Appraising Personal Property: Principles and Methodologyextras/complete... · Appraising Personal Property: ... personal property appraisal profession. ... Appraising Personal Property:

Appraising Personal Property:

Principles and Methodology

— 6th Edition —

A unique and comprehensive how-to guide for the

personal property appraiser

—

“The definitive work on the fundamentals of appraising”

Theory, principles, practices, methodology, regulations,

legal aspects, ethics, standards, running an appraisal business

report writing, sample appraisals

—

Updated to fully conform with the

2014-2015 edition of USPAP

David J. Maloney, Jr., AOA CM

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To our veterans Appraising Personal Property: Principles and Methodology – 6

th Edition

by David J. Maloney, Jr., AOA CM v.1 January 2014 (publish as v.2 if need be) Copyright © 2007-2014 David J. Maloney, Jr. All Rights Reserved. Copies of this book are available for purchase at AppraisalCourseAssociates.com. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means (including electronic, mechanical, photocopy, recording or otherwise) without the author’s prior written consent. This book expresses the personal views and opinions of the author and is provided solely for educational purposes. The contents of this book are not intended to provide legal, accounting, tax or other professional advice. A reader who has specific legal, accounting, tax or other professional or business questions or problems that are related to the subject matter of this book should seek such advice from the appropriate knowledgeable professional. Rather than indicating every occurrence of a trademarked name as such, this book may use names only in an editorial fashion and to the benefit of the trademark owner with no intention of infringement on the trademark. Published by Appraisers Press 1612 Shookstown Rd. Frederick, MD 21702 AppraisersPress.com ISBN 978-0-9794738-9-0 Printed and bound in the United States of America

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About the Author

David Maloney is a nationally-known personal property appraiser, author, television host, radio-talk show guest, and veteran appraisal course writer and instructor. His reputation is based on over 30 years of practical appraisal experience, extensive academic and personal study, writing, teaching and lecturing.

David received his Bachelors degree in engineering from the U.S. Coast Guard Academy and his Masters degree in communications management from the Naval Postgraduate School. After a career in the Coast Guard, he operated an antiques business prior to founding Frederick Appraisal, Claims & Estate Services in 1982. He qualified as a Certified Member of

the International Society of Appraisers (ISA) in 1995 and as a Certified Member of the Association of Online Appraisers (AOA) in 2001. David is past-President and currently Secretary/Treasurer of the AOA.

Since 1982 David has been a full-time professional personal property appraiser specializing in the valuation of antiques, collectibles, residential contents, vehicles, and business equipment for insurance, probate, divorce, equitable distribution, legal, and noncash charitable contribution purposes. David provides appraisal consulting services to individuals, bank trust departments, personal representatives, accountants, estate planners, claims adjusters, insurance agents, and the moving industry. He also provides litigation support services for attorneys and has qualified as an expert witness in West Virginia, Virginia and Maryland.

In addition to appraisals, David provides damage claims and inspection services for major van lines operating in the Maryland, Washington DC, Virginia, and West Virginia area. He has served as a member of the Board of Directors of the moving industry’s Claims Prevention and Procedure Council, and he has written and spoken extensively on the role of an appraiser in the claims process. He was also a contributing author of the California Household Goods Carriers Claims

Training & Reference Manual.

David served in a leadership capacity with the International Society of Appraisers from 1983 to 2001, both at the Chapter and the National levels. He served as the ISA's Vice President and was twice elected to the ISA's Board of Directors. As ISA's Education Committee Chairman, in 1994 David was charged with completely rewriting the ISA's Core Course in Appraisal Studies from scratch—a six-month, full-time volunteer effort. For the next seven years he maintained and taught this course across the country and in Canada. He also wrote ISA's Chapters Manual and its Appraisal Report Writing Standard booklet. In addition, he wrote and taught the ISA Requalification Course, and he was primary writer for the ISA's Distance Education Course in

Appraisal Studies. He has also written and taught appraisal courses for the Auctioneers Association of Canada, the Association of Online Appraisers, and Appraisal Course Associates.

David served as ISA's representative to The Appraisal Foundation Advisory Council (TAFAC) in Washington, DC where he served as Chair of the TAFAC Emerging Issues Committee, and where he was recognized for his contributions to the development of The Appraisal Foundation's Personal Property Appraiser Minimum Qualification Criteria.

For his efforts within the profession, David has earned numerous honors including the Lamp of Knowledge Award, Distinguished Service Award, ISA Member-of-the-Year Award, and the coveted President's Award. The ISA has also honored David with its Lifetime Achievement

- iv - About the Author

Award in recognition of his years of dedicated service and contributions to the ISA and to the personal property appraisal profession.

David was contributing editor to Jordan Goodman and Sonny Bloch's Everyone's Money Book and has been quoted by Woman's Day, Washington Post, Kipplinger's Personal Finance

Magazine, Good Housekeeping, U.S. News & World Report, Redbook, Arthritis Today Magazine,

The Baltimore Sun, Seattle Times, Physicians Financial News, Frederick News Post, and in most major antiques & collectibles trade publications.

David served as host of the Public Television series Collecting Across America and as chief appraiser on the hit PAX TV collectibles show, Treasures in Your Home: The World of

Collecting. David also served as Chief Appraisal Officer for CollectingChannel.com and its parent company, Paid, Inc. In addition, he was architect and Director of CollectingChannel.com's popular online appraisal service, Ask the Appraiser.

David has also authored The Personal Property Appraiser’s Guide to USPAP, The Complete

Online Course in Personal Property Appraising, the online course How to Write Appraisal

Reports, and he is co-author of ACA’s Online USPAP Update Courses.

For fourteen years, David authored the biennial Maloney's Antiques & Collectibles Resource

Directory, a compilation of over 20,000 resources for over 3,000 categories of antiques and collectibles. Called “the bible” of the industry by U.S. News & World Reports and hailed as a “Best Reference Book” by Library Journal, Maloney's Antiques & Collectibles Resource

Directory was considered a “must have” on every collector's bookshelf. Recently, David designed an online, subscriber-based version of his resource directory at MaloneysDirectory.com.

Most recently, as Chief Appraisal Officer, David was appointed to the Board of Directors of ValueThisNow.com, a California-based appraisal management company he helped design and which offers USPAP-compliant online appraisals of antiques and collectibles.

For this book, Appraising Personal Property: Principles and Methodology, David received the International Society of Appraiser’s coveted Publication Award. The award is presented for the most outstanding written work involving the appraisal profession as a whole. In selecting this book, consideration was given to the degree the work enhances the appraisal profession including its growth, credibility and image

Visit AppraisalCourseAssociates.com for more information regarding David's courses, books and appraisal services.

David lives with his wife, Barbara, in Frederick, Maryland.

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Preface

The personal property appraiser serves an important and necessary function in today’s society by providing valuations that are used for a myriad of purposes including litigation and dispute resolution, property loss and damage, estate settlement, Federal and state tax liability issues, insurance coverage, equitable division of property, estate planning, liquidation, sale by owner, financial reporting, collateral loans, etc. These appraisal functions have one thing in common—financial decisions are made by others based on the appraiser’s value opinions and conclusions. Accordingly, appraisals must be performed competently, ethically and without bias—characteristics which are facilitated by the appraiser being well-grounded in the generally accepted principles and practices of appraising and in the application of the well-established Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by The Appraisal Foundation of Washington, DC. Today, it is more important than ever that personal property appraisers and would-be appraisers become knowledgeable in the principles, methodology, practices, ethics and standards of appraising in order to preserve the public’s trust in the appraisal profession and to best serve the public’s interests—hence this book, Appraising Personal Property: Principles and

Methodology.

