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Heritage Appraisals Publications

 

Insurance Coverage Appraisals: When and Why You Need One

For collectors of fine and decorative artwork, sculpture, jewelry, high valued collectibles and other rare/unique items, insurance coverage is necessary for a number of reasons.

In general, insurance coverage for these types of items may not be as easily obtainable as one might expect. Many insurance companies require a formal appraisal prior to adding these item(s) to a policy or may not even offer coverage of such personal property and the client will need to acquire an additional/umbrella rider. Most insurance companies have very strict guidelines on what they offer coverage on and the value threshold per item that requires a detailed appraisal. Also, general coverage may not include situations such as damage from a party other than the policy holder, travel/transport insurance and coverage outside of your private residence (framing/restoration services, moving to another location or placing on loan at museum/gallery/consignment etc.). These are additional needs that are sometimes not taken into consideration when procuring coverage, but should be addressed prior to policy agreement.

As you can imagine, insurance companies commonly cover general “household goods” and when a client has rare and unique items, these pieces need to be documented properly so all parties involved are aware of exactly what are the items, details regarding the pieces and how the appraiser estimated the value based on market comparables. This appraisal process educates everyone, their significance and future possible market fluctuations to safeguard coverage is adequate and the timeline for re-evaluations is properly assessed.

This ensures that if anything happens to the items at any point in the future, the proper steps have already been taken and the claim will be as streamline as possible. Also, having a qualified appraiser to regularly update values based on market trends (suggested every 5 years) protects that the client will not be under/over insured during their policy period. Another aspect to consider is if the appraised values are grossly inadequate/inflated. If so, the client will be paying the deductible and premiums based on these values, which could be far lower/higher then appropriate.

For rare, unique and original items of personal property, appraisers have also been able to assist in investment evaluations determined by the past market assessments of similar items and future increased or decreased earning potential of such items. This assistance may be significantly helpful on many levels to collectors with such needs. Making additions/subtractions to a collection based on investment strategies could minimize risk and insurance coverage overhead.

Lastly, most clients do not consider, especially artwork, the long-term care needed to keep the piece(s) stabilized and in the best possible condition. Like most things, all pieces of personal property have their own aging processes and require different levels of care and up-keep. Even if a piece does not immediately present with readily apparent visual issues, an appraiser can determine the current condition of a work, the conservation requirements in its existing state and the estimated future needs to maintain the piece. A piece that is restored regularly can save considerable restoration fees and unnecessary value decreases in the long run.

In summary, taking the proper steps and precautions to appraise a collection before disaster strikes will protect from much preventable hardship.

Kelly Knoll, ISA CAPP – President/CEO of Heritage Appraisals
International Society of Appraisers – Certified Personal Property Appraiser

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Past Vs. Present Appraisal Requirements/Differences

Every day we receive calls from clients curious about the appraisal process, asking what makes us “qualified” to appraise their rare and unique item(s) and what they should expect through the project. We also receive requests to just create a “simplified” appraisal on letterhead. Although this was an accepted/common practice some years back (pre-1990), requirements today have greatly elevated the quality and thoroughness of appraisal reports. Even when something “simplified” is requested, we are still obligated to follow certain guidelines and create an appraisal report that abides to current standards.

The first thing we explain is the credentialing/educational designations and the USPAP ethical practices required by the appraisal organizations that hold the appraisal industry to the highest standards/expectations. This ensures that qualified appraisers will develop and deliver a descriptive report and trustworthy results.

Below are some descriptions of the primary elements referenced above.

 Credential Designations (ISA – International Society of Appraisers)

Member– ISA

  • Completed the core ISA training in appraisal theory, methodology, ethics, and report-writing standards and has documented three or more years of market-related experience.

Accredited Member– ISA AM

  • Official designation of a qualified ISA appraiser with a declared specialty and 700 documented hours of appraisal-related experience.

Certified Member– ISA CAPP

  • The highest achievement in ISA credentialing and the appraisal industry, signifying appraising expertise, professional development, and advanced skills. An ISA CAPP member has 900 documented hours of appraisal reporting and has passed the CAPP examination.

USPAP – Uniform Standards of Professional Appraisal Practice

The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain

a high level of public trust in appraisal practice by establishing requirements for appraisers. It is essential that

appraisers develop and communicate their analyses, opinions and conclusions to intended users of their services in a manner that is meaningful and not misleading.

The Appraisal Standards Board promulgates USPAP for both appraisers and users of appraisal services. The

appraiser’s responsibility is to protect the overall public trust and it is the importance of the role of the appraiser

that places ethical obligations on those who serve in this capacity. USPAP reflects the current standards of the

appraisal profession.

Report-Writing Standards

A well-constructed report can meet the requirements of being objective, complete, accurate and not misleading only if it reflects the uniqueness of each situation and presents arguments (either for or against a conclusion) in a well-written and convincing fashion.

