What Is An Appraisal?, By Victor Wiener

What Is An Appraisal?

By Victor Wiener

Executive Director

Appraisers Association of America

December, 1994

"What is an appraisal?" is a question frequently asked by clients of appraisers as well as appraisers themselves.

Although one can find many different definitions when consulting the dictionary, the appropriate way to define the term is to consult professional appraisers. Most will agree that an appraisal is a statement of value which is arrived at through a thorough analysis of the market in which an object is normally sold. Most appraisers will also agree that an appraisal is a written document and as such will assume legal significance and may ultimately be called upon to be defended in a court of law.

The appraisal is a valuation in which a diverse number of factors are considered by the appraiser and analyzed in written form. These factors include the purpose of the appraisal, the market in which the object is being valued, the market in which the object was purchased, the market in which the client may want to sell the object, the type of valuation applied and the valuation approach employed by the appraiser. An appraiser must be knowledgeable in valuation theory. This will allow one to consider and select, for the appraisal, one of the commonly used valuation approaches, such as the cost approach, the income approach or the comparative market data approach in which similar and like items previously sold are compared and contrasted to allow the appraiser to make an informed choice about an item currently under consideration.

In brief, the professional appraiser must rely upon a detailed understanding of the art market for the type of object being valued and must articulate this understanding in a written document which leaves no factor open to ambiguous interpretation.

Among the many purposes requiring appraisals are insurance, charitable donation for which a tax deduction can be claimed, estate tax, gift tax, equitable distribution in divorce, or liquidation. Each of these purposes may require a different type of value such as replacement value, fair market value, marketable cash value and liquidation value. Legal requirements vary about what each type of appraisal should contain.

Appraising is a complicated field practiced by trained professionals. Consequently, one should be circumspect when considering the "verbal appraisal," which may be little more than an informal estimate of what one could expect an object to fetch at an auction or what a dealer would probably pay to purchase it. These and other issues will be discussed in future columns. In the meantime, a list of "Elements of a correctly Prepared Appraisal" is available free of charge by writing to the Appraisers Association of America, 386 Park Avenue South, Suite 2000, New York, N.Y. 10016.

Republished with permission of the author and Appraisers Association of America

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