Circling the Drain

Posted on July 1, 2022 by Bill Hoefer, GIA GG, FGA

“The lay litigant enters a temple of mysteries whose ceremonies are dark, complex, and unfathomable. Pretrial procedures are the cabalistic rituals of the lawyers and judges who serve as priests and high priests. The layman knows nothing of their tactical significance. He knows only that his case remains in limbo while the priests and high priests chant their lengthy and arcane pretrial rites.”1 CENTER OF ATTENTION As appraisers, we do not really think that an appraisal we rendered might become the center of attention in a litigation. Although rare, an appraisal rendered for obtaining insurance can become caught up in the legal process. The best approach is to be aware of the wording, methodology, and authentication (identification and grading) in each valuation you render. Your approach may be perfect but does the wording in your Supplemental Information Letter (SIL) match it? Most societies are teaching and encouraging members to use the phrase “comparison sales approach” as the value approach. Not more than forty years ago, the term was rare. The three value approaches were (1) the market data approach, (2) the income approach, and (3) the cost approach. The income approach is not very applicable to personal property, especially jewelry and gemstones since it involves income from renting property. The cost approach involves making an item, and later in this article, the sub approaches of the cost approach will be discussed. The market data approach involved actual sales and similar market activity. For certain, some changes have occurred. Whether they are evolutionary, or revolutionary is open for debate. A change is the popularity of the expression “comparable sales approach.” DONE DEAL OR NOT DONE DEAL The “comparable sales approach” term sounds great! It sounds spicier than “market data approach” and even “market activity.” That’s it, let us use it! But wait; will it survive a frontal attack under oath in a nasty litigation? Comparable sales approach involves analysis of sales. Not offers, not price guides, not catalogs but sales of comparable properties. Or as one court asserted, “First, this approach requires that sales of similar properties be compared. In this case, [name redacted] relied upon the listing prices of three unsold properties. The general rule is that offers may not be used in the comparative sale approach to the valuation of real property. At best, the listing price of a parcel is an offer to sell and, as such, may not be used to support a comparable sale approach to valuation of property.”2 Only actual sales can be used in the comparable sales approach. Do not state in your appraisal that you used the sales comparison approach if you used a price guide to determine value! MLS AT YOUR SERVICE The term is more applicable to real property valuations since they have a Multiple Listing Service (MLS) from which an appraiser can research recent properties that have sold. There is no MLS for personal property such as jewelry or gemstones. Jewelry appraisers, instead, rely on wholesale ...

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