Monday, December 27, 2004

What do you know about your appraiser?

What Do You Know About Your Appraiser? Caveat Emptor

Joe Smith was upset enough. His house had just burned and now he was confronted with all the problems he had to overcome to put his life back together. Fortunately, he did have photographs of his two favorite paintings done by a painter he had lost track of over the years. The appraiser he hired seemed nice enough; and, as a specialist in handling estates, everyone knew him and liked him. This appraiser was also convenient because he could handle the appraisal of all the property lost in the fire. The paintings were scheduled individually on the policy and were fortunately insured for full replacement cost. He looked at the photographs and at Joe's invoices, which indicated that Joe paid $500 apiece for the paintings. The appraiser couldn't find any reference to the artist in his books but remembered selling this artist's work at an estate sale a few years before for pretty much what Joe had paid a decade before. He used these figures as comparables to substantiate his appraised values. The insurance company did settle on everything; and Joe was paid $1,000 for his lost paintings. A year later Joe stopped by a gallery in his hometown to talk with a dealer that had been in business for a number of years. He mentioned the artist's name; and the dealer recognized him immediately. It turned out that the artist had moved to Northern California and had been very successful in this regional market. Joe tracked down the artist’s dealer who by chance was having a retrospective of this artist's work. The asking price for a comparable painting of the type that Joe lost was $5,000. Joe's policy did call for the replacement of the paintings. Replacement cost is based in this case on the asking price of the work of art and not the fair market value used by the appraiser. The appraiser didn't do his homework and it cost Joe $9,000.

The year is 1968 in Pawtucket, Rhode Island and the family house has just been condemned by the state for an Interstate right-of-way. It was time now to downsize, move the parents into a smaller place, and think about selling some of the family antiques that had been around for a few hundred years. It was also time to call Ralph, the family "antiques dealer". Ralph came in and inventoried everything, making a list with a brief description. He was very friendly and concerned about the family. Ralph said he would come back in two days with the appraisal. Ralph was back and handed the appraisal to Elizabeth, oldest daughter and caretaker for the family. The appraisal was very easy to understand... it was simply a list with a number next to the object. Ralph explained that he really liked a few of the pieces, which he was prepared to buy outright. He couldn't pay retail of course; but he would pay cash. Elizabeth trusted him and believed that he was being fair and reasonable. Plus he was so concerned and thoughtful. So Ralph bought some pieces and arranged the sale of the rest. Fate does work some strange magic for Elizabeth's son, who had dropped art history in college after two weeks because it was boring, became an art dealer. In the early 90's John was now a member of the International Society of Appraisers and had taken their courses and happened to look back at Ralph's appraisal. Because he had low-balled everything, John knew that Ralph might as well have robbed his Mother at gunpoint. Ethical appraisers don't buy what they appraise. Trained appraisers provide comparables to support their values. John now understands up close and personal how vulnerable the American public can be when preyed upon by unethical or incompetent appraisers. Fortunately, he never told his Mother.

As American citizens we have come to accept the U.S. Government's involvement in our daily lives acting as our great protector licensing our doctors, lawyers, and real estate appraisers. But the next time you consider getting an appraisal of your personal property, think again because Uncle Sam's involvement here is non-existent. The Uniform Standards of Professional Appraisal Practice is the only standardization on either a state or federal level. The Appraisal Foundation, whose membership then included the nine largest appraisal organizations in Canada and the United States, drew up these standards in 1987. As a consequence of the Savings and Loan debacle of the mid 1980's, the bulk of USPAP is real property related. Most of the appraisal organizations require adherence to USPAP. Real estate appraisers are licensed and must adhere to these standards or face losing their certification. Remember this licensing process is a state-by-state process overseen by the Appraisal Foundation. Personal property is considered a totally separate category. You as consumers are not protected unless you hire an appraiser that is a member of an appraisal organization that requires at a minimum compliance to the relevant chapters of the USPAP standard. The International Society of Appraisers does not require compliance with USPAP because its standards in report writing and ethics exceeds that recommended by the Appraisal Foundation.

So where does that leave you when you need to find an appraiser for your divorce, bankruptcy, estate, damage claim, insurance, liquidation, charitable donation, loan collateral, or one of the other many reasons for obtaining an appraisal. Quite frankly your choices are limited. There are three large personal property appraisal organizations in Canada and the United States. The American Society of Appraisers was founded 1936 and is based in Washington DC. The Appraisers Association of America was founded 1949 and is based in New York. The International Society of Appraisers was founded 1987 and is based in Seattle, WA. Real estate appraisers dominate ASA, which is the largest and oldest organization. ISA is the largest organization devoted solely to personal property and is well represented in both Canada and the United States. A significant portion of ASA’s listed personal property appraisers specializes in machinery and equipment and business evaluation. AAA is very strong on the East Coast and in New York in particular. All three organizations use the terminology “accredited” or “certified” to indicate that the appraiser has had some training in appraisal methodology. An appraiser must have both product knowledge and training in how to do an appraisal. So how many trained appraisers are there In the United States and Canada to serve your needs?

ASA has 1838 personal property appraisers - of these 993 are accredited.
AAA has 800 personal property appraisers - of these only 90 are solely accredited with AAA.
ISA has 1366 personal property appraisers - of these 662 are accredited.

That is a total of 1745 trained appraisers as of May 2002. Let's add another 1000 appraisers to encompass people that may have some training from an auction house, miscellaneous other sources, or may have left their appraisal organization after training. Assuming 2700 and acknowledging that some appraisers belong to two or three organizations, our number is still pretty optimistic. So what does this mean? By one estimate it means that as much as 90% of all the personal property appraisals in the U.S. and Canada are being done by untrained appraisers.

The financial impact alone of bad appraisals is significant. Considering the cost of fraud to consumers and the potential federal penalties from an overstatement (charitable contribution) or an understatement (estate… you wonder why Uncle Sam has not stepped in with some licensing. To the contrary the IRS implies that if you hold yourself out to be an appraiser, then you are one. If there is an audit and you are pretty bad, it is possible for an appraiser to make a list barring them from doing Federal appraisals and to incur fines of up to $1,000 per incident. That is the extent of government protection for the consumer. My remarks seem to suggest that I am proposing that the U.S. Government step in. Actually, the solution is probably in state regulation permitting local government officials to work closely with the experts in their area.

There are questions that you can ask an appraiser to see if he is qualified. Do you belong to a professional appraisal organization? Are you an accredited appraiser that has been tested in appraisal methodology? How many years have you been appraising (applicable field) art? Can you provide references and can you show me an example of your work? Here's how you can reach the appraisal organizations.

ASA 800-272-8258, 203-478-228 website -
AAA 212-889-5404; website
ISA - (888)472-5034, (206)241-0359; website
A searchable database of all three can be found on

We should not denigrate the important contribution made by the auction houses. The auction houses are a major part of the market place in setting values on personal property through the results of consummated sales available to the public. However, an auction house estimate is not an appraisal. This figure is quite simply an estimate that the auction house hopes will entice the owner to sell their property at auction. If you call the estimate an appraisal, there clearly is a conflict of interest in providing an estimate with the hope of selling the property. An appraisal must be a well-researched document prepared after examining the property and considering the most appropriate market without the appraiser having any financial interest in the property. Experience suggests that trained appraisers understand more clearly their professional responsibilities and do tend to adhere to report writing and ethical standards.

If you need an appraisal, take the time to find the right expert. It will pay off in both time and money.

John A. Buxton, ISA CAPP
6717 Spring Valley Rd
Dallas, TX 75254
The Tribal Art Information Connection