 Reports should include the following:

  • Documentation of why the appraisal is being conducted (the intended use)
  • What the appraiser is being asked to conclude (the objective)
  • What conditions surround the appraisal that could affect the appraiser’s conclusions
  • What approach to value/cost was used
  • Complete descriptions
  • Statements of condition
  • Provenance, including history of ownership, exhibitions and citations in literature
  • Results of tests done for identification or authentication
  • How value characteristics of the subject property compared with those of comparable properties
  • What markets were explored and how were they analyzed / Records of past sales of comparable property
  • A reconciliation of data and a final value conclusion

 Qualified Appraiser

A qualified appraiser is an individual who:

  • Has earned an appraisal designation from a recognized professional appraisal organization for demonstrated competency in valuing the type of property being appraised OR
  • Has met certain minimum education and experience requirements or completed college or professional level coursework relevant to the property being valued, and must have at least 2 years of experience in the business of buying, selling, or appraising such property
  • Regularly prepares appraisals for which he or she is paid
  • States they are qualified to make these type of appraisals

Excluded individuals include:

  • The donor of the property, or the taxpayer who claims the deduction
  • The donee (recipient) of the property
  • A party to the transaction by which the donor acquired the property
  • Usually a party to the transaction will not qualify to sign the Certification of Appraiser section. But, a person who sold, exchanged, or gave the property to the donor may sign the certification if the property is donated within two months of the date the donor acquired it and the property’s appraised value does not exceed its acquisition price
  • Any person employed by, married to, or related to any of the above-named persons, or anyone whose relationship to any of those involved in the donation would cause a reasonable person to question the independence of the appraiser. Part III (Section B) of IRS Form 8283 lists persons who cannot be qualified appraisers
  • An appraiser who appraises regularly for any person listed above and who does not perform a majority of his or her appraisals made during his or her tax year for other persons
  • Understands that an intentionally false overstatement of the value of property may subject him or her to the penalty for aiding and abetting an understatement of tax liability. The donor may be liable for a penalty for overstating the value of donated property

We hope this information is helpful in assisting you understand the appraisal industry standards and the importance of securing a qualified appraiser.

Kelly Knoll, ISA CAPP – President/CEO of Heritage Appraisals
International Society of Appraisers – Certified Personal Property Appraiser


Identification vs Authentication

One of the most common misinterpretations we get during an initial client consultation is their understanding between identification vs. authentication. We often hear, I am looking to have an appraisal done to get my item(s) authenticated. We start by clarifying the process to ensure the distinction of what an appraisal is and how appraisers are generally not authenticators, but in turn, identifiers, and the definitions of both.

We use the paragraph below in the cover document of each appraisal report:

Unless otherwise stated herein, the appraisal is based solely on the readily apparent identity of the items appraised. As to the appraiser’s professional analysis, no concerns were raised as to the authenticity of the items at this time, and therefore, in the appraiser’s opinion, no further guarantee of authenticity, genuineness, attribution or authorship is requested.

We still verbally clarify with clients that use the term authentication or have significantly valuable item(s) being appraised that may assume they are receiving an authentication by having the appraisal conducted.

Due to the frequency we receive this terminology from clients, we wanted to touch on a few key points explained in the ISA Core Course and USPAP regarding identification vs authentication.

While they are related, the terms identification and authentication have distinct and separate meanings.

Identification:

Identification is the scientific determination of quantitative or intrinsic elements. Identification is the act of determining a property’s nature (is it a print or is it a painting?), its origin, or its definitive characteristics. Identification is quantitative and scientific—it involves intrinsic characteristics such as dimensions, materials, form, construction techniques, weight, condition, damages, signs of aging, etc.

Identification is the first step in the authentication process. Items of property exist which are known to be authentic. These genuine items exhibit certain known distinguishing features with which the subject property can be compared. If the subject property exhibits identical distinguishing features, then it too can be deemed to be authentic.

USPAP states that an essential element in all appraisals is an adequate identification of property which “… should accurately describe property as understood within its market.”

Identification is seldom subject to dispute because it deals with scientific and measurable features.

Authentication:

Authentication is the scholarly determination of qualitative or extrinsic opinions. When you authenticate, you must prove or verify that an item is genuine or has an undisputed origin. Authentication expands the process of mere identification to involve the extrinsic characteristics as well, such as history, style, aesthetics, past opinions of authorship, genuineness, or origin.

The word “prove” is somewhat problematic since actual evidence may not be used or available to substantiate the claims of authenticity. Therefore, authentication may be subject to dispute because it is opinionated.

Authentication is rarely definitive or absolute, but rather is a matter of informed and reasoned opinion. It is subject to revision as additional information becomes available. Even the opinions of experts are subject to disagreement and to change, especially when new information is brought to light, or when new testing procedures are invented. Authentication is based on knowledge available as of the effective date of the appraisal.

In these areas, only certain experts are designated by the profession to cast claims of authenticity. They may be scholars, authors, researchers, or even relatives of an artist.

The authentication of an item is an opinion, just like an appraisal. The weight of the authenticity rests on the reputation of the expert. In most cases, this involves a great deal of scholarly knowledge by a “recognized” expert.

