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Author Topic:   Dealer vrs. Professional Appraisals
Silver Sails

Posts: 8
Registered: Jun 99

iconnumber posted 06-25-1999 09:49 AM     Click Here to See the Profile for Silver Sails     Edit/Delete Message   Reply w/Quote
Most dealers I know will give me an appraisal for my silver and most do not charge for this service. So why should I pay a "professional?"

Will I get the same price quote from different "professionals?" I know that the dealer's appraisals can differ widely from dealer to dealer; some quote high prices and some low.
Though I am clear to the dealer that I am not trying to sell..... I have to wonder, are the dealers really negotiating or are they giving me realistic prices?

It sometimes feels like the dealer isn't sure what to say. They say things like "I would sell that for $100 but that is not what a dealer would pay". Every dealer I have ever met, when selling something will in the same breath say "it is marked $100 but I will take less" (usually 10-15% or more).

Ok I now have appraisals for the same item from different dealers of $200, 100, $75. I now want to give the item to Ulysses and The Newark Museum and take a tax deduction. What is my tax deduction?

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Posts: 1069
Registered: Jun 99

iconnumber posted 06-25-1999 01:40 PM     Click Here to See the Profile for FredZ     Edit/Delete Message   Reply w/Quote
I cannot resist commenting on this question.
An appraisal for free is exactly that... a bit of someones opinion and though it may be backed up by experience it probably lacks the research and up to date pricing that a written appraisal by a professional would give you. Like the old saying... you get what you pay for.... appraisals are wide ranging for many reasons. If it is a price that you want to be able to sell it to a dealer you can expect to pay less than if it is for insurance replacement purposes. A dealer is in the business of making money buying and selling items they are knowledgable about. My suggestion is to find someone who is knowledgable about the item you wish to donate and then pay for an appraisal from that person, being sure you explain that it is to be donated to a museum and then talk to your tax man as to how much you can deduct. That is my two cents work... and it comes with the same caveat... you get what you pay for. Good luck in your search.

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Bob Schulhof

Posts: 194
Registered: Apr 99

iconnumber posted 06-26-1999 11:18 AM     Click Here to See the Profile for Bob Schulhof     Edit/Delete Message   Reply w/Quote
You bring up a good point which is what does an "appraised value" represent? Replacement value, which would be dealer retail, or what a dealer might pay you?

I assume that one would only get an appraisal for very exotic pieces which are not normally found in a dealer's inventory, or perhaps someone not familiar at all with the market might ask for an appraisal who has just inherited something more common like a flatware set.

For flatware I have been quoted between 25% and 50% of retail for things I wanted to sell by a dealer who had to pay his overhead and make a profit. E-bay now brings up another opportunity which is a market price without a spread. This then defines a new and more realistic "value". For example I once bought a knife for about $90 from a dealer, was later offered $40 from another dealer and sold it on e-bay for $70. So which is the "Appraised" value- $90, $40 or $70???


[This message has been edited by Bob Schulhof (edited 06-26-99).]

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Gayle M. Skluzacek

Posts: 20
Registered: Jun 99

iconnumber posted 06-26-1999 05:42 PM     Click Here to See the Profile for Gayle M. Skluzacek     Edit/Delete Message   Reply w/Quote

Basic appraisal methodology recognizes several different valuations for an item. As I am on vacation, I am putting this in my own words rather than the "official" definitions. I will post the official definitions upon return to my office and main computer.

Retail replacement value is the valuation used for insurance appraisals. It is the highest price one would expect to pay for an item in a reasonable period of time. This value should include any additional costs such as monogramming, custom orders, and sales tax.

Fair market value is the only value recognized by the IRS. This value should be used to donation appraisal, gift tax appraisals and estate tax calculations. Fair market value must follow the IRS definition which is basically the amount expressed in terms of money that would exchange between a willing buyer and a willing seller with equity to both, neither being under any compulsion or undue stress to buy or sell, and both being fully aware of all the facts, as of a certain date in the appropriate market. In a rare exception, the retail market may be the appropriate source of the fair market as defined by the IRS in Section 20.2031 (b). It is usually the secondary (auction) market that is considered the FMV. Also, note that according to the TAMM ruling of 1992, any buyer's premiums associated with a sale should be included in FMV (however this can be debated).

