIRE AN ISA APPRAISER

Select from the best trained and widest network of personal property appraisers.

ISA Appraisers, the GOLD STANDARD for personal property appraisers

YOUR FIRM

• List Experience & Qualifications

THE ENDMEMBERSHIP OR EDUCATION QUESTIONS:

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THE APPRAISAL FIRMCONTACT INFO HERE


Documents

THE APPRAISAL PROCESS