The writing of this book was undertaken primarily to serve heretofore unmet educational needs of the personal property appraiser and would-be appraiser. In addition, Appraising Personal Property:

Principles and Methodology is designed for professionals having an adjunct interest in appraising or a tangential need to be familiar with the underlying principles, theory, methodology, standards and related issues involved in the valuation of personal property. Included among the former are antique dealers, estate liquidators and downsizers, brokers, jewelry store owners, repair specialists, auctioneers, online Internet sellers, etc. Included among the latter are attorneys, estate planners, insurance adjusters and underwriters, military transportation officers, the moving industry, governmental agencies and other such appraisal user groups. This book is also designed to serve as an instructional guide for those wishing to make use of the most comprehensive resource available for such purposes. By being fully-indexed, by containing a comprehensive glossary of terms relevant to the personal property appraiser, and by having an Appendix with over thirty illustrations and examples including sample appraisals, this book serves as a handy, easy-to-use and comprehensive reference guide for students, appraisers and users of appraisals alike.

Appraising Personal Property: Principles and Methodology has been written to reflect and focus on the high ethical and performance standards expected of professional personal property appraisers. In particular, this book emphasizes the need for compliance throughout the appraisal process with the widely recognized and accepted standards of USPAP.

This 6th edition has been thoroughly updated with scores of expanded and added discussions in addition to numerous edits to improve clarity and understandability. More importantly, though, this 6th edition incorporates all the many changes that were made to the 2014-2015 edition of USPAP which is effective from January 1, 2014 through December 31, 2015.

This edition also includes a 75-page mini-course in USPAP (see Chapter 7). When coupled with a firm grounding in USPAP, Appraising Personal Property: Principles and Methodology – 6

th Edition will

greatly assist those who have as a goal the offering of personal property appraisals in a professional manner that is competent, unbiased and in accordance with today’s “generally accepted standards.”

I welcome suggestions for improvements to future editions of this manual.

David J. Maloney, Jr., AOA CM AppraisersPress.com [email protected]

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Acknowledgements

For the past several years I have engaged in some enlightening appraisal theory discussions and debates with my Appraisal Course Associates partner, AQB-Certified National USPAP Course Instructor and Accredited appraiser Bill Novotny, ISA AM, CGA. Bill has also offered valuable critique and recommendations regarding this work. His in-depth understanding of USPAP and its underlying appraisal theory has contributed greatly to the overwhelming success of this book. To Bill I owe a special thanks.

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Table of Contents

ABOUT THE AUTHOR ...................................................................................................III

PREFACE ...................................................................................................................... V

ACKNOWLEDGEMENTS .............................................................................................. VI

TABLE OF CONTENTS................................................................................................ VII

INTRODUCTION .............................................................................................................1

What’s New ............................................................................................................................................. 2

Chapter Synopses ................................................................................................................................... 5

Appraisal Terminology ......................................................................................................................... 5

Appraisal Principles ............................................................................................................................. 5

Uniform Standards of Professional Appraisal Practice (USPAP) ........................................................... 6

Ethical Standards of Professional Conduct ............................................................................................ 7

Research .............................................................................................................................................. 7

Describing Property ............................................................................................................................. 8

Writing an Appraisal Report ................................................................................................................. 8

The Professional Appraiser ................................................................................................................... 8

Legal Issues Affecting the Appraiser .................................................................................................... 8

CHAPTER 1: APPRAISAL TERMINOLOGY..................................................................10

USPAP .................................................................................................................................................. 10

The Market ........................................................................................................................................... 11

Appraisal ............................................................................................................................................... 11

Assignment Results ............................................................................................................................... 14

Reports .................................................................................................................................................. 14

Oral Reports and Related Issues ......................................................................................................... 14

Appraiser .............................................................................................................................................. 18

Valuation Services ................................................................................................................................ 20

Appraisal Practice ................................................................................................................................ 21

Competency .......................................................................................................................................... 22

Online Appraisals ................................................................................................................................. 23

Personal Property ................................................................................................................................. 23

Intangible Property............................................................................................................................... 25

Appreciable vs. Depreciable Personal Property ................................................................................... 25

Comparable Properties ......................................................................................................................... 26

Bundle of Rights/Ownership Rights ..................................................................................................... 28

Client ..................................................................................................................................................... 29

Intended Users ...................................................................................................................................... 30

Scope of Work ....................................................................................................................................... 32

Intended Use ......................................................................................................................................... 33

Value vs. Cost vs. Price ......................................................................................................................... 35

Assignment Conditions ......................................................................................................................... 38

Limiting Conditions .............................................................................................................................. 38

Extraordinary Assumptions ................................................................................................................. 39

Hypothetical Condition ......................................................................................................................... 40

Jurisdictional Exception ....................................................................................................................... 41

Purpose of an Assignment (Appraisals, Appraisal Reviews) ............................................................... 42

Market .................................................................................................................................................. 44

Primary vs. Secondary Markets ........................................................................................................... 46

Appraisal Process ................................................................................................................................. 47

Step 1: Define the Appraisal Problem ................................................................................................. 47

Step 2: Determine the Scope of Work ................................................................................................. 48

Step 3: Analyze the Property’s Use, Select Most Appropriate Market, Analyze Economic Conditions . 49

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Step 4: Collect and Analyze Data, Apply Most Appropriate Approach(es) to Value ............................ 49

Step 5: Analyze Subject Property Listings or Prior Sales..................................................................... 51

Step 6: Reconcile Value Indicators, Develop Final Opinion of Value .................................................. 51

Step 7: Communicate Assignment Results to Client ............................................................................ 51

CHAPTER 2: APPRAISAL PRINCIPLES PART I (VALUE AND COST) ........................ 53

Value ..................................................................................................................................................... 53

Value-in-Use ..................................................................................................................................... 53

Value-in-Place .............................................................................................................................. 54

Value-in-Exchange ............................................................................................................................ 54

Value Type and Definition ................................................................................................................... 55

Value Types Used by Appraisers ......................................................................................................... 64

Market Value: the Concept of............................................................................................................. 66

Market Value: Definition of........................................................................................................... 67

Market Value: Fundamental Conditions for.................................................................................... 68

Market Value Types ...................................................................................................................... 71

Reasonable Exposure Time and Marketing Time ........................................................................... 73

Fair Market Value .............................................................................................................................. 79

Fair Value (for Business Assets and Liabilities) .................................................................................. 85

Liquidation Value .............................................................................................................................. 87

Orderly Liquidation Value ............................................................................................................. 88

Forced Liquidation Value .............................................................................................................. 89

Salvage Value .................................................................................................................................... 89

Scrap Value ....................................................................................................................................... 90

Replacement Value ............................................................................................................................ 90

Actual Cash Value (ACV) .................................................................................................................. 93

Investment Value ............................................................................................................................... 97

Loss-of-Value .................................................................................................................................... 99

