Up A Valuation Sleeve

Posted on August 31, 2022 by Bill Hoefer, GIA GG, FGA

Jasper Maskelyne, a magician serving in the British army during World War II, who came from a family of stage magicians, made the harbor at Alexandria, Egypt disappear—preventing the German Luftwaffe bombers from bombing the Royal Navy ships moored there.1 Magic is a well preformed misdirection. There is no room for misdirection in appraising. PICK ANY CARD One obvious misdirection occurs when someone offers free appraisals that are really offers to buy. An offer to buy is not an appraisal. Another misdirection is what are called “guesstimations [sic]” that are mere speculations without any market analysis. Could such appraisal sleight-of-hand exist because the definition of an appraisal is vague? THE SHELL GAME Now, you may be wondering what is the definition of an appraisal? “Appraisal—valuation of property for damage resulting from an insured peril or for estimating the base amount of insurance coverage to be purchased.”2 If your appraisal is for obtaining insurance or determining value for a casualty loss, the above cited definition is adequate. Of course, the definition is from an Insurance Dictionary. Thus, we can expect such a definition for a particular assignment, namely insurance. However, notice that it did not detail what a valuation involves. Most appraisers cite one of the International Revenue Service (IRS) fair market value definitions. Yes, there exists more than one. But few appraisers know that the IRS has appraisal definitions. This is a regulation, not a dictionary definition. “Appraisal—a valuation or an estimation of value of property by disinterested persons of suitable qualifications. The process of ascertaining a value of an asset or liability that involves expert opinion rather than explicit market transactions.” 3 The IRS definition is somewhat misleading. Did we read that right—an appraisal involves expert opinion but not actual sales? Or do they mean that an appraiser is required, not just transactions? Now you know why there are so many cases involving federal tax liability to fine tune definitions. But wait, it does state that an appraisal consists of ascertaining value. Maybe a law dictionary will reveal a definition that encompasses most appraisal assignments and is less restricted in scope. Black’s Law Dictionary, a commonplace book on attorneys’ desks and well cited in case law, provides us this definition: “Appraise---to fix or set a price or value upon; to fix and state the true value of a thing, and, usually, in writing. To value property at what it is worth.”4 The probative key word is the word “worth.” Value is almost synonymous with worth. What is missing are the elements of an appraisal. Maybe what is needed is a definition from the Uniform Standards of Professional Appraisal Practice (USPAP), a standard widely embraced by both real and personal property appraisers: “Appraisal: (noun) the act or process of developing an opinion of value; an opinion of value.”5 Perhaps we need to revisit the Federal Regulations for an- other definition of an appraisal. “Appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information.”6 The definition is vastly superior to all the definitions so far revealed. With some tweaking, the definition can be a base for an improved definition. What does the definition provide? BREAKING IT DOWN It was important for the regulation to require a written re- port. However, some appraisals are not written reports. Testimony..

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