ASK LEON: Should I reject assignments due to my "competency"? If so, how do I gain experience in these appraisals if I'm required to reject them?

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.

Question: I just completed another organization’s 7-hr. online USPAP course. I am very curious if something said was an organizational opinion or a general USPAP requirement.

While the instructor was talking about “competency,” she mentioned one must make the case in the cover letter as to why you are qualified to write this particular appraisal assignment. Particularly, she expressed concern that generalists don't know what they don't know and should be extremely wary before accepting assignments. She gave this example: if you are asked to appraise a Picasso and you have only appraised a couple, then you should NOT accept the appraisal. Only someone who has appraised hundreds of Picasso's would be qualified to handle this assignment.

This really freaked me out. So many questions ran through my head. How can you gain experience if we can't accept assignments? Doesn't the CV state appropriate information regarding qualifications? Why did I just earn my dual AM designation if I don't have enough experience appraising the "heavy hitters" to accept (if only I would be that lucky!) such an assignment?

Answer: Yes, the competency rule states that you have 3 choices when confronted with any assignment:

1. You are competent to do it and tell the client you are.
2. You are not competent and you refuse the job.
3. You are not competent, but you will take steps to do the job competently. This means any number of options, which are left up to you and the client. You can take steps to become competent yourself (hard to do in a short time frame), work with a qualified appraiser or team to do the job, or a combination of the two. That’s how we gain knowledge in other areas: we accept challenges and then become proficient enough to finish the job. No one can decide how many items one must do to claim competency. I would venture to say that what the instructor said might have more to do with authentication than appraising, although her point is that a generalist is not an expert in everything (which I agree with completely). However, just because one is a fine art expert doesn’t mean they can automatically do every piece of art either. Everyone has limits. You must confront them when asked to do an assignment and then decide if you can take steps to do the job competently. You must disclose those steps to the client and in the report.

Question: What role does provenance play in valuing an item? I had an inquiry about an appraisal for insurance replacement of custom tailored textiles made for political figures in a local history collection.

Answer: Great question. It would take a book to answer it. Provenance is a value characteristic of an item that the market deems very significant. One of the problems, however, is that for insurance coverage it is very difficult to put a replacement cost on the item since, in a sense, it is not replaceable. One can either compare the item to other items (parallel market) or estimate the cost to replicate/duplicate them if lost. The owner might want to insure them for the potential market value based on what similar items bring in the marketplace. For example, the opera glasses Lincoln used at the Ford Theater are just $200 opera glasses. They could be replaced easily. However, the exact opera glasses that he held in his hands brought over $400,000 when sold. If you were the new owner, wouldn’t you want them insured at $400,000 rather than $200? That’s provenance.

ASK LEON: When a personal property appraisal has been done for an insurance coverage, how many years before it needs to be re-appraised?

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.

Question: I have a question for you. When a personal property appraisal has been done for an insurance coverage, how many years before it needs to be re-appraised? And would a new appraisal raise the amount of the insurance premium?

Answer: Insurance coverage appraisals are done to provide adequate coverage of personal property either not covered under a standard homeowner policy or to establish a set amount of recovery in the event of a loss. The insurance company uses the amounts to set premiums to that end. Since most policies are in effect for one year, the amounts will remain in place for the stated amount until the anniversary when a new policy is issued or renewed. At that time the owner may wish to revise the coverage if a new appraisal is done, but most slide along, using the same figures assuming their coverage is still adequate.

If the economy or the markets are stable, this has proved to be somewhat acceptable, although not ideal. One can continue using the same appraisal amounts until the insurance company requests an update or they themselves institute a change. As far as I know, most insurance companies have their own internal standards for how long an appraisal can be utilized. (I’ve heard of people using the same appraