Equipment Appraisals

Welcome to

We are appraisal experts in a variety of differing equipment types. Valuation Resources, Inc. has performed appraisals throughout the U.S.,Canada and Central America from our offices in the Jacksonville, Florida metropolitan area.

Our work meets or exceeds the standards of the American Society of Appraisers (ASA), the oldest and only multi-disciplinary appraisal organization in the world, and the Uniform Standards of Professional Appraisal Practice (USPAP).  In addition to providing expert, unbiased machinery and equipment appraisals, we also provide a highly experienced team with the appropriate credentials in the event expert testimony is ever required.

www.equipment-appraisals.com

Industry Update

The present economic woes are having a negative impact on equipment values all over the country.  Two of the more prominent equipment segments affected are; construction and trucking.  This is an outline of what I see so far.

Construction

The recent slowdown in the economy, especially in the new construction of both residential and commercial properties plus the increases in high fuel costs is causing a severe drop in the overall value of construction equipment over the last few months.  Experts estimate this drop in value to be between 25%-35% and has hit the earth moving segment the worst, affecting such equipment as; crawlers, wheel loaders, graders, scrappers and related equipment including; tower cranes, concrete pumpers and mixers.   

On top of all this, new environmental issues must also be addressed including new emission standards in California and other states.  Operators in California will be equally hard pressed given that no construction equipment produced before 1995 will be allowed after March 2009.  All existing older equipment must be updated to the new EPA standards which is likely cost prohibitive to most smaller operators.

Trucking

The overall value of trucks and trailers has been seriously affected by both the economic slowdown and ever rising fuel costs.  The value of these units has been estimated to have dropped by 25% over the last few months.  Operators of all sizes have been dealing with lower demand for product transport.  This industry is also expecting new emission standards to be proposed by the EPA which would go into effect within a few years.   New emission standards would require operators to update engine and exhaust systems on all existing vehicles or acquire newer units.

Obviously, there are serious issues relating to both these equipment types that will directly impact current and future values.  I highly recommend any asset appraisals of both construction equipment and trucking older than 4-6 months be updated as soon as possible.   This applies to new loan requests, refinances, loan workouts or foreclosures. 

I will update and make further comment regarding these issues as we proceed through the current economic situation.

Be Wary of "Unqualified" Appraisers

Before I get too far, let me explain what I mean by "unqualified."   This is not meant to say that any particular appraiser is not  knowledgeable  about the property he or she is appraising.  Rather I am concerned about the  absence of a neutral third party organization that has examined and tested the education, knowledge and experience of the appraiser and has been granted a certification based upon those qualifications.  In addition, all appraisal organizations require recertification every 3-5 years in order to insure that the appraiser has kept up with continuing education and other related changes within the appraisal profession.

Real property appraisers are state licensed so one may reasonably assume that their qualifications have survived scrutiny.  However, appraisers of tangible personal property are not state licensed.  Tangible personal property is best described as; machinery and equipment, residential contents, fine art and collectibles, antiques and gems & jewelry.  There are other specialties in personal property too numerous to mention here.

It is important for clients as users of appraisal services to understand that the engagement of a "qualified" appraiser is of the utmost importance, especially with the passage last year of the  Pension Protection Act.  This act contains definitions relating to a qualified appraisal and qualified appraiser and stipulates requirements for both as well as government action for any mis-statements of value performed by an appraiser.

For example, Company A is buying Company B and requires an appraisal of the tangible property assets for "purchase price allocation" which will be used as a basis for a new depreciated asset listing. The depreciation list is subject to IRS review and in an audit one of the first items reviewed is the qualifications of the appraiser.  At this time, the IRS recognizes only appraisers with designations from the American Society of Appraisers (ASA).  This is because IRS personnel have audited ASA courses and recognize them as superior.  According to several IRS auditors I have met, they will not accept a personal property appraisal not performed by an ASA appraiser.

I recently reviewed an appraisal performed by a local appraiser for a small medical clinic.  The appraisal report was brief and only provided the fair market value, a property description, the  respective value of each asset and a summary of qualifications.

I was awed by the absence of what was not included; the definition of fair market value, the approach to value employed (Income, Cost or Market), detail of the research performed to arrive at the value result, any limiting conditions, property condition, scope of work and remaining useful life.  Of particular note; his qualifications failed to mention any education, degrees or certification earned.   All of these absences are required by the Uniform Standards of Professional Appraisal Practice (USPAP). 

It is no wonder that the client sought a second opinion given the unprofessional nature of its presentation.  Of particular note, the property was inadequately described with serial numbers absent.  This appraisal would not stand up to any type of scrutiny, be it IRS or legal due process.

There are any number of "appraisers" available who may in fact be knowledgeable about the property they are appraising.  However, it is prudent to employ someone whose work and qualifications have been reviewed and adhere to the all governmental requirements.

Both you and your organization deserve nothing less!!!

Desktop vs Field Appraisal

Nearly every day clients request that I perform a desktop appraisal of certain assets for a variety of reasons.  However, a significant percentage of these requests are for collateral lending purposes and for the dual purpose of keeping the borrower's costs low.

Before I proceed further, perhaps it would be wise to redefine the difference between a Desktop and a Field appraisal.  The Desktop appraisal is a valuation performed without the benefit of a physical inspection of the assets whereas the Field appraisal includes the physical inspection. 

In the past, the Desktop appraisal was commonly employed in order to obtain a "preliminary" or guideline of values in order to determine whether the assets would provide sufficient coverage in the event of a default.  Unfortunately, the Desktop appraisal is now more frequently used as the final determinant in the collateral evaluation process.   This frequently leads to higher losses in a default situation since the assets were never properly confirmed and valued.

The primary problem with a Desktop appraisal is that the appraiser is forced to make several assumptions during the valuation process including;

a) that the assets actually exist.  You would be surprised how many times lenders have extended credit on equipment assets that do not exist.
b) confirmation of asset identification including year, make, model, serial number, attachments and or accessories.  Liens are often filed based upon erroneous information, deliberate or accidental.
c) determination whether the assets are being properly maintained.   Whenever businesses experience cash flow problems the first two issues that are affected are insurance and maintenance.
d) determination as the whether the assets are being employed in accordance with their primary design.  Borrowers often will redeploy assets for uses that were not intended by the manufacturer.

Let me cite a single simple example where proper asset identification is of vital importance.   I was recently asked to appraise a large inventory of rolling stock including a fleet of pickup trucks.  Several trucks were listed thusly; "Chevrolet 1500 Pickup."   Sounds simple until one realizes that Chevrolet manufactures two models: the 1500 and the Silverado 1500.  Additionally, both come in 4 different body styles, short bed, long bed, extended cab and crew cab.  So there are 8 different possible models, each with a different value.  So now you can see the value of proper equipment identification. 

Failure to examine or consider any one of the above cited factors can result is a significant loss to a lender which is a real shame when one considers that the usual reason for requesting a desktop appraisal is to save the borrower money.   While it is agreed that the Desktop will likely save money initially, the exposure to a significant loss later on should serve to warn lenders that "due diligence" should never be compromised. 

I recommend that Lenders not assume that there is a significant cost difference between a Desktop appraisal and a  Field appraisal.   Discuss the assignment with the appraiser before making any final decisions.  Please keep in mind the old adage; "You get what you pay for" and remember that proper asset coverage in the long run is far more important than lowering your borrower's cost.

The Cost of an Appraisal

Most clients I come in contact with understandably ask; “What is this appraisal going to cost me?” My answer is always the same; the cost is dependent upon the scope of the appraisal assignment. The key word here is “scope” and there are several factors that can affect the ultimate cost of an appraisal including;

Amount of Assets – appraisal assignments vary in size, from 1-2 units to several hundred. The actual number of assets involved will be a prime determination of cost.