Marketable Cash Value ..................................................................................................................... 102

Net Value ......................................................................................................................................... 102

Book Value....................................................................................................................................... 103

Insurable Value ................................................................................................................................. 103

Types of Cost ....................................................................................................................................... 103

Replacement Cost ............................................................................................................................. 104

Replacement Cost (New) .............................................................................................................. 106

Replacement Cost (Comparable)................................................................................................... 108

Reasonable Time/Most Relevant Market ....................................................................................... 108

Repair Cost ....................................................................................................................................... 109

Walk-Throughs ................................................................................................................................... 109

Non-Monetary Opinions ...................................................................................................................... 110

CHAPTER 3: APPRAISAL PRINCIPLES PART II ....................................................... 112

Scope of Work ..................................................................................................................................... 112

Scope of Work Example Statements .................................................................................................. 120

Inspection vs. Non-Inspection ........................................................................................................... 121

Intended Use of an Appraisal .............................................................................................................. 125

Purpose of an Appraisal ...................................................................................................................... 127

Valuing Ownership Rights .................................................................................................................. 130

Property Interests .............................................................................................................................. 130

Contraband Property ......................................................................................................................... 133

Three Types of Property ..................................................................................................................... 133

The Three Approaches to Determining Value .................................................................................... 138

Sales Comparison Approach ............................................................................................................. 139

USPAP and the Sales Comparison Approach ................................................................................ 144

Cost Approach .................................................................................................................................. 144

USPAP and the Cost Approach ..................................................................................................... 148

Income Approach ............................................................................................................................. 148

USPAP and the Income Approach ................................................................................................ 151

Table of Contents - ix -

CHAPTER 4: APPRAISAL PRINCIPLES PART III (INTENDED USES OF APPRAISALS) ............................................................................................................. 152

Appraisals for Buying or Selling ........................................................................................................ 152

Appraisals for Transit-Related or Insurance Casualty Loss and Damage ........................................ 153

Appraisals for Equitable Distribution ................................................................................................ 161

Appraisals for Divorce ..................................................................................................................... 161

Appraisals for Estate Division .......................................................................................................... 163

Appraisals for Business Dissolution .................................................................................................. 164

Appraisals for Acquiring Insurance Coverage................................................................................... 164

Actual Cash Value Insurance Policies (ACV) Insurance Policy ......................................................... 165

Replacement Cost Insurance Policies ................................................................................................ 171

Agreed Value Insurance Policies ...................................................................................................... 172

The Insurance Appraisal ................................................................................................................... 172

Settlement Options ........................................................................................................................... 173

Art Title Insurance ........................................................................................................................... 174

Federal Tax Liability Applications ..................................................................................................... 175

Noncash Charitable Contribution Appraisals ..................................................................................... 179

Amount of Deduction .................................................................................................................. 180

When a Qualified Appraisal by a Qualified Appraiser is and is Not Required ................................ 183

Determining Fair Market Value ................................................................................................... 185

Qualified Appraiser ..................................................................................................................... 188

Excluded Individuals ................................................................................................................... 189

Qualified Appraisal...................................................................................................................... 191

IRS Form 8283 Noncash Charitable Contributions ....................................................................... 199

Special Considerations ................................................................................................................. 201

IRS Form 8282 Donee Information Return ................................................................................... 205

IRS Art Advisory Panel ............................................................................................................... 206

Resources for Noncash Charitable Contribution Appraisals .......................................................... 207

Federal Estate Tax Appraisals........................................................................................................... 207

Resources for Federal Estate Tax Appraisals ................................................................................ 210

Federal Casualty, Disaster & Theft Loss Tax Deduction Appraisals .................................................. 210

Casualty and Disaster Losses ....................................................................................................... 210

Theft Losses ................................................................................................................................ 211

Basis of Property ......................................................................................................................... 211

Figuring the Deduction ................................................................................................................ 211

Resources for Federal Casualty, Disaster and Theft Loss Appraisals ............................................. 214

Federal Gift Tax Appraisals .............................................................................................................. 214

Resources for Federal Gift Tax Appraisals ................................................................................... 215

Federal Bankruptcy Appraisals ......................................................................................................... 215

Value Type Tied to Intended Use and Intended Users ................................................................... 217

Liquidation Appraisals ....................................................................................................................... 218

Estates and Trusts Appraisals ............................................................................................................ 222

Litigation Appraisals and Related Services ........................................................................................ 223

Ad Valorem Property Tax Appraisals ................................................................................................ 225

Collateralized Loan Appraisals .......................................................................................................... 226

Corporate Financial Reporting .......................................................................................................... 227

CHAPTER 5: APPRAISAL PRINCIPLES PART IV ...................................................... 228

Value Creators and Relevant Property Characteristics ..................................................................... 228

Depreciation ........................................................................................................................................ 233

Age-Life Depreciation ...................................................................................................................... 234

Straight-Line Depreciation vs. Accelerated Depreciation .............................................................. 235

Accrued Depreciation ....................................................................................................................... 237

Physical Deterioration.................................................................................................................. 237

Obsolescence ............................................................................................................................... 238

Value Ranking ................................................................................................................................. 241

Types of Appraisals and their Related Dates ..................................................................................... 241

1. Current Appraisal .................................................................................................................... 244

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3. Retrospective Appraisal ........................................................................................................... 245

4. Prospective Appraisal .............................................................................................................. 246

Fractional Appraisals .......................................................................................................................... 246

Preliminary Appraisals ....................................................................................................................... 249

Draft Reports ....................................................................................................................................... 250

Contingent Appraisals ......................................................................................................................... 251

Using Specialist Appraisers ................................................................................................................. 252

Team Appraisals ............................................................................................................................... 253

Hypothetical Appraisals ...................................................................................................................... 254

Limiting Conditions............................................................................................................................. 256

Extraordinary Assumptions ................................................................................................................ 257

Using Photographs to Appraise When a Hands-On Inspection is Not Possible ................................. 259

Online Appraisals ................................................................................................................................ 262

Valuation Discounts............................................................................................................................. 267

After Death Discounts ....................................................................................................................... 267

Fractional Interest Discounts (a.k.a. Minority Interest Discounts) ....................................................... 267

Blockage Discounts .......................................................................................................................... 268

CHAPTER 6: APPRAISAL PRINCIPLES PART V ...................................................... 272

Valuation Principles ............................................................................................................................ 272

Valuation Principles Relating to the Market....................................................................................... 272

Valuation Principles Relating to the Item (Property Identification) ..................................................... 282

Identification & Authentication .......................................................................................................... 283

Copies, Fakes, Forgeries, Reproductions, Fantasy Items .................................................................... 284

Appraiser Assumed All-Knowledgeable ............................................................................................ 285

Identification .................................................................................................................................... 287

Authentication .................................................................................................................................. 289

Disclaimers and Terms of Use ............................................................................................................. 295

CHAPTER 7: UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE (USPAP) ..................................................................................................................... 299

History ................................................................................................................................................. 300

Role of the Professional Appraiser Recognized.................................................................................. 301

Development of the Appraisal Standards ........................................................................................... 301

Governmental and Public Acceptance of USPAP............................................................................... 302

The Appraisal Foundation (TAF) ....................................................................................................... 303

TAF Has No Legal Authority ............................................................................................................ 304

TAF Boards ...................................................................................................................................... 304

Board of Trustees (BOT) .............................................................................................................. 304

Appraiser Qualifications Board (AQB) ......................................................................................... 304

Appraisal Standards Board (ASB)................................................................................................. 305

Appraisal Practices Board (APB) .................................................................................................. 305

TAF Sponsors ................................................................................................................................... 305

TAF Advisory Councils and Groups .................................................................................................. 305

State Regulator Advisory Group (SRAG) .......................................................................................... 306

Appraisal Subcommittee (ASC) ........................................................................................................ 307

State Agencies Are Responsible for Licensing and Certifying Real Property Appraisers..................... 308

Purpose of USPAP ............................................................................................................................... 308

Beneficiaries of USPAP ....................................................................................................................... 309

Assignment Types Governed by USPAP ............................................................................................. 309

Property Types Governed by USPAP ................................................................................................. 310

USPAP Structure................................................................................................................................. 311

USPAP Compliance Requirements ..................................................................................................... 313

Assignments Involving Assistance From Others ................................................................................. 314

DEFINITIONS ................................................................................................................................. 317

PREAMBLE..................................................................................................................................... 320

ETHICS RULE ................................................................................................................................. 322

• Conduct Section of the ETHICS RULE ................................................................................ 323

Table of Contents - xi -

• Management Section of the ETHICS RULE ......................................................................... 326

• Confidentiality Section of the ETHICS RULE ...................................................................... 327

RECORD KEEPING RULE ............................................................................................................. 328

COMPETENCY RULE.................................................................................................................... 329

SCOPE OF WORK RULE ............................................................................................................... 331

JURISDICTIONAL EXCEPTION RULE......................................................................................... 333

USPAP STANDARDS 1 to 10 (less 4 and 5) .................................................................................... 334

STANDARD 7 Personal Property Appraisal, Development ......................................................... 335

STANDARD 8 Personal Property Appraisal, Reporting .............................................................. 337

STANDARD 3 Appraisal Review, Development and Reporting .................................................... 339

Five USPAP STANDARDS Governing the Real Property and Business Property Appraiser ......... 343

STANDARD 1 Real Property Appraisal, Development and STANDARD 2 Real Property Appraisal,

Reporting .................................................................................................................................... 343

STANDARD 6 Mass Appraisal, Development and Reporting ....................................................... 344

STANDARD 9 Business Appraisal, Development and STANDARD 10 Business Appraisal,

Reporting .................................................................................................................................... 344

Statements on Appraisal Standards (SMT) ........................................................................................ 345

Comments in USPAP ....................................................................................................................... 345

Other Communications from the Appraisal Standards Board ............................................................. 345

• USPAP Advisory Opinions (AO).......................................................................................... 345

• USPAP Frequently Asked Questions (FAQ) ......................................................................... 346

USPAP Certification ........................................................................................................................... 346

The Appraisal Process and USPAP .................................................................................................... 348

Development Phase of the Appraisal Process .................................................................................... 349

Reporting Phase of the Appraisal Process ......................................................................................... 353

Appraisal Report Options................................................................................................................... 354

Deciding Which Report Option to Use .............................................................................................. 356

The “Appraisal Report” Option ........................................................................................................ 357

The “Restricted Appraisal Report” Option ........................................................................................ 358

Ethical Obligations of Reporting....................................................................................................... 359

When Must an Appraiser Comply with USPAP? .............................................................................. 359

Does USPAP Apply? ....................................................................................................................... 362

• When Performing a Valuation Service as an Appraiser ......................................................... 363

• When Performing a Valuation Service While in a Role Other Than as an Appraiser .............. 364

Illustration Helps Explain Appraiser’s USPAP Compliance Obligations ............................................ 367

Personal Property Appraiser Minimum Qualification Criteria (PPAMQC) .................................... 369

CHAPTER 8: ETHICAL STANDARDS OF PROFESSIONAL CONDUCT .................... 372

Code of Ethics ..................................................................................................................................... 373

USPAP and Ethics .............................................................................................................................. 375

Is an Appraiser a “Professional”? ...................................................................................................... 376

Is an Appraiser a “Fiduciary”? .......................................................................................................... 377

Ethical Obligations to Clients ............................................................................................................. 378

Ethical Obligations to Other Intended Users ..................................................................................... 382

Ethical Obligations to Colleagues and the Appraisal Profession ....................................................... 384

Ethical Obligations When Giving Testimony ..................................................................................... 385

Conflict of Interest .............................................................................................................................. 385

Fee Structures ..................................................................................................................................... 387

Misrepresentation in Advertisement or Self-Promotion .................................................................... 391

Unconsidered Opinions of Value ........................................................................................................ 393

CHAPTER 9: RESEARCH ........................................................................................... 395

Most Appropriate Market .................................................................................................................. 395

The Research Process ......................................................................................................................... 400

Research Resources ............................................................................................................................ 405

Field Work ....................................................................................................................................... 410

A Word About Stolen Art ................................................................................................................. 412

More than One Appraiser ................................................................................................................. 413

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Documenting Resource Evidence ........................................................................................................ 415

Research: Always Required? ............................................................................................................. 417

CHAPTER 10: DESCRIBING PROPERTY ................................................................. 419

Examples of Property Descriptions ..................................................................................................... 425

Combining Items: Describing Groupings, Collections, and Accumulations ...................................... 428

Describing Groupings ....................................................................................................................... 429

Describing Collections ...................................................................................................................... 430

Describing Accumulations ................................................................................................................ 430

Tips for Describing Property .............................................................................................................. 431

CHAPTER 11: WRITING AN APPRAISAL REPORT .................................................. 435

Required Content Depends on Which Report Option Used ............................................................... 437

Required Content When Using “Appraisal Report” Option ................................................................ 440

Required Content When Using “Restricted Appraisal Report” Option ................................................ 445

Optional but Recommended Content for all Appraisal Reports ........................................................... 448

Optional Report Design Features ....................................................................................................... 449

Pagination......................................................................................................................................... 450

Appraisal Report Structure ................................................................................................................ 451

Letter-Style Report ....................................................................................................................... 451

Form-Style Report ........................................................................................................................ 451

Appraisal-Specific Information ..................................................................................................... 452

Item-Specific Information............................................................................................................. 453

Supporting Documentation ........................................................................................................... 454

Cover Letter vs. Transmittal Letter vs. Cover Document: What’s the Difference? .......................... 455

Sample Appraisal Reports................................................................................................................... 457

Report Structure................................................................................................................................ 458

Sample Wording ............................................................................................................................... 459

Software Programs for the Appraiser ................................................................................................. 467

Personal Property Appraisal Software ............................................................................................... 467

Gems & Jewelry Appraisal Software ................................................................................................. 467

CHAPTER 12: THE PROFESSIONAL APPRAISAL PRACTICE ................................. 469

Business Development ......................................................................................................................... 469

Your Business Website ..................................................................................................................... 470

Professional Development ................................................................................................................... 471

Your Curriculum Vitae (Professional Profile) .................................................................................... 472

Office Furnishings and Equipment ..................................................................................................... 473

Self-Employed Working from Home ................................................................................................. 475

Insurance .......................................................................................................................................... 475

Business Structure ............................................................................................................................ 476

Basic Appraiser Techniques ................................................................................................................ 476

Initial Client Contact ......................................................................................................................... 476

Follow Up with Additional Information............................................................................................. 478

Use a Contract .................................................................................................................................. 478

Client Data Form & Assignment Activity Log ................................................................................... 480

While On Site....................................................................................................................................... 481

Commonly Used Tools of the Appraiser ............................................................................................ 483

Caution Regarding Toxic Spaces ....................................................................................................... 484

Recording Data While On Site .......................................................................................................... 484

Use Caution when Inspecting Property ......................................................................................... 485

Making Use of Photographs ................................................................................................................ 486

Delivering the Appraisal Report and Getting Paid ............................................................................. 487

Retainers .......................................................................................................................................... 489

Shelf-Life of an Appraisal Report ....................................................................................................... 490

USPAP and the Signed Certification................................................................................................... 490

Signature Defined ............................................................................................................................. 491

Electronically Transmitted Appraisal Reports ................................................................................... 492

Table of Contents - xiii -

...summaries of any oral reports or testimony, or a transcript of testimony, including the appraiser’s

signed and dated certification ... ....................................................................................................... 493

Making Changes to Appraisal Reports .............................................................................................. 493

Appraisal Updates ............................................................................................................................ 493

Record Keeping for Appraisal Updates ........................................................................................ 494

Adding Items to an Existing Appraisal Report .................................................................................. 495

Client-Requested Revisions .............................................................................................................. 495

Relationship of Current Value to Prior Appraisal .............................................................................. 495

Record Keeping .................................................................................................................................. 495

Assignment Workfiles ...................................................................................................................... 496

Workfile Custody ........................................................................................................................ 497

More Than One Appraiser ........................................................................................................... 497

Disposal of Workfiles .................................................................................................................. 497

Business Records ............................................................................................................................. 498

Tax Records ..................................................................................................................................... 498

Expert Witness Testimony .................................................................................................................. 498

Being Hired and Trial Preparation .................................................................................................... 499

Presentation of Testimony or Deposition .......................................................................................... 501

CHAPTER 13: LEGAL ISSUES AFFECTING THE APPRAISER ................................. 503

Bailment .............................................................................................................................................. 503

Having Good Title............................................................................................................................... 504

Fraud by a Dealer/Appraiser .............................................................................................................. 507

Malpractice (Professional Negligence) ............................................................................................... 510

Appraiser Liability to Third-Parties .................................................................................................. 514

Negligent Referral ............................................................................................................................... 515

Tax Court Cases: Most Appropriate Market ..................................................................................... 517

Tax Court Cases: Fair Market Value ................................................................................................. 519

Tax Court Case: Buyer’s Premium .................................................................................................... 520

Tax Court Cases: Blockage Discount ................................................................................................. 520

Tax Court Case: After Death Discount .............................................................................................. 521

U.S. Dist. Court Case: Fractional Interest Discount .......................................................................... 521

Tax Court Case: Deduction Allowed for Donation of Contraband ................................................... 522

Tax Court Cases: Is USPAP Compliance Determinant? ................................................................... 523

Who Owns an Appraisal? ................................................................................................................... 525

Laws Affecting Possession of or Trade in Contraband Property....................................................... 526

APPENDICES ............................................................................................................. 529

Appendix A: Client Data Form & Assignment Activity Log ............................................................. 531

Appendix B: Appraiser’s Log Sheet Continuation Page .................................................................... 532

Appendix C: Contract for Appraisal Services (to Private Party) ...................................................... 533

Appendix D: Contract for Appraisal Services (to Attorney) ............................................................. 534

Appendix E: Expert Witness Engagement Letter (to Attorney) ........................................................ 536

Appendix F: Pre-Appraisal Preparation Checklist ............................................................................ 538

Appendix G: Professional Profile ....................................................................................................... 539

Appendix H: Sterling Silver Flatware Inventory ............................................................................... 541

Appendix I: Dinnerware Inventory .................................................................................................... 542

Appendix J: Letter of Introduction: General (to Moving Industry) .................................................. 543

Appendix K: Letter of Introduction: Specific (to Estate Executor) ................................................... 545

Appendix L: Sample Appraisal Transmittal Letter For a Noncash Charitable Contribution .......... 546

Appendix M: Sample Appraisal Transmittal Letter For Acquiring Replacement Value Insurance Coverage for Scheduled Property ...................................................................................................... 552

Appendix N: Sample Appraisal Valuation Section ............................................................................ 559

Appendix O: IRS Form 8283 Noncash Charitable Contributions Section .......................................... 560

Appendix P: IRS Form 706 United States Estate Tax Return ............................................................. 562

Appendix Q: Tax Regulation §20.2031 and other Federal Estate Tax Issues .................................... 564

Appendix R: Treasury Regulation §1.170A-13(c)(3) Definition of a Qualified Appraisal .................. 566

Appendix S: Treasury Regulation §1.170A-13(c)(5) Definition of a Qualified Appraiser .................. 568

Appendix T: Treasury Regulation §1.170A-13(c)(4) Appraisal Summary .......................................... 570

- xiv - Table of Contents

Appendix U: Revenue Procedure 65-19 Retail Sales Prices of Items in Decedent’s Estate.................. 573

Appendix V: Revenue Procedure 66-49 Appraisal Guidelines and Formats ....................................... 574

Appendix W: Revenue Procedure 96-15 Post Contribution Pre-Filing Procedure .............................. 577

Appendix X: Proposed Treasury Regulations §1.170A-16, §1.170A-17, §1.170A-18 ......................... 578

§1.170A-16 Substantiation and reporting requirements for noncash charitable contributions .............. 578

§1.170A-17 Qualified Appraisal and Qualified Appraiser .................................................................. 579

§1.170A-18 Contributions of clothing and household items ............................................................... 584

Appendix Y: Pension Protection Act of 2006 Section 1216 ................................................................. 585

Appendix Z: Real Estate Appraisal Form .......................................................................................... 586

Appendix AA: Agreement for an Oral Opinion of Value (Oral Report Summary) ........................... 587

Appendix BB: IRS Guidance for Donation Appraisals of Art Valued Over $50,000—Object Identification ....................................................................................................................................... 588

Appendix CC: IRS Guidance for Donation Appraisals of Art Valued Over $20,000—Photographs 589

Appendix DD: IRS Guidance Regarding Appraisal Requirements for Noncash Charitable Contributions....................................................................................................................................... 590

Appendix EE: Sample Business Letter Template ............................................................................... 594

Appendix FF: Seven Essential Deposition Tips .................................................................................. 595

BIBLIOGRAPHY ......................................................................................................... 597

GLOSSARY ................................................................................................................ 601

INDEX ......................................................................................................................... 623

- xv -

Appraising Personal Property:

Principles and Methodology

— 6th Edition —

- xvi -

- 1 -

Introduction

Welcome to the 6th Edition of Appraising Personal Property: Principles and Methodology—the only up-to-date, comprehensive, well-organized, practical, easy-to-understand and fully-indexed definitive how-to book for the personal property appraiser.

This 6th Edition incorporates many significant changes, improvements and additions—perhaps the most important of which were brought about by the recent biennial update to the Uniform Standards of Professional

Appraisal Practice (USPAP) which forms the foundation of this book. The resulting changes that were incorporated by the Appraisal Standards Board into the 2014-2015 edition of USPAP are mirrored throughout this work. Continuing the tradition of past editions, other improvements have also been made including scores of new topics as well as enhanced and expanded discussions.

No other book provides such a thorough grounding in the fundamentals of personal property appraising. This book will teach you the appraisal theory, principles, practices, standards, ethics, methodology and report writing skills associated with preparing professional personal property appraisal assignment reports. And, being fully-indexed, you will be able to quickly and easily find the appraisal-related information you are seeking.

A growing number of people are entering the personal property appraisal profession. Of utmost importance is that they understand the techniques, methodology and standards that lay the foundation for ethical, unbiased, competent, complete, reasoned and well-communicated value opinions, conclusions and analyses. Toward this goal, this work has at its core the appraisal performance requirements and ethical standards of the widely accepted Uniform Standards of Professional Appraisal Practice as promulgated by The Appraisal Foundation of Washington, DC.

Appraising Personal Property: Principles and Methodology – 6th

Edition provides the most comprehensive yet practical course of instruction available today in the field of personal property appraising. From basic appraisal theory and the standards of USPAP to examples of item descriptions and even sample appraisal reports—this book covers it all. The reader will become knowledgeable in the principles and methodology of professional personal property appraising including terminology, tasks of an appraiser, purposes and intended uses of appraisals, value types and their definitions, IRS regulations, the three approaches to value, the Appraisal Process, problem identification, scope of work, value enhancers and detractors, depreciation, market principles, ethics, identification and authentication, USPAP, market research, describing property, sample appraisals, legal issues impacting the appraiser and much, much more. This book also teaches the reader basic appraisal techniques to facilitate beginning a professional appraisal business or improving an existing one. In short, the reader will be taught the skills necessary to write a complete, clear, concise, well-developed assignment report in conformance with today’s generally accepted standards, USPAP.

Appraising Personal Property: Principles and Methodology - 6th

Edition is for those who wish to build a personal property appraisal business and/or add appraisal services as an adjunct to an ongoing related line of work. Many personal property appraisers were initially (and probably continue to be) antique dealers, jewelry store owners, auctioneers, restoration and repair specialists, estate liquidators, brokers, insurance adjusters, downsizing experts or even collectors. They found that their original lines of business are enhanced when professional personal property appraisals are added to the list of services they offer to the public.

Note that this book focuses on appraisal principles and methodology and is not intended to provide product knowledge, i.e., knowledge about the type of property in which the appraiser will be specializing as an appraiser. This book does not teach about furniture, silver, jewelry, machinery and equipment, etc. Such in-depth product knowledge can only be gained through extensive personal experience and study, and through continued observations of the marketplace and relevant value-related market activity. The gaining of product knowledge is a lifelong-learning experience and is not a focus of this book.

Dave Maloney Frederick, MD

- 2 - What’s New

What’s New

As with previous editions, this 6th edition of Appraising Personal Property: Principles and

Methodology is packed with changes which improve clarity and expand discussions. Changes also include loads of new material— much of which focuses on frequently-encountered issues that have proven to be confusing to appraisers. In addition, since this book is USPAP-centric, it necessarily reflects changes incorporated by The Appraisal Foundation’s Appraisal Standards Board (ASB) into the 2014-2015 edition of USPAP which is in effect from January 1, 2014 through December 31, 2015.

All major changes (and there are over 240 of them!) made since the preceding 5th edition of this book are highlighted and easy to locate. Just look for this “Updated!” icon:

Thumb through this book to see all the many expanded discussions and new topics some of which include:

• When to include comparables in the appraisal report

• Identifying the client

• Purpose vs. objective of an appraisal

• Assignment results described

• Choice of most appropriate market

• Reasonable exposure time

• Sale to "public" means to "customary purchasers"

• Fair value

• Estimate of replacement cost not an appraisal

• Loss-of-value

• Identifying the appraisal problem

• Cost approach

• ACV insurance policies

• Cashing out losses for only wholesale

• How to apply first year depreciation

• Divorce appraisals

• Charity auctions

• Penalty for substantial and gross valuation misstatements

• Qualified appraisal must conform to substance and principles of USPAP

• Date of donation

• Required information for donation appraisal

• Taxpayer cost/date/manner of acquisition

• Fractional giving

• IRS Art Appraisal Panel

• Estate tax exemption amount

• Endowment effect

• Publicly-available table of depreciation rates

• Relevant appraisal dates

• Draft/interim reports

• Differing market characteristics

• Principle of contribution

• Online resource for identifying fakes and reproductions

• Disclaimer regarding appraisals for tax matters

• Appraisal Practices Board

• Significant appraisal assistance provided by others

• Members of sponsoring organizations required to comply with USPAP and Minimum Qualification Criteria

• Disclosing interest in property or client

• Disclosing past services performed

• Liens and encumbrances

• When USPAP applies

• Personal Property Appraiser Qualification Criteria

• Fee structures

• Do not put "USPAP" after your name

• Reference resources

• Art title insurance

• Describing property

• Writing in the third person

Updated!

What’s New - 3 -

• Required report content depends on appraisal option used

• Differences between appraisal report and restricted appraisal report options

• Sample report wording

• While on site

• Delivering assignment report

• Pre-agreement consulting services

• Forensic appraisal reviews

• Shelf-life of an appraisal

• Making changes to appraisal reports

• Adding items to a report

• Client-requested changes to a report

• Essential tips when giving a deposition

In addition to the above, updates to this book resulting specifically from changes incorporated by the ASB into the 2014-2015 edition of USPAP can be found sprinkled throughout this book in the relevant locations. The changes that were made to the 2014-2015 edition of USPAP include the following:

• Retirement of STANDARDS 4 and 5 “Real Property Appraisal Consulting, Development and Real Property Appraisal Consulting, Reporting”: During the public exposure period, the ASB received many comments regarding the possible retirement of STANDARDS 4 and 5 due to their being a constant source of confusion and misuse. As a result, STANDARDS 4 and 5 have been retired. Should the appraiser be involved in what had heretofore been considered “consulting services,” he or she should look to USPAP’s Advisory Opinion 21 “USPAP Compliance” which has been revised to illustrate just such situations in which an assignment includes services other than either an appraisal or appraisal review, such as “consulting.”

• Revisions to USPAP’s Reporting Requirements, including the type and number of Report Options: Prior to 2014, USPAP had three different written report options for real property and personal property appraisal assignments—the Self-Contained Appraisal Report, the Summary Appraisal Report, and the Restricted Use Appraisal Report. Effective January 1, 2014, however, there are only two written report options for real property and personal property appraisers. They include the Appraisal Report option and the Restricted Appraisal Report option. Related edits were made (primarily to Standards Rule 8-2 and to Advisory Opinions 11 and 12) to reflect this change.

• Revisions to Advisory Opinion 11 “Content of the Appraisal Report Options of

Standards Rules 2-2, 8-2, and 10-2” and Advisory Opinion 12 “Use of the Appraisal Report Options of Standards Rules 2-2, 8-2, and 10-2”: Due to changes in the number of reporting format options from three to two, Advisory Opinions 11 and 12 were necessarily edited to demonstrate the effect of these changes.

• Revision to the DEFINITION of “Assignment Results”: This revision clarifies that assignment results include opinions or conclusions and that the assignment results are not specifically limited to the value conclusion in an appraisal assignment or to the final opinion of the quality of another appraiser’s work in an appraisal review assignment. Rather, “assignment results” pertain to all opinions (whether a value opinion, a review opinion—or otherwise) formed as a result of an appraisal or appraisal review assignment.

• Revision to the DEFINITION of “Scope of Work”: The SCOPE OF WORK RULE applies only to appraisal and appraisal review assignments, whereas the term scope of

- 4 - What’s New

work used to be broadly defined to include all assignments performed under appraisal practice. This revision clarifies and aligns the “definition” of “Scope of Work” with the SCOPE OF WORK RULE by amending the definition to apply only to appraisal or appraisal review assignments and not to all appraisal practice assignments.

• Revision to the PREAMBLE (When do USPAP Rules and Standards Apply?): An additional paragraph was added to address when USPAP RULES and STANDARDS apply, including a list of appraiser obligations which must be met by the appraiser in order for the appraiser to be considered USPAP compliant. This revision was made in order to clearly state when the RULES and STANDARDS of USPAP apply.

• Revision to the Conduct section of USPAP’s ETHICS RULE: The ETHICS RULE Conduct section requires that for a new assignment that an initial disclosure be made to the client of any appraiser interest in the client or subject property, or if the appraiser performed any services regarding the subject property within three years prior to accepting the new assignment. In addition, the Comment section requires that disclosure of such interests or past services must also be made in the new appraisal or appraisal review report’s USPAP certification. The revision clarifies that a disclosure in the report’s certification is only required for appraisal and appraisal review assignments, and not for any other type of report.

• Revision to the COMPETENCY RULE: The COMPETENCY RULE currently requires that an appraiser be competent to perform the assignment. If not, the appraiser must either acquire the necessary competency to perform the assignment or withdraw from the assignment. However, the COMPETENCY RULE did not expressly require the appraiser to act competently in the given assignment—only that he or she was competent. The revision now clearly states that the appraiser must perform competently when completing the assignment.

• Revision to Standards Rule 3-5: In order to be consistent with the other STANDARDS, a revision was made to Standards Rule 3-5 requiring the inclusion of the date of report in a review appraisal report.

All these updates makes this 6th edition of Appraising Personal Property: Principles and

Methodology the only complete and up-to-date course book and how-to guide for the personal property appraiser.

Chapter Synopses - 5 -

Chapter Synopses

Appraisal Terminology

• Chapter 1: The use of specific nomenclature within the field of personal property appraising is critical to presenting as well as understanding the information contained within assignment reports that are developed by the appraiser. Chapter 1 covers terms commonly used by appraisers including many of those important terms emphasized within the Uniform Standards of Professional Appraisal Practice (USPAP). A brief introduction to these specific terms is provided at the beginning of this work so that the reader becomes immediately familiar with the basic terminology which forms the foundation of what follows. Finally, the seven steps of the all-important “Appraisal Process” are briefly analyzed (steps ranging from initially “defining the appraisal problem” to preparing the final appraisal report).The Appraisal Process will also be covered in greater detail in Chapter 7.

Appraisal Principles

• Chapter 2: Chapter 2 introduces the various types of appraisal tasks the appraiser is likely to encounter. The appraiser is often asked to determine value (monetary worth) such as fair market value, fair value (for business assets and liabilities), orderly liquidation value, or perhaps investment value, i.e., the present worth of monies that are anticipated to be received in the future from an investment property. The concept of value, the different types and definitions of value, and the importance of identifying the type and definition of value used in an appraisal assignment are discussed. Chapter 2 also focuses on another important appraisal task—estimating costs. Specifically, terms such as replacement cost (new), replacement cost (comparable), replacement cost (new reproduction), replacement cost (new production), and replacement cost (new) less depreciation will be discussed. (Though not covered in Chapter 2, appraisers are at times also requested to perform “appraisal reviews,” i.e., a review of another appraiser’s work product. The subject of appraisal reviews is covered in the Chapter 7 discussion of USPAP.) Chapter 2 also introduces the reader to “walk-throughs”—an oral appraisal service some appraisers provide.

• Chapter 3: Chapter 3 focuses primarily on the important issue of scope of work. In basic terms, scope of work is the degree or amount of work an appraiser performs to arrive at credible assignment results. The options for the appraiser to personally inspect the property or not to inspect the property are discussed. Appraisal purposes and intended uses of appraisals are explained. The chapter familiarizes the reader with the concept of ownership rights and with different kinds of property including investment property, marketable non-investment property, and service property. Contraband property is also discussed. This chapter describes the three kinds of values including investment value, market value, and owner value. The reader will also learn about the three approaches to value (sales comparison, cost, and income approaches) as they are used to determine the monetary worth of various types of personal property.

• Chapter 4: Chapter 4 focuses on the various “intended uses” of appraisals, i.e., the various manner in which appraisals are used by a client and other intended users. Examples are for acquiring insurance coverage or for making a noncash charitable

- 6 - Chapter Synopses

contribution to a local museum or for litigation purposes. In the discussion of Federally-related uses, the reader is introduced to IRS appraisal-related regulations including requirements for what constitutes a “qualified appraiser” as well as what constitutes a “qualified appraisal.” Other intended uses are also discussed including for liquidation, equitable distribution, divorce, Federal estate taxes, casualty losses, estates and trusts, and collateralized loans.

• Chapter 5: All items of personal property exhibit characteristics which render them relatively more desirable or less desirable to marketplace participants. Chapter 5 explains value-relevant property characteristics, value creators, and depreciation caused by obsolescence and/or physical deterioration. Chapter 5 also discusses the critical dates which are important to understand and document such as effective date of the appraisal and date of the report. The relationship of those two dates determines whether an appraisal is “current,” “retrospective,” or “prospective.” Fractional, contingent, hypothetical and draft appraisals are also discussed as are making use of specialist appraisers, team assignments, using photographs in lieu of a personal inspection, online appraisals, limiting conditions, hypothetical conditions and extraordinary assumptions. Three types of value discounts which might tend to reduce estate tax obligations are discussed: after death discounts, fractional interest discounts and blockage discounts. Making use of photographs and other client-provided information when a personal, on-site inspection is not possible is also covered as is the related topic of online Internet appraisals.

• Chapter 6: Appraisers rely on several marketplace principles as well as principles relating to property itself as a basis for the appraisal process in which value opinions are developed. Chapter 6 introduces the reader to such principles as most appropriate market, highest and best use, supply and demand, and the principles of substitution, qualitative ranking, marginal utility, sampling, contribution and more. The reader will also learn the difference between identification and authentication, about due diligence in authenticating property, and when the appraiser is permitted to make use of the concept of readily apparent identity in lieu of a formal authentication. Appraisal report disclaimers and terms of use that limit the appraiser’s liability and that stipulate limitations as to how and by whom the appraisal report can be used are also discussed.

