An appraisal is a document containing a valuation executed for a specific purpose following specified guidelines. The appraiser follows guidelines set by the IRS and organizations such as the Appraisal Foundation, who annually publish the Uniform Standards of the Professional Appraisal Practice for the benefit of both the Appraiser and the public. The appraiser, in order to comply with USPAP, must take and pass the current publication of USPAP every five years, and prepare all applicable appraisal reports to the standards of USPAP. The Appraisal Foundation is an independent organization established by several appraisal associations, which now receives federal funds, and is empowered by Congress to establish standards for all aspects of the appraisal profession.
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elements of a correctly prepared appraisal
The Elements of a Correctly Prepared Appraisal is a professional standard of elements for comprising an Appraisal Report as recommended by the Appraiser’s Association of America. The report must have the following minimum requirements in order to be an appraisal:
Name and Address of Client, Purpose of the Appraisal, Type of Valuation Used (with complete definition of the Value), Valuation Approach, Statement of Most Appropriate Marketplace, Market Analysis, Acquisition Information, Statement of Professional Qualifications of Appraiser (Curriculum Vitae), Date of Preparation of the Appraisal with date on which objects were viewed and Effective Date of the Appraisal, Statement of Physical Inspection or Method used in Determining Value, Statement of Disinterest on the part of the Appraiser, Statement that the Appraiser has not been Disqualified by the IRS (for IRS Appraisals), Statement of Assumptions and Limiting Conditions, Statement of Fee Structure, Statement of Belief in Authenticity, Clear and Appropriate Credit/Division of Appraisal Report if other Appraiser or Parties Participated in the Report, Description of Appraised items, Provenance, Exhibition & Publication History, Statement of Condition, Comparables and Related Analysis, Firm Statement of Value, Signature of Appraiser, and a Statement of the Number of Pages in the Appraisal Report.
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types of appraisal reports
Appraisal Reports are produced for the following purposes: Insurance, Charitable Donation, Estate tax, Gift tax, Probate, Liquidation, Damage, Bankruptcy, Collateral, & Equitable Distribution. Each type of report has requirements with regard to both the correct methodology and valuation approach, which are integral parts of the determination process for appropriate value.
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valuation definitions
Retail Replacement Value (RRV) is the highest price in terms of cash or other precisely revealed terms that would be required to replace a property with another of similar age, quality, origin, appearance, provenance, and condition, within a reasonable length of time in an appropriate and relevant market. (1989 ASA handbook, page 76)
·Valuation Purpose: Insurance
·Applicable Market: Retail, Gallery, or Boutique Marketplace
Fair Market Value (FMV) or a Middle Second Market Value as defined by the IRS Section 1.170 and 20.2031 (b) is "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." According to Technical Advisory Memorandum 9235005 (May 27, 1992), fair market value should include the buyer’s premium. 20.2031 (b) continues, "The fair market value of an item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of that item in a market other than that in which such item is commonly sold to the public, taking into account the location of the item wherever appropriate. Thus, in the case of an item of property includible in the decedent’s gross estate, which is generally obtained by the public in the retail market, the fair market value of such an item of property is the price at which the item or a comparable item would be sold at retail." (Treasury Regulation Section 1.170A-13, (C) (3) (1988))
·Valuation Purpose: IRS related reports
·Applicable Market: The Auction Market
Marketable Cash Value (MCV) or a Middle/Low "Net" Value is defined as the net value a willing seller realizes after disposing of property in a competitive and open market to a willing buyer. Both the buyer and seller must be reasonably knowledgeable of all relevant facts, and neither being under constraint to buy or sell. Marketable cash value takes into consideration insurance, dealer commissions, advertising, travel, and shipping expenses that maybe involved in the sale.
·Valuation Purpose: Resale & Equitable Distribution
·Applicable Market: The Secondary Auction Marketplace
Orderly Liquidation Value (OLV) or a Low Range "Net" Value is defined as "the most probable price in terms of cash, or other precisely revealed terms, for which the property would change hands under required and limiting conditions in an orderly manner, generally advertised, with reasonable time constraints, in an appropriate and relevant marketplace, with knowledgeable buyers." (1994 ASA handbook, page 2)
·Valuation Purpose: Quick Sale
·Applicable Market: Secondary Auction Marketplace
Forced Liquidation Value (FLV) or the Lowest Range "Net" Value is defined as "the most probable price in terms of cash, or other precisely revealed terms, for which the property would change hands if sold immediately, without regard to relevant market place." (1994 ASA handbook, page 2)
·Valuation Purpose: Quick & Forced Sale
·Applicable Market: Tertiary Market
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valuation approaches
Comparative Market Data Approach: This is the most commonly applied approach when appraising personal property, in which appraised value is based upon past prices for similar works by the same artist or artisan, or similar works by another artist or artisan of equal standing and related reputation.
Income Approach: This is used to determine the value of a work of art or object, which will be used to generate future income, most commonly through leasing, rental, or reproduction, but not through a one-time-only sale with transfer of title and/or copyright.
Cost Approach: This is used to determine the value of a work of an object based upon the cost of duplicating or recreating an identical piece. This approach may be applied to the decorative arts when the method of construction or materials used is replicable and of significant inherent value. This approach is never applicable to fine arts in which the value of the item being appraised is unaffected by the lack of inherent value of the materials used in its creation (e.g. paint, canvas, paper, etc.).
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a note on "verbal" appraisals
Verbal Appraisals are not an actual item, for the very basis of a "verbal appraisal" does not comply with the definition of an Appraisal, which is comprised of the components under "Elements of a Correctly Prepared Appraisal". Professional organizations, such as the Appraiser’s Association of America, do recognize the need and purpose of the verbal appraisal, or Professional Opinion of Value (POV), and has set up standards for the Professional Opinion of Value. Please see the POV section of the Saighead web site for more details regarding this. The POV is a standard set by the Appraiser’s Association of America as a guideline for instances where a verbal statement of opinion or value may be necessary.
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