Marketable cash value is the value used for divorce or resale situations. This is the net value one would expect to receive after the sale of an item in an appropriate and relevant market. All expenses of the sale should be deducted from this value (i.e. commissions, shipping, advertising, premiums, etc.). This can be based on either a consignment or a buy-out projection.

Liquidation value is the value used in a bankruptcy situation or in any case of quickly turning assets to cash. This has the same components as MCV, except the luxury of time is not allowed and an appropriate and relevant market may not necessarily be applicable (depending whether it is an orderly or disorderly liquidation). Proceeds from a consignment would not be appropriate since the cash is needed immediately.

Selvage value is the value obtained when quickly disposing of goods. It is similar to LV. It can be used in a bankruptcy situation or in any case of quickly turning assets to cash. This has the same components as LV, except the sense of immediacy is most relevant and often the costs of the sale exceed the proceeds of the sale.

Hence, for insurance purposes, a dealer would appraise an item at the highest price he would sell that item for in his shop. This price should include all monogramming or special order charges and sales tax. Certain insurance companies are no longer accepting appraisals from dealers who sold the item as it can be perceived as a conflict of interest. (Would a dealer identify an item that he sold you as fake or overpriced???)

For IRS purposes, a dealer should examine the most appropriate market for the item. Since the IRS usually views the auction market as the most appropriate market, a dealer should be able to support the retail market as the appropriate market if using retail values. Most IRS challenges are in this area. Note that according to IRS regulations, the dealer who sold the item to you is not permitted to write an appraisal on that item for IRS purposes - conflict of interest (arm's length concept).

For resale purposes, a dealer should use the amount he/she is willing to pay for an item. This amount may be either an agreed consignment price or a buy-out price. This price is usually going to be 40-60% of the retail price. Be wary of dealers in this situation - a true conflict of interest is present.

In a liquidation situation, again, a dealer should use the amount he/she is willing to pay for an item, except immediately. This amount should be the buy-out price, not consignment. This price is usually going to be 20-40% of the retail price. Again, be wary of dealers in this circumstance - they can really take advantageous of your situation.

Lastly, when considering selvage, again, a dealer should use the amount he/she will pay for an item, immediately, regardless of market. This amount may be considered to be a "meltdown" price in the case of silver. As such it will be tied to the trading cost of silver, less expenses. Also be wary of dealers who insists the only value in a piece of silver is the "meltdown" price.

As such, the need for independent professional appraisers is important. Independent "professional" appraisers follow approved methodology and have the necessary expertise to appraise specific items. They certify that they have no interest (past, present, or foreseeable future) or bias to the item in which they are appraising or to the client. Their work is the result of proper methodology, using the appropriate value level, comparable sales, and approach to valuation based on the purpose of the appraisal. Independent "professional" appraisers are those who are members of one of the three main appraisers associations (ASA, ISA, AAA) who have passed strict exams in theory, methodology, ethics, and expertise. They have taken and passed government exams on the Uniform Standards of Professional Appraisal Practice every 5 years. Accordingly, two different "professional" appraisers, using the appropriate methodology, should arrive at the same valuation (within a 10% variance due to objective interpretation of data) of an item.

Fred Z's comment stating that "you get what you pay for" is so true! Check out the credentials of a "so-called" appraiser before you retain their services. Many "appraisers"are clueless in methodology or the rules and regulations of the IRS or insurance companies. According to the Appraisal Foundation in Washington, there are over 25,000 personal property appraisers in the US. Fewer than 2,000 of these appraisers are qualified "professional appraisers". Ask for references. You may have to pay more for a job done right!

[This message has been edited by Gayle M. Skluzacek (edited 06-27-99).]

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Bob Schulhof

Posts: 194
Registered: Apr 99

iconnumber posted 06-28-1999 01:23 AM     Click Here to See the Profile for Bob Schulhof     Edit/Delete Message   Reply w/Quote
Thank you for the definitive response.

My first burning question is how many pages was the exam on ethics?