Time Necessary – the amount of time required to complete an assignment is always a consideration and not every appraisal is straight forward and easy. For instance, when  approached to consider an assignment involving construction equipment, the first question asked is “what is the spread”? Construction companies usually have several projects going at any one time, and the projects could be within 10 miles of each other or 50-100 miles. The extended travel time required must be taken into consideration when figuring cost.

Travel – in addition to the travel that might be required once on site, there is the consideration of out of pocket expense for travel to the job site. For local clients or those within driving distance, the cost might only include mileage, meals and possibly hotel if an overnight is necessary. Client assignments beyond a fair driving distance may likely involve airfare. Out of pocket expenses can only be estimated, especially airfare, which seems to always be in a state of flux.

Research & Report Preparation – once the appraiser has concluded the inspection of the assets, research into the value of each must be conducted. For a fair valuation, most appraisers will conduct research to locate at least 3 recent sale comparables for each unit. Other approaches to value including; Cost and Income may also require consideration. An experienced appraiser will usually be able to properly estimate the time required and include it in his cost proposal.

Value Concepts – does the assignment require a sole value such as Fair Market Value or are multiple values necessary?  Some clients request values projected out over 3, 5, 7 and even 10 years. The value concepts required and any other elements such as projections will also affect cost since more time will be involved in the project.

Client Participation – there are several key actions a client can provide in working with an appraiser that may actually reduce his ultimate cost including;

a) Providing a driver and vehicle when equipment assets are spread out over large distances or where the appraiser is unfamiliar with the locale.

b) Producing a current maintenance log or record of all assets, whenever necessary.

c) Producing equipment documentation including; invoices, purchase orders and receipts. These documents can relieve the appraiser of significant research time necessary to determine the date of manufacture and other relevant information.

Some clients react negatively when quoted the cost for an appraisal. In most instances this is because their only prior experience is the engagement of a residential real estate appraiser where the average cost is $350-$500. A residential appraisal is a poor comparison for cost. Residential appraisers may perform only a brief physical inspection or drive by so as to confirm that municipal records concur with the actual homestead followed by a comparison of recent sales as recorded by Multiple Listing Services. The appraiser then analyses the information, looking for 3 recent comparable home sales in order to reach a value conclusion. A residential appraiser may perform 4 or more appraisals daily.

The Machinery and Equipment Appraiser performs similarly except that he physically inspects each asset and then researches at least 3 comparables for each asset. If an assignment contained 100 units, the appraiser is likely to compile 300 comparables. The amount of work and time necessary is far more than a single residential appraisal. The machinery appraiser, depending upon the number of assets, may perform a single appraisal every 7-10 days.

By their nature, equipment appraisals, particularly the physical inspection and research portions of an assignment are time consuming with a direct bearing on cost. In addition, most equipment appraisals may affect 3rd parties depending upon the purpose of the appraisal which may include; property settlement (divorce), collateral lending (lenders), purchase/sale of a business (buyers & sellers), bankruptcy (creditors), estate planning (beneficiaries), charitable contribution (IRS) or eminent domain (government/property owner). The equipment appraiser must assure that his work stands up to scrutiny. For this reason and all the other discussed previously, the cost of an equipment appraisal is usually justified. Of course, the client should seek competitive proposals in order to assure the best price possible.

"Undue Influence"

The definition of an appraisal is an unbiased opinion of value.  In addition the Uniform Standards of Professional Appraisal Practice (USPAP) require that an appraiser;
1.  Have no bias with respect to the property.
2. That the appraisal result is not contingent upon a predetermined result.
3. The appraiser's compensation is not contingent upon the reporting of a predetermined value.
4. The appraiser has no past, present or anticipated interest in the property being appraised.

The Uniform Standards of Professional Appraisal Practice were developed by the Appraisal Foundation as authorized by the US Congress in response to numerous appraisal irregularities arising during the  Savings & Loan Crisis back in the early 1980's.  These irregularities caused a high degree of foreclosures with little or no equity for homeowners resulting in huge losses for mortgage lenders.

