1. Is an appraisal a fact?
No. An appraisal is a binding legal and financial document, but the valuations contained in it are not facts. An appraisal is a document of informed opinion created by a valuation professional and based upon inspection, research, and analysis.
2. Is an "appraiser" the same thing as an "authenticator"?
No. An appraiser is not an "authenticator" per se. However, for an appraiser to give an opinion of value, he or she should feel confident that the property is what it is purported to be. If an appraiser has good reason to believe that an artwork has questionable attribution or authenticity, he or she will need to disclose any doubt to the client, explaining why, and indicating as such in the appraisal report.
3. Is there one fixed value of an artwork?
No. As with any goods, artworks have values that depend upon numerous factors of context. Just consider the difference between the price you pay for lettuce at the store and the "value" of the same lettuce when the store it them from the distributor. The value of the lettuce changes again if it is about to go bad and needs to be sold immediately. Similarly, the retail gallery price of an artwork, its auction market value, and its liquidation value generally differ. In short, the purpose of the appraisal determines the type of value used. Here are some common values used in appraisals:
- Retail Replacement Value is the amount of money it will cost to replace property immediately with property of like kind. It is the value most commonly used when appraising for insurance purposes.
- Fair Market Value is the price at which goods would exchange hands between a willing buyer and a willing seller with no constraints on either party to buy or sell. This is the only type of value recognized by the IRS. It is used to determine value for estate and gift tax purposes and museum donation purposes.
- Marketable Cash Value is similar to "fair market value," but expenses related to the sale are subtracted. This might be used, for example, to determine equitable distribution of resources in a business liquidation situation.
- Liquidation Value is the amount of money that would be realized under a forced sale. If, for example, an artwork needs to be sold to pay a debt in a timely fashion, an appraiser may need to locate the work's liquidation value, and this will almost certainly be less than the fair market value of the same property.
- Salvage Value is another value that is used in the insurance profession. If your artwork is damaged and the insurance company pays your claim and takes possession of the work, the salvage value is the value that it has to them. For example, if your Goya print is "totalled" and the full retail replacement value has been paid out and the work taken by the insurance company, the salvage value is the price for which the insurance company might be able to sell it, perhaps at a flea market.
4. How does an appraiser determine value?
There are three main approaches to determining value:
- The Market Comparison Approach: By far the most common approach for appraisals of personal property, this approach involves the analysis of recent sales of comparable properties and the determination of the value of the appraised property through comparison with these sales.
- The Cost Approach: In this approach, valuation is based upon the initial cost of the property.
- The Income Approach: This approach factors in the income that a property garners. This approach might be used, for example, in the appraisal of a damaged work that had been chiefly used for the creation of derivative works.
5. Can an appraisal be done "virtually," such as over e-mail with pictures only?
Yes. An appraiser may produce an appraisal from reproductions only. That, however, may be a "limiting condition" and would have to be disclosed as such in the appraisal report. It is, whenever possible, generally preferable for an appraiser to make a live inspection of the appraised property.
6. Can an appraisal be done orally?
Yes. Whenever an appraiser offers an opinion of value, it can legally be construed as an appraisal. That said, written appraisals are typically more useful for all parties.
7. Can an appraiser offer his or her valuation as a range?
Yes. Giving a range (such as "$5,000 to $8,000," or "at least $10,000") is acceptable, according to the Uniform Standards of Professional Appraisal Practice (USPAP), although assignments frequently demand a fixed value. It also acceptable to give a range for the percentage of value lost in the case of damage. (See USPAP, 2014-15, Definitions, U-1.)
8. Can an appraiser be paid on the basis of a percentage of the value of the appraised property?
No. According to USPAP, when performing an appraisal or appraisal review, an appraiser cannot collect his or her fee as a percentage of the value of the appraised artwork. When performing an appraisal or appraisal review, am appraiser must collect his or her fee on an hourly or flat rate. However, when working strictly in an advisor / consultant capacity on different properties, an appraiser may collect a fee based on a percentage of value.
9. Can anyone perform an appraisal?
No. According to the IRS, "qualified appraisals" must be performed by "qualified appraisers," those who possess the relevant education and experience in the subject matter of the appraised artwork.
The requirements for the experience and expertise of appraisers performing appraisals for insurance are not similarly regulated as those for the IRS, but it is important to remember that, for any purpose, an appraisal is a legal binging document, and thus, it is generally best to have a professional appraisal prepared by an appraiser with proper qualifications.
10. As a client, is it a good idea to share documents about an artwork's history with an appraiser?
Yes. Appraisers are required to maintain confidentiality and objectivity. It is generally advised that you share any pertinent information with your appraiser, because this may help him or her in arriving at the most accurate valuation.
11. Do appraisers generally offer professional legal or accounting advice?
No. While a good appraiser is typically informed of general legal and accounting matters that pertain to art, the services of those holding themselves out as valuation professionals do not constitute professional legal or financial advice. For specific advice on legal and financial matters pertaining to your collection, your lawyer and/or accountant will typically be able to provide the best and most appropriate services.
Image: Ed Ruscha, No Man's Land, 1990