Definitions
APPRAISAL – Defined by the Appraisal Standards Board (ASB) in the Uniform Standards of Professional Appraisal Practice (USPAP) is “the act or process of developing an opinion of value” According to the ASB, value can ”be numerically expressed as a specific amount, as a range of numbers or as a relationship (e.g. not more than, not less than) to a previous value opinion or numerical benchmark (e.g. assessed value, collateral value).It should be noted that USPAP states that calling an appraisal something else such as “valuation” or “valuation estimate” doe not remove it from being considered as an appraisal if an opinion of value is given. The document contains a valuation executed for a specific purpose and follows specified guidelines.
APPRAISER – Individual who values items and prepares the appraisal documents.
THE APPRAISAL FOUNDATION – An independent organization established in 1987 by the US government with members from various appraisal organizations. The Foundation receives Federal Funds and is empowered by Congress to establish standards for all aspects of the appraisal profession.
VALUE – A dollar amount dependent upon the type of appraisal report being written; Insurance, IRS, Equitable Distribution for divorce proceedings or liquidation. The appraiser must state which value is being used.
RETAIL REPLACEMENT VALUE– This term is defined as the highest amount in terms of US dollars 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 marketplace. When applicable, sales and /or import tax, commission and /or premiums are included in this report. Usually used for Insurance purposes.
RETAIL VALUE– Used to establish a price guideline for retail pricing, the appraised retail value is derived from retail replacement value. It is defined as a reasonable amount in terms of US dollars that would be required to purchase a property of similar, age quality, origin, appearance, provenance, and condition with a reasonable length of time in an appropriate and relevant market. Unlike retail replacement value, retail values don’t include any fees or additional costs such as taxes, framing conservation, restoration, and additional commissions.
FAIR MARKET VALUE– Defined by IRS Section 1.170 and 20.2031 (b) as “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 parties having reasonable knowledge of relevant facts”.
FORCED LIQUIDATION VALUE – This is the lowest range “net” value, usually for a quick and forced sale purpose. It 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 the relevant market.
COMPARABLE – Finding similar and like objects to the one being appraised is the most commonly applied approach to evaluation. An examination and analysis of the sales figures for similar works or comparable objects allows the appraiser to arrive at the appropriate appraised value for the one under consideration. These figures are mandatory for most donation appraisals and may be provided by the appraiser in other situations when the appraiser judges them to be necessary.
RELATED USE RULE – This IRS rule is applied to charitable contributions and states that to receive the full allowable tax deduction a donor must donate property to an institution whose mission explicitly includes the acquisition and use of such property.
QUALIFIED APPRAISER – A Qualified Appraiser is an individual who has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum educational and experience requirements set forth in regulations prescribed by the IRS. The minimum education and requirements are met if the appraiser has successfully completed college or professional level course work that is relevant to the property being valued; obtained at least two years of experience in the trade or business of buying, selling or valuing the type of property being valued; regularly performs appraisals for which the individual receives compensation; and meets such other requirements as may be prescribed by the IRS in regulations or other guidance.
QUALIFIED APPRAISAL – A qualified Appraisal is an appraisal conducted by a qualified appraiser in accordance with generally accepted appraisal standards. The IRS further states that an appraisal will be treated as having been conducted in accordance with generally accepted appraisal standards if it is consistent with the substance and principles of the Uniform Standards of Professional Appraisal Practice also known as USPAP. For donation purposes the appraisal report must be prepared by a qualified appraiser not more than sixty days before the date before the date of contribution of the appraised property. The appraisal must be signed and dated by a qualified appraiser who charges an appraisal fee that is not based on a percentage of value and that contains the following information: a detailed description of the property; the physical condition of the property; the date or expected date of the contribution; the terms of any agreement or understanding entered into or expected to be entered into by or on behalf of the donor that related to the use dale or other disposition of the property contributed; the name, address and taxpayer identification number of the appraiser; a detailed description of the appraiser’s background and qualifications a statement that the appraisal was prepared for income tax purpose; the date on which the property was valued; the appraised fair market value of the property; the method of valuation used to determine the fair market value; the specific basis for the valuation including any comparable sales transactions and a description of the arrangement between the donor and the appraiser.
VALUATION APPROACHES:
Comparative Market Data Approach: (alternately called: Market Data Approach, Comparable Market Data Approach, and Sales Comparison Approach): This is the most commonly applied approach when appraising personal property in which appraised value is based upon past prices (close to the Effective Date) for similar works by the same artist/maker or of similar works by another artist/maker of equal standing and related reputation.
Cost Approach: This approach is used to determine the value of an object-based upon the cost of duplicating or recreating the identical piece. This approach may be applied to the decorative arts when the methods of construction or materials used are replicate and of significant inherent value.
Income Approach: This approach is used to determine the value of a work of art or object which will be used to generate future income. This is most often done through leasing, rental, or creating reproductions but not through a one-time-only sale with transfer of title and /or copyright.
Source of Definitions: Appraisers Association of America