Can one be an appraiser and a dealer? I know of one individual who does very well as she is the only silver appraiser in the county. After she does an appraisal for the bereaved, she will leave her card and let them know that she would be willing to acquire the lot at some % of appraised value. She has more inventory at better prices than anyone else I know of in the area.

With the advent of e-bay the only way dealers are going to build an inventory in the future is divorces or over somebody's dead body. There may become an outbreak of "Appraisers".

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Gayle M. Skluzacek

Posts: 20
Registered: Jun 99

iconnumber posted 07-13-1999 07:07 AM     Click Here to See the Profile for Gayle M. Skluzacek     Edit/Delete Message   Reply w/Quote
Following are official definitions of the various value structures:

Retail Replacement Value (RRV) - Highest value (usually for insurance purposes) is defined as "The highest price in terms of cash or other precisely revealed terms that would be required to replace a property with another of similar age, quality, origin, appearance, provenance, and condition, within a reasonable length of time in an appropriate and relevant market." (1989 ASA handbook, p. 76)

Fair Market Value (FMV) - Middle "secondary market" value (usually for IRS purposes) as defined by IRS Section 1.170 and 20.2031 (b) is "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." According to Technical Advisory Memorandum 9235005 (May 27, 1992), fair market value should include the buyer's premium.

20.2031 (b) continues "the fair market value of an item of property includible in the decedents's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of that item in a market other than that in which such item is commonly sold to the public, taking into account the location of the item wherever appropriate. Thus, in the case of an item of property includible in the decedent's gross estate, which is generally obtained by the public in the retail market, the fair market value of such an item of property is the price at which the item or a comparable item would be sold at retail."
(Treasury Regulation Section 1.170A-13(c)(3)(1988)

Marketable Cash Value (MCV) - Middle/low "NET" value (usually for resale purposes) is defined as the net value a willing seller realizes after disposing of property in a competitive and open market to a willing buyer. Both the buyer and seller must be reasonably knowledgeable of all relevant facts, and neither being under constraint to buy or sell. Marketable cash value takes into consideration insurance, dealer commissions, advertising, travel, and shipping expenses that may be involved in the sale.

Orderly Liquidation Value (OLV) - Low range "NET" value (usually for quick sale purposes) is defined as "the most probable price in terms of cash, or other precisely revealed terms, for which the property would change hands under required and limiting conditions in an orderly manner, generally advertised, with reasonable time constraints, in an appropriate and relevant marketplace, with knowledgeable buyers." (ASA 1994 Handbook, p. 2)

Forced Liquidation Value (FLV) - Lowest range "NET" value (usually for a quick and forced sale purposes) is defined as "the most probable price in terms of cash, or other precisely revealed terms, for which the property would change hands if sold immediately, without regard to relevant market place." (ASA 1994 Handbook, p. 2)

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Gayle M. Skluzacek

Posts: 20
Registered: Jun 99

iconnumber posted 07-13-1999 07:32 AM     Click Here to See the Profile for Gayle M. Skluzacek     Edit/Delete Message   Reply w/Quote
To Bob (6/29 comment)....
Yes, it is ethical for a dealer to be an appraiser assuming they follow the proper methodology. Often dealers know specific markets better than a non-dealing appraiser. However, when doing appraisals, dealers must act according to the appraisal guidelines and value objectively.

USPAP requires that when working in such a capacity after, during, and/or prior to doing an appraisal, one must disclose this fact in both the body of the report and in any transmittal letter where a valuation is included. The appraisal must be completed objectively, and according the guidelines. USPAP states that it may be necessary for an appraiser who has a financial interest in an item to hire an independent appraiser to do the appraisal if objectivity cannot be maintained.

The IRS DOES NOT accept an appraisal from any individual who has an interest in the property (past, present, or future). Strict penalties can be enforced on the taxpayer as well as the appraiser should this regulation not be followed.

Should you be aware of a dealer who is acting unethically, you can report them to the ethics committees of the ASA, ISA, or AAA (assuming they are members). If not a member of any association, I would question their overall credibility as an appraiser.

FYI, the ethics/methodology exam for the AAA is a blue book short answer essay test which can take 5-8 hours to complete. And not every potential appraiser passes the exam!

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