Uniform Standards of Professional Appraisal Practice

(USPAP)

• Chapter 7: The goal of USPAP is to preserve the public’s trust in the appraisal profession. Chapter 7 is a mini-course in USPAP. It’s a course-within-a course. Chapter 7 will teach the reader the importance of USPAP standards for performing competently and ethically when acting in the role of an appraiser. This chapter will introduce the reader to the history and structure of The Appraisal Foundation (TAF) and to the TAF’s Uniform Standards of Professional Appraisal Practice including USPAP’s PREAMBLE, DEFINITIONS, five RULES (ETHICS RULE, COMPETENCY RULE, RECORD KEEPING RULE, SCOPE OF WORK RULE, and the JURISDICTIONAL EXCEPTION RULE), eight (8) STANDARDS, Comments, and ASB-issued Statements on Appraisal Standards (SMTs). The reader is also introduced to what TAF refers to as “other communications” which include Advisory Opinions (AO) and Frequently Asked Questions (FAQ). Also discussed is

Chapter Synopses - 7 -

the individual’s responsibility to comply with USPAP when performing as an appraiser as opposed to when providing a service while performing outside the role of an appraiser (such as when performing as an auctioneer or estate liquidator). The differences between Valuation Services and Appraisal Practice, the two USPAP appraisal report options, and the Appraisal Qualification Board’s (AQB) Personal

Property Appraiser Minimum Qualification Criteria are also covered. Chapter 7 also describes what USPAP refers to as the all-important “Appraisal Process” including the specific steps appraisers must take to help ensure that their reports conform to the requirements of USPAP. Chapter 7 also focuses on when USPAP applies to the individual while performing as an appraiser as well as while performing as a non-appraiser. Though thorough, Chapter 7 is not a substitute for taking the 15-hour National USPAP Course and passing its associated exam. By state law this course is required of every real property appraiser, but the course is not required for personal property appraisers. While passing such a course is not required by the states for personal property appraisers, all major professional personal property appraisal societies do require that their members take the 15-hour National USPAP Course and pass the exam. (There are two versions of the 15-hour National USPAP Course—one for real property appraisers and one for personal property appraisers. Personal property appraisers should take the personal property version taught by a personal property appraiser who must be certified to teach by TAF’s AQB.)

Ethical Standards of Professional Conduct

• Chapter 8: In a way, Chapter 8 is an extension of the topic of ethics that, as was noted in Chapter 7, is central to USPAP. Chapter 8 provides a more general overview of the need for ethical behavior and how personal values, societal codes of ethics and USPAP combine to provide the appraiser with the guidance needed to perform in a manner that will preserve the public’s trust in the profession of appraising. Chapter 8 addresses several real world appraiser obligations such as specific obligations to the client (including the appraiser-client relationship), to intended users other than the client, to colleagues and the appraisal profession as a whole, and while giving testimony. This chapter will also provide the appraiser with an understanding of additional ethics-related issues such as conflicts of interest, unconsidered opinions, ethical and unethical fee structures, and the prohibition against misrepresentation of one’s appraisal qualifications or professional designations.

Research

• Chapter 9: Chapter 9 focuses on market and value research and analysis and covers the research process as well as research resources that are typically used by the personal property appraiser. Chapter 9 demonstrates how appraisers objectively develop the bases for their opinions, analyses and conclusions, including how much research to do and when confirming research might not even be required! Usually, opinions of value are based on an analysis of comparable properties that have been sold or are being offered for sale within the relevant marketplace. Specific value resources such as retail outlets, Internet websites, and auctions will be discussed. Product knowledge resources such as authenticators, museum curators, appraiser

- 8 - Chapter Synopses

colleagues, experts, dealers, collectors and collector clubs, authors, restorers, trade periodical editors, etc. will also be covered. Documenting and disclosing (in accordance with the requirements of USPAP) those other appraisers who have provided significant personal property appraisal assistance with an assignment is also discussed in this chapter.

Describing Property

• Chapter 10: Chapter 10 emphasizes the important issues of property description including identifying the property or property type and describing the property’s relevant value-related characteristics including quality characteristics and value-related attributes in a meaningful manner the degree and detail of which is dependent on the intended use of the appraisal as well as on the needs of the client and other intended users. Description examples of various categories of property are provided as are tips for describing groupings, collections and accumulations of property. This chapter explains how the intended use of an appraisal and the USPAP report option employed (Appraisal Report or Restricted Appraisal Report) impacts the extent and detail of information that must be contained in a report, including how the subject property is described.

Writing an Appraisal Report

• Chapter 11: For the novice, putting together an actual appraisal report based strictly on theory and principles and without examples is difficult, to say the least. Chapter 11 overcomes that challenge by listing the USPAP-required elements of appraisal reports and by giving examples of how those elements of information might actually be worded. In addition to the USPAP-required elements of information, the reader will also learn of several optional elements which experience has taught us would be beneficial to add to the appraisal report as well.

The Professional Appraiser

• Chapter 12: This chapter focuses on the more basic of those issues and strategies which are unique or particularly applicable to the personal property appraisal profession including business development, preparing a curriculum vitae (professional profile), professional development, office equipment, tools of the appraiser and basic appraiser techniques such as communication with the client, what to do while on site, using caution during the inspection to avoid damaging the subject property, making use of photographs in lieu of a personal inspection, delivering the assignment report, getting paid, appraisal updates, the requirements for maintaining assignment workfiles and other business-related records. In addition, the reader will learn about issues relating to expert witness testimony including working with attorneys, preparing for trial, and tips on giving testimony either at a deposition or at trial.

Legal Issues Affecting the Appraiser

• Chapter 13: As with any profession, it’s good for the personal property appraiser to be conversant in legal issues that have impacted on the profession in the past and/or

Chapter Synopses - 9 -

which act as guideposts to help the individual avoid legal pitfalls as they practice their profession. Having said that, appraisers are not attorneys or paralegals. Nor are they legal researchers or law consultants. Just as it is not the appraiser's responsibility to advise clients on legal matters, draft legal documents, or represent clients in court, neither is it the appraiser's responsibility to spend excessive time conducting legal research in law libraries or on Internet law websites. But being familiar with landmark cases which have impacted our profession and understanding the issues raised and the decisions concluded does make for a better, all-around professional. Supplemented by reviews of relevant case law, Lesson 13 briefly introduces the appraiser to legal issues which impact the individual who is acting in the role of an appraiser. But appraisers also perform in other roles outside that of an appraiser. As examples, many appraisers are also dealers, auctioneers, downsizing experts, restoration specialists, and estate liquidators. When wearing those other hats, appraisers may be faced with legal issues which do not normally attach when performing strictly as an appraiser. We will not spend time discussing legal matters which normally do not apply to the personal property appraiser, regardless of how significant they may be to other types of personal property related endeavors. For instance, there are issues of contract, commercial and agency law with which other professions must be aware but which do not normally impact the appraiser. Included are commercial transactions, consignment sales, auction sales, warranties, fraud, disparagement, and performing as an agent on a principal's behalf. Instead, we will limit our discussion to the legal issues with which the appraiser might become involved. These most commonly include issues relating to bailment, title, negligence and malpractice, fraud by a dealer/appraiser, appraiser liability to third-parties, and, albeit extremely rarely, negligent referrals. Several tax court cases will also be summarized to help us better understand issues to which the IRS is sensitive such as choice of appropriate market, fair market value, and valuation discounts.