Sadly, it appears that we may be entering into another phase of heavy mortgage losses resulting from predatory lending practices including undue influence being exerted on appraisers by mortgage brokers, real estate agents and others.  Appraisers are reporting significant increases in pressure being exerted to deliver results that exceed the actual market value of property resulting in both the buyer and the mortgage lender believing that an equity position may exist when in fact, it does not. 

This issue would not exist without the participation of appraisers.  Normally, I would say "willing participation."  However, when those who engage appraisers demand a specific result under threat to either withhold payment or future assignments, the word "willing" hardly applies.

Nevertheless, if all appraisers flatly rejected these demands, these unscrupulous  brokers and agents would have no place to turn.   Government agencies do their best to police these bad practices, but apparently the numbers involved are simply too great to uncover everyone.

This issue of undue influence is hardly limited to just the appraisal of real property.  As an appraiser of commercial machinery and equipment, I am frequently approached to deliver a desired end result.  And just as frequently, I decline those assignments. 

How can an appraiser of commercial machinery be effected?  In several ways including; a property settlement case where the attorney for one party seeks a favorable result, or a client stipulates a desired value for a non cash charitable contribution.   I have even been approached by either the  buyer or seller of a business to produce a higher or lower value for the equipment of a specific sale of a business.

Undue influence is everywhere and can originate with any potential client.  The one sure way to stop it in its tracks is to maintain a high ethical standard and not deviate from it.  I can honestly say that my business has actually increased due to the public perception that I am honest, without bias and will not submit to pressure.  If every appraiser did the same, not only would the pressure to deliver predetermined results diminish but appraisers may actually see an increase in business activity due to an enhanced reputation. 

What's In a Value?

There are a number of appraisal values that may be selected for use by a client. Most folks are familiar with two; Fair Market Value and Forced Liquidation Value, which is better known as Auction Value.

 In actuality, there are a whole host of differing value concepts used by professional appraisers including; Reproduction Cost New; Replacement Cost New; Fair Market Value; Fair Market Value in Continued Use; Fair Market Value – Installed; Fair Market Value – Removal; Liquidation Value – In Place; Orderly Liquidation Value; Forced Liquidation Value; Salvage Value; Scrap Value; Insurance Replacement Cost and Insurance Value Depreciated.

The use of any of these values depends entirely upon the client’s purpose and intended use of the appraisal. In a bank foreclosure situation, one of the liquidation values is best, depending upon just how the bank intends to dispose of the assets. Liquidation Value In Place represents the amount obtained from the sale of a failed facility when sold intact. However, if an intact sale is not possible, then Forced Liquidation Sale or Auction Value is likely appropriate.

 The responsibility of the appraiser is to make certain that the purpose and intended use of any appraisal is in line with the value concept being considered. Far too many times clients request values that are inappropriate to the actual intended use of the appraisal. 

 For example, I was engaged to perform an appraisal of business assets for the purpose of property settlement resulting from a divorce. The engaging attorney indicated a desire to have the assets valued at Forced Liquidation Value. His reasoning was based upon the actions of opposing counsel who had already engaged another appraiser to value the same assets using the same value concept.

 Forced Liquidation Value is defined as the amount that could typically result from a properly advertised and conducted public sale with the seller being compelled to sell, with a sense of immediacy on an as is-where is basis. In this instance, the assets were actually not for sale and the business was continuing to function at a profit. The opposing counsel’s intent in this instance was to have the lowest value result possible in order to reduce his client’s potential liability. 

 In the end, I convinced engaging counsel (and eventually the judge) that Fair Market Value which is defined as the end result between a willing buyer and seller in a arms length transaction, was the proper value concept to employ. The judge eventually awarded my client a higher property settlement amount than was originally proposed.

