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A Quick Guide to Personal Property Appraisals
What is a tangible personal property appraisal?
Tangible personal property appraisals are the determination or estimate of value of an object or groups of objects for an intended use. This can include things as diverse as obtaining insurance, estate tax valuation, to assist in equitable distribution, to value an item for donation to a charity or to determine an orderly sale or liquidation sale value. Each of these uses may involve different types of values with resulting difference in research methodology and often very different value conclusions.
What can a professional appraisal do? Why get one?
For Insurance:
Document current condition and establish an updated estimated value in case of a loss. A professional appraiser will also maintain a record of the appraisal and documentation for five years, providing a hedge against records loss. Markets change so insurance appraisals should be revisited every 3-5 years to make sure you are neither over nor under insured.
For planning:
An updated personal property appraisal can help you or your client track the value of assets and changes in the value over time, allowing better planning determinations.
Knowledge of the value of property can facilitate conversations among family members about the value of items in real-world contexts, forestalling conflict later when perceived values don’t align with appraised values at estate settlement.
Have a full appraisal report done on the most important pieces in your collection. A professional appraiser can help determine which pieces require a full report. He or she can also help catalog and identify the rest of the collection.
An appraiser can assist an attorney in structuring an estate plan that will maximize the tax benefits for the client by providing the attorney with a strictly “value” point of view.
For estate settlement:
An appraisal is an impartial assessment of value. This helps the estate pay only their proper share of taxes and can help in case of a tax audit. It also helps determine which items may be best donated.
Knowledge of value is useful for heirs if properties and assets need to be gifted or divided after a death.
Knowledge of value is indispensable when considering step up valuations and subsequent estate and tax planning strategies.
How do you know if an appraisal is a good one?
Does the person doing the valuation have an interest in the outcome?
If so, this is a big red flag should an audit occur. Some people may underestimate tax liability in hopes of securing items for resale. Likewise, they may inflate the values of certain items in hopes of encouraging consignment only to deliver disappointing results later. A professional appraisal is a determination of value, not a gateway to other services.
Is the person doing your appraisal ‘Qualified’?
In the eyes of the IRS a qualified appraiser is one who has training and experience in the types of goods being valued. They have an education in appraisal methodology. A qualified appraiser is also often a member of one of the three IRS recognized appraisal organizations. They are: the International Society of Appraisers (the leading professional personal property appraisal association, representing the most highly trained and rigorously tested independent appraisers in the United States and Canada), the American Society of Appraisers (many business, personal property and real estate appraisers belong to this group) or the American Appraisal Association (typically art appraisers). Perhaps most importantly, a qualified appraiser will tell you what they aren’t able to do or how they will develop competency to undertake the task.
Is the report done properly?
A properly written appraisal report has:
-A cover document explaining in detail what type of value is being sought ("objective") and how the appraisal is to be used ("intended use").
-The methodology and resources relied upon, including market analysis and market(s) selected.
-A complete and accurate description of the property written to industry standards.
-The date(s) and location of inspection, and the effective date of value.
-A statement by the appraiser that he or she has no financial interest in the property or that such interest is disclosed in the report.
-The appraiser's qualifications for the property being appraised and signature.
-The report meets other requirements that make it compliant with the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP is the generally recognized ethical and performance standards for the appraisal profession in the United States and contains standards for all types of appraisal services. USPAP is updated every two years so that appraisers have the information they need to deliver unbiased and thoughtful opinions of value. USPAP is a standard that appraisers work with, it is not a certification.
Do not accept an appraisal if:
-It is handwritten or unsigned.
-The fee is based on a contingency or upon the value of the property.
-The appropriate "objective" and "intended use" are not stated.
-The item is beyond the appraiser's expertise.
-The appraiser is not willing and able to defend it in court (subject to the appraiser's availability, and separate fee arrangement).
Questions to Ask An Appraiser When Hiring
What qualifies you to appraise my property?
A qualified appraiser has formal education in appraisal theory, principles, procedures, ethics, and law. They should be up to date on the latest appraisal standards as seen through continuing education and testing.
The appraiser you hire should be familiar with the type of property you want appraised and know how to value it correctly. Expertise on a particular type of property is not enough if the "expert" does not know how to evaluate an item for its appropriate worth. Formal training allows a professional appraiser to understand the complicated variety of marketplace definitions that are used to determine appropriate values for appropriate uses.
For example, a museum curator may be able to authenticate a work of art, or a jeweler may be able to determine the identity of a gemstone, but neither may be able to value those items correctly unless they follow appropriate appraisal principles and procedures.
Do all appraisers have similar qualifications?
No! There are many personal property appraisers who have not completed any professional education. It is important to ask the prospective appraiser what type of formal appraisal education training they have. Obtaining a copy of the appraiser's professional profile or resume can help you evaluate the appraiser's credentials.
Do you belong to an appraisal society that tests its members?
There are many appraisal organizations, but only a few require members to take courses and pass tests before being admitted as full members. The three major professional appraisal organizations are: the International Society of Appraisers (www.isa-appraisers.org), the American Society of Appraisers and the American Appraisal Association.
Membership in a professional association is important because it shows that the appraiser is involved with the profession, has peer recognition, has access to updated information, and is subject to a code of ethics and conduct.
Ask: Have you been tested? Do you take continuing education classes?
If the appraiser claims membership in a group that trains and tests its members, be sure to ask if this appraiser has personally gone through the training and testing. Some organizations have grandfathered members into higher member status without testing them.
Continuing education is also important for appraisers. Procedures and regulations are always changing.
Ask: How will you handle items which may be outside your specialty area?
No appraiser should claim expertise in everything. A good appraiser knows his or her limits, and is expected to consult with other experts when necessary.
Ask: How do you charge for your work?
Do not hire an appraiser who charges a percentage of the appraised value, or charges a "contingency" fee. These practices are clearly conflicts of interest, and may result in biased values. It is important to note that the IRS will not accept an appraisal done with such fee arrangements.
Professional appraisers are prohibited by their Code of Ethics from charging a fee based on a percentage of the value of the property appraised. Hourly fees, flat rates, or per item charges are acceptable.
Questions? Please feel free to contact the author, Edward Kitson, directly via email Edward@AvesAppraisal.com. Edward Kitson is a professional appraiser holding the Accredited Member designation with the International Society of Appraisers. He complies with the Uniform Standards of Professional Appraisal Practice (USPAP) and is a member of several estate planning councils.