Wednesday, September 9, 2015

Ask Leon: A Question of Intended Use, Limiting Conditions, and Opinion of Value

ISA members are invited to send in their questions on all things appraising and education to Leon Castner, ISA CAPP. Leon will share his answers on the ISA Now Blog. Please send questions to leoncastner@comcast.net.

A Question of Intended Use

Question:
I'm working with a city parks department to appraise their art collection. It was previously appraised in 1999 and they want it updated. I assumed they would want an insurance appraisal, but they said they have insurance coverage for everything, so it’s not necessary. But when I ask them about the intended use of the appraisal, they are vague and say they just want to know the current value. They don't plan to sell, and in fact and are interested in current condition reports as they want to get a few outdoor sculptures repaired. What should I suggest to them in terms of a type of appraisal? Any thoughts on other questions I should be asking?

Answer: Well, you must have an intended use to form an objective to provide a scope of work, etc. If it's for their own knowledge or for financial considerations or whatever, have them state it in a letter to you. If it's any of those, you can provide a market value or a market value range. In the report you will say it can't be used for any other intended use like insurance coverage. Although it's a little too vague for my liking, as long as you can match the objective to an intended use and then develop a scope of work, it's ok. Make sure you get something in writing, however, since they may think they can use it for anything.

Limiting Conditions

Question:
A quick question: where do I put a limiting condition in my appraisal? Do I write it in body of the appraisal or the cover document? There was one bedroom closet that I couldn't get into because a mattress and box spring was against it. I have no idea what was in the closet.

Answer: The quick answer is that a limiting condition is stated in the cover document. It is also referenced in the certification where you state that “the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions…” The interesting point of a non-accessible closet is that it could be empty or it could contain all the good stuff. (I once did an appraisal where I got into a closet and found all the artwork which had been piled up from the walls of the house. After I did the report and sent it in, they told me I wasn’t supposed to do that closet. They were items “not belonging to the estate.” Right! (That’s another story.)

You should have asked the client or owner to move the bedding to gain entry or asked what they thought was in there. If they said, “Nothing,” or something to that effect, you could make a critical assumption that they were being truthful and put down no value. I would still explain this in your cover document and give the limiting condition (couldn’t gain access) and critical assumption (it had no value).

Appraisal Not Needed…or Is It?

Question:
I have a bank that just needs an estimate of value – can I write that as an appraiser? Just one page report with values or does it need to be an appraisal?

Answer: This question is covered by USPAP. An “opinion of value,” whether it’s called an estimate of value, a determination of fair market value, or estimation of costs or worth, is still an appraisal. Since you are acting as an appraiser in providing this service, you must follow USPAP. That includes all the rules and the standards. This should probably be an “appraisal report” rather than a “restricted report”, but it falls under USPAP. You must follow all of the ISA report writing standards as well. The bank should know better. Shame on them.

Jewelry Hallmarks

Question:
Does ISA require that jewelry hallmarks be identified rather than just noted?

Answer: No. ISA does not specifically require that hallmarks be identified rather than noted, but information relevant to the appraisal process, including physical and value characteristics, must be included in appraisal reports. If the hallmarks identify the country, standard, date, or maker, they are extremely significant – just like an artist’s signature on a painting. Not knowing or misreading a mark, or signature, could be a serious problem and lead to an incorrect valuation.

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