  Professional appraisers, especially those designated by a national appraisal organization, are thoroughly trained in value concepts and the purpose and intended use of each. Whenever an appraisal is being considered, it is always best to consult with an experienced appraiser in order to make certain you are getting exactly what you pay for.

What is USPAP and Why Should I Care?

Appraisal experts operate in differing fields of expertise (discipline) including Real Property, Business Valuation, Personal Property and Machinery and Equipment. Occasionally, there are misunderstandings regarding the appraiser’s function within an appraisal assignment.

 I periodically receive calls from prospective clients who state: “I need an appraisal and I need the value to be $fill in the blank. My response to them is always the same, “I’m sorry, but that’s not what I do.” This is why.

 In 1987 The Uniform Standards of Professional Appraisal Practice or USPAP as authorized by the US Congress were established in order to promote and preserve the public trust. Prior to that time, the appraisal profession had come under intense scrutiny during what has come to be known as “the S&L Crisis.” This crisis was in great part the result of several factors including; pressure from lenders to deliver anticipated results, appraisers accepting contingency or undisclosed fees, a financial interest in property being appraised or reporting a predetermined result in favor of a client. UPSAP as adopted by both the Federal and all State governments raises the bar on ethical behavior, impartiality and professional competence of all appraisers.

 USPAP defines an appraisal as “an opinion of value” and requires that an appraiser be unbiased and impartial. The use of the word “opinion” is crucial since there are several methodologies or approaches an appraiser may employ and the appraiser must be free to choose which of these best serves any specific appraisal assignment.

 The impartiality of the appraiser is tantamount to the entire appraisal process. The value conclusions of any appraiser must be his own and independently derived. Clients are always free to discuss their thoughts on the process, but in the end, the appraiser is legally bound to avoid any undue influence in order to arrive at a fair result, especially where third parties are concerned.

 A third party is defined as anyone who may be affected by an appraisal result. Common examples are; banks and financial institutions in collateral lending situations, parties in property settlement cases including divorce or partnership buyouts, insured or insurers in loss claims or the public at large in eminent domain or property tax assessment appeals.

 In order to avoid even the presumption of bias, USPAP requires that appraisers certify the following in their reports;

         1.  There  is no present or prospective interest in the property being appraised.

        2.  There is no personal bias with respect to the parties or property involved.

        3.  The engagement was not contingent upon developing a predetermined result.

        4.  The compensation is not contingent upon developing a predetermined result.

 All real property appraisers are licensed by the states where they practice and as a condition of their license, compliance with USPAP is mandatory. Unfortunately, there are no licensing requirements for the other appraisal disciplines.  Regardless of the property type you need appraised, make certain the appraiser complies with USPAP. Your project and your organization deserve nothing less.

For What It's Worth

Appraisal experts operate in differing fields of expertise including Real Property, Business Valuation, Personal Property and Machinery and Equipment. There are frequent misunderstandings regarding the appraiser’s function within an appraisal assignment.

 One of the most frequently requested value concepts is “Fair Market Value”. This concept is best described as; “the most likely result of a sale between a willing buyer and seller, in an arms length transaction, both knowledgeable of all facts.”

 A key element in this definition is “most likely result.” The only true indicator of value is an actual sale. Since most appraisals are performed prior to a sale, it is rare for an appraisal to reflect the final selling price of a property. The appraiser relies upon his research of market data reflecting several sales of same or comparable property in order to arrive at a value conclusion. In comparison the final selling price of a property has likely been subject to negotiation based upon a number of factors including emotion.

  Imagine a garage sale with a stereo for sale at $200. A buyer offers $100. After some negotiation, both parties agree to $150. One could say the fair market value of the stereo is $150. However, over the next few weeks, two of the same or comparable stereos sell for $125 and $250 each. This difference in price could be related to several factors including: the negotiating skill of the parties, the operating and physical condition of each stereo, the motivation of the buyer or seller, the inclusion or lack of advertising, even the weather may play a part.

 An appraiser must research and consider all these factors before arriving at any value conclusion. This is why “most likely result” is often employed because no one can take all possible factors of a sale into account. 

