An appraisal is a considered opinion of the identity, condition, relative quality and value of a specific item at a certain time within a specifically defined market for a specifically defined purpose that is developed by a trained appraiser, familiar with that type of item, after careful examination, authentication and value research.
Appraisers have to discover the accurate answers to the following:
The first step in any appraisal is identification. If we use a “clear, faceted stone with a small chip on the crown” as an example; knowing it is a diamond, and not glass, will greatly influence the value conclusion.
Any damage or wear on an item is an important material fact and must be reported in every appraisal. However, in our example, the chip on the diamond will only influence the value conclusion for some appraisal functions, and not others.
Qualitative analysis, the process of determining the relative quality of an item is an essential part of every appraisal. In our example, the color, carat weight, clarity and cutting details will greatly influence the value.
Real or Synthetic
Authentication is an essential part of every appraisal; especially if provenance or possible alteration could affect the value. If our example diamond was HPHT treated to alter the color and clarity, the value would change.
Are you buying, selling, insuring, liquidating, gifting, funding a trust, filing bankruptcy, paying taxes, settling a damage claim or bartering? Every appraisal function has a market, value and evaluation process that is required. In our example, if you want to insure the diamond, then the chip would influence the quality but the price of a new diamond in a jewelry store is the correct value. If you are selling the diamond, then the chip would impact the value, and the correct market would be places that sell USED jewelry; including auctions, the internet, pawn shops and the “estate” jewelry market. If you’re liquidating, then the correct market would be places that BUY used jewelry and the speed with which you need to sell would influence the value.
If no one wants the item, there is no market and therefore no monetary value. For example, a finger-painting done by my daughter is priceless to me, but if no one else would buy it, it has no market and therefore no monetary value. Style, fashion and changes in the markets will influence values over time. Depending on the function of the appraisal, stylistic and/or functional obsolescence may or may not need to be considered.
Certain legal requirements may dictate that the value of an item as of a specific date is necessary. For example, for a charitable contribution, the date of the gift is the valuation date, not the date the appraisal was written. For an insurance appraisal, either the date of inspection or the date the appraisal is written can be used.
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