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.