 There are any number of varying appraisal values that may be employed including; Replacement Cost New, Fair Market Value In Continued Use, Orderly Liquidation Value, Forced Liquidation Value, Salvage Value and Insurance Replacement Cost. These are just a few examples of appraisal values. The unique circumstances of each individual situation will determine the value concept to be employed. A certified professional appraiser can assist in the determination of the best approach and value concept to be employed. 

 In a future posting, I will more fully explain the definitions of appraisal values and how each can be best employed.

Appraisals - Beyond Real Estate

Whenever I am asked what I do for a living, my response is; “I’m a machinery and equipment appraiser” which frequently generates a look of amazement followed by the comment; “ I didn’t know anyone did that!” Most people are familiar with real estate appraisers but are not aware that there are a number of other appraisers out there who possess professional expertise in a variety of areas.

Currently, there are five basic appraisal disciplines; real property, personal property, machinery and equipment, business valuation and gems & jewelry. Each discipline maintains its own qualifications and standards for membership. Within each discipline there are likely a listing of specialties. For example, machinery and equipment has several specialties including; aircraft, computers & high tech property, cost surveys, machinery and equipment, marine survey, mines & quarries, oil & gas and public utilities. 

Most appraisers belong to a national organization that grants accreditations based upon one’s level of education, experience, background including financial and personal integrity and the successful completion of several appraisal courses and exams. Only after all these requirements are met is the appraiser granted a specific designation in his or her specialty. Lastly, most appraisal organizations mandate their members reaccredit every five years via continuing education in order to assure that everyone is current with the most recent techniques and developments.

There are several national appraisal organizations including; the American Society of Appraisers, The Appraisal Institute, the American Society of Farm Mangers and Rural Appraisers, the International Society of Appraisers and the National Association of Independent Fee Appraisers, to name just a few. For the record, I am a member of the American Society of Appraisers, which is the oldest, and only major appraisal organization representing all the appraisal disciplines.

There are any number of reasons why an appraisal might be necessary, they include; financing/collateral; business mergers, acquisitions & liquidations; charitable contributions; eminent domain, probate; property settlement (divorce), bankruptcy; estate planning; insurance including disaster planning and tangible personal property tax appeal.

All of these situations require differing approaches to value since it is possible that an appraisal of the same property may result in alternate results depending upon the purpose of the appraisal. For instance, an appraisal of an RV for charitable contribution purposes will be vastly different from an appraisal of the same RV involved in a bankruptcy. 

What is an appraisal anyway? The industry definition is; an unbiased opinion of value. It is important to understand the reasoning behind this definition. The appraiser must be unbiased so as not to show any favor toward the property or the parties involved. In addition, the engagement can not be contingent upon any predetermined result and the appraiser can not possess any past, current or intended interest in the property being appraised. In short, all parties that rely upon an appraisal must be assured that the appraiser is totally neutral.

The word “opinion” is frequently misunderstood within the context of an appraisal. An appraisal is not a guarantee but an indicator of the “most likely” result of a sale that closely resembles the purpose of the appraisal. For example, the sale of a business may result in an appraisal at Fair Market Value while a bankruptcy of the same business may conclude in Forced Liquidation Value. In addition, the appraiser, without interference, must be able to determine the specific approach to value being employed. Since this decision is the sole province of the appraiser, the result is a researched personal opinion.

There is a large number of value concepts which appraisers may employ with two of the most commonly used being; Fair Market Value and Forced Liquidation Value. Fair Market Value is defined as the result of an arms length transaction between a willing buyer and seller while Forced Liquidation Value is the result of a properly advertised and conducted public sale, with the seller compelled to sell on a as is-where-is basis.

There are several factors taken into consideration when appraising property. For example, in order to properly value a motor vehicle, the appraiser must consider the manufacturer, model, year produced, usage, overall condition, attachments and accessories, market demand, obsolescence and current market conditions. This is the purpose behind the physical inspection that is usually required prior to issuing any opinion of value.

As a result of the Savings & Loan crisis back in the late 1980s, the US Congress formed the Appraisal Foundation in order to establish appraiser qualifications and standards. The end result is the “Uniform Standards of Professional Appraisal Practice” or “USPAP.” These standards have been adopted by the federal government and all 50 states. All federal and most state agencies require that appraisers comply with USPAP. 

Whenever engaging an appraiser, it is prudent to confirm both his designation and membership in good standing with a professional appraisal organization followed by a determination of the appraiser’s expertise with the property being appraised. Your project and your organization deserve nothing less!

Introduction

The appraisal industry and its varied services often seem complex and confusing to those who are in need of professional appraisal services.  This blog is intended to reduce and hopefully, simplify the process for those potential users of appraisal reports.

Initially my postings will discuss the simplest of issues and eventually move toward the more complex.  It is my hope that thru this blog and perhaps even your inquiries, a greater understanding will be gained of the appraisal practice and especially those who appraise tangible personal property, especially machinery and equipment.

THE APPRAISAL PROCESS

It may surprise you to learn that, outside of real property, anyone can call himself an appraiser.  Unlike real property appraisers, there is no state licensing for personal property appraisers at this point in time, anywhere in the U.S.  So if you need an appraisal, it is your responsibility to determine if the appraiser is qualified.

There are two types of property: real property and tangible personal property.  Real property includes real estate, land and buildings.  Tangible personal property includes movable items of all types: commercial machinery and equipment, trucks, buses, office furniture.  This category also includes antiques, collectibles and fine art.  This article deals strictly with appraisers of commercial machinery and equipment.

What’s it worth?  That all depends.  Is the purpose of the appraisal for insurance coverage or a claim?  Liquidation? Sale or purchase of a business? Equitable division of property (divorce or distribution of an estate)?  IRS obligation (probate and estate tax or charitable contribution)?  Property tax appeal? Eminent Domain valuation?  The value of a certain item may differ depending upon the function of the appraisal and the “market” used to determine the value.  A knowledgeable appraiser should be able to explain these differences to you. 

Prior to any engagement, ask the appraisers you are considering if they specialize in the types of items you need appraised.  You wouldn’t visit a podiatrist for a heart problem, don’t engage a fine arts appraiser to value a Mack truck.  Verify any appraiser’s experience and certification in the area you need appraised.

Be sure to check the qualifications of the appraisers by asking if they have any formal education in appraisal theory and principles.  Do they comply with the Uniform Standards of Professional Appraisal Practice?  Do they adhere to a Code of Ethics? Do they continue to take classes and pass exams necessary for re-certification?  Most appraisal organizations require their members to comply with their Code of Ethics and re-certify every few years.

Confirm that the cost of the appraisal will be based upon on hourly rate, a flat rate or piece rate.  Are expenses included?  It is not ethical for appraisers to charge based upon a percentage of value or on a contingency basis.

The appraisal report must be clear and discuss all factors relevant to the value conclusion.  All appraisals must be defensible in court.  The report should contain a cover letter, a statement of limiting conditions, the appraiser’s qualifications, a complete and accurate description of the assets with a defined value for each, the methodology employed, the market analysis and a certification including a statement that the appraiser has no financial interest (past, present or future) in the property being valued.

Always inquire about the appraiser’s membership in any appraisal organizations.  Active participation shows involvement with the profession, peer recognition, access to updated information and a requirement to adhere to a Code of Ethics.

One last item, appraisal science is not clouded in mystery.  If there is anything you do not understand, ask the appraiser.  The appraiser has an obligation not to be misleading, so feel free to inquire about anything you do not understand.  A good appraiser will always take the time to explain the process to you.

In future blogs I will discuss the legal definition of an appraisal, the value concepts involved, the Uniform Standards of Professional Appraisal Practice and other interesting aspects that may serve the reader well if and when appraisal services are ever needed.