Before You Sell, Donate, or Insure: When an Appraisal Actually Matters

If you are a fan of Antiques Roadshow, as I am, you may have noticed that sometimes the appraisers will give an "auction value" and then follow with "for insurance purposes" and then give a value that may be 20-25% higher (or more!). This is because there isn't just one value for a given object. Insurance value is (typically), the cost to go to a retail store and buy a copy of the object should it be lost or damaged beyond repair. Whereas an auction value (sometimes called market value) represents what a willing seller can expect to receive from a willing buyer, neither being compelled to act. Because they aren't the same set of circumstances, the values aren't the same.

So we see that the appraised value for the same piece of American art pottery (for example) can and does vary depending on what the purpose of the appraisal is. Circumstances such as resale, insurance, donation, or eatate planning can each result in a different valuation. A good appraiser will make this clear up front to his or her clients.

Situations Where an Appraisal Is Typically Required

There are definitely circumstances that demand a formal, written appraisal performed by a qualified appraiser. These circumstance include:

• Non-cash charitable contributions above IRS thresholds (Generally, items worth more than $5,000 must be appraised in order to qualify for the tax deduction.)

• Estate and trust administration (See your attorney for legal advice. But the risk is that inheritance tax is not paid accurately unless estate contents are appraised correctly.)

• Insurance scheduling and loss claims (Check with your broker. Often, standard homeowners (or renters) policies do not cover "luxury" or unusual items such as antiques, high-end furnishings, valuable art and/or jewelry, or large collections.)

• Equitable distribution scenarios (In divorces, if both parties cannot agree on the value of their jointly held belongings, a neutral, third-party appraisal may be required.)

Situations Where an Appraisal Is Often Overlooked—but Shouldn’t Be

Examples:

• Dividing personal property among heirs - Even when there is no discord among heirs, it can still be helpful for everyone involved to have monetary values attached to belongings so that decisions can be made with a clear understanding of the circumstances. If there are disagreements, then an appraisal can help solve problems and ensure an equitable distribution.

• Downsizing before a move - Moving to a new home often triggers a round of downsizing - getting rid of personal property deemed not worthy of taking with you. An appraisal at this point can help you to make informed decisions in what can often be a stressful time.

• Pre-sale planning for collections - If you are considering selling a collection, you shouldn't rely on the estimates given to you by the auction company. An appraisal will almost always be a more accurate picture of its true value. Having this knowledge will help you make good decisions about what to keep, what to sell, and maybe what to give away.

• Updating outdated insurance schedules - Markets change over time. Collecting trends change. Artists and makers fall in and out of favor. Decorating styles come and go. If you've had your collection or other valuables appraised for insurance purposes once, you really should get that appraisal updated regularly to ensure your level of coverage remains properly set - not too high, not too low.

The Cost of Skipping the Appraisal Step

There are several risks that can be associted with not having an appraised value for your property in advance of making decisions about it. You may find yourself under- or over-insured, which could mean either unable to recover adequately following a loss or, paying too much in premiums for insurance you don't need.

When taxes are concerned, either following a charitable donation or perhaps when settling an estate, if an appraisal is not done when it should be, you run the risk of increasing your chance of an audit - never a fun thing.

In certain circumstances, lack of an appraisal could prolong or worsen family disputes over inheritances or shared property.

Finally, not having an item appraised could result in missed value when selling.

What a Professional Appraisal Actually Provides

Appraisers trained to provide USPAP-compliant appraisals are committed to the highest levels of professionalism. When you have an appraisal done by such an appraiser, you can count on getting objectivity, defensibility, market context, and documentation to support the valuation determination.

This is in contrast to dealer opinions or online research that you might conduct yourself. Some antique dealers do offer USPAP-compliant appraisals. Generally, such an appraisal will include a written report that you can then share with your lawyer, accountant, insurance broker, the IRS, or other professionals involved.

Informed Decisions Reduce Regret

When making decisions about the disposition of your personal property, having better information up front can reduce the chance of regret later on. Not every circumstance calls for an appraisal. But for those that do, a reliable, professional statement of value can make a big difference in reducing stress and providing peace of mind.