Appraisers seldom authenticate – Normally, appraisers rely on recognized experts to ascertain genuineness when authentication is required.

Certificates of Authenticity – Often accompany items as a form of proof that the item is authentic, particularly in the art world. Unfortunately, they are also one of the most faked documents in the collectible world, hardly worth the paper they are written on. They should not be relied upon as a general course of action in an appraisal.

Provenance – Provenance is the origin and history of the property (e.g. past ownership, exhibitions showing the item, literature mentioning the particular property, etc.). Frequently, authentication can be substantiated simply by tracing the property’s ownership back to its origin.

Determination of the maker (origin) might involve a study of the signature, hallmark, or trademark along with recognizing the expected aesthetic qualities that are associated with a particular maker.

Due Diligence – A concept that applies to all phases of the appraisal process – both in the development of the appraisal as well as in the reporting of the results. It is particularly applicable when dealing with issues of authentication.

Reasons to Pursue Authentication

It is not necessary to authenticate everything.

Examples of when authentication might be required include:

  • If it would cause a change in the item’s market
  • If the value or cost would change significantly with authentication
  • If it is of sufficient original value
  • Where fakes and forgeries are known to exist
  • If the intended use or objective requires it
  • If the client “just wants to know”
  • For historical or scholarly needs

Attribution – The process of attribution assigns a level of certainty regarding the genuineness of authorship. All else being equal, value, or cost will increase as genuineness is approached.

Readily Apparent Identity – No further authentication effort is necessary. Such sufficiency is reflected in the concept of readily apparent identity.

The readily apparent identity of an item is what the appraiser observes and concludes based on his personal knowledge and previous experiences. Readily apparent identity does not require analysis, testing, research, or outside expert opinion. It takes into consideration certain physical characteristics that are needed for the identification of the property.

Client Expectations – Clients may implicitly assume that you are an expert, and it may lead to their making important decisions based on this assumption (that you are an expert; therefore, no extra expenses for the opinions of experts will be needed). If you are not an expert in any given subject, the client must be made aware of that fact.

Expectations of the Law – The law requires that due diligence be applied, that there be sufficient and substantial evidence leading to a value conclusion, and that there has been conformity to published and generally accepted standards.

Using Laboratories – The appraiser should be familiar with laboratories that can be used to facilitate the process. These facilities may be commercial or government labs, museum or university labs, or those labs maintained by trade organizations. You should have a working knowledge of their existence and accessibility.

Sources for Experts

  • Authors of definitive texts, biographies, or catalogues raisonnés are considered primary sources for expert opinion. Simply being the author of a book does not guarantee recognized expertise. Be certain they are respected within their specialties by obtaining references.
  • Specialists who are recognized as having extensive knowledge and experience in a specialty can also be valuable authentication consultants. Determine their qualifications by asking others in the field, searching for recognition in court cases, or referencing books and articles they may have written on the subject property. Requirements of experts may vary. Some will work from photographs, others will require a physical examination of the property. In any case, in addition to detailed photographs, the expert will need a full and complete description of the property, including condition.
  • Museums can be a great help in the authentication process. Curators who are recognized and qualified to authenticate in a given area may be available for consultation. Keep in mind that the American Association of Museums Code of Ethics forbids curators to comment on value.
  • Study collections Non-exhibited materials arranged to facilitate research and comparison can be invaluable. The Metropolitan Museum in New York City has an exemplary collection of Americana not on formal display. Call the museum registrar to arrange for an appointment to view study collections.
  • Auction houses are a source for opinions based upon extensive past experience in examining property. Use caution and discretion, because it is their legitimate job to manipulate markets to advance their client’s and their own financial gain. Staff members may have the qualifications to authenticate, but you must insist that they follow recognized procedures in testing and methodology before depending on them. There are instances on record in which proper procedures were not followed. Auction houses are not required to function under the stringent requirements applying to appraisers and authenticators. Carefully consider how useful opinions might be when they come from businesses that are seen to be acting as independent brokers, but which will also buy the property directly.
  • Dealers have somewhat unrestricted operating conditions, similar to auctioneers. Their ability to impartially consult may be affected by this lack of restriction. They may be less reliable, since their function often includes the tendency to manipulate markets and, therefore, maintain and/or develop markets. This can be accomplished by emphasizing one area or period of a creator’s production, while suppressing and discouraging market activity in other areas. They may, in fact, be tempted to promote only what they have in stock or can sell with ease. Dealers usually have a network of associates, however, especially when they are recognized within the industry. Some of them are collectors themselves and may have written scholarly articles. They may be in a position to help or to refer you to the proper person.
  • Restorers may be able to assist in the authentication process since they are able to see details we are not. For example, a car restorer may be able to detect original parts, finishes, body numbers, and other identification clues that we are not. In the same way, a furniture restorer may be able to check the secondary woods and telltale signs from hidden areas that will provide definitive proof of both identification and authentication.

Kelly Knoll, ISA CAPP – President/CEO of Heritage Appraisals
International Society of Appraisers – Certified Personal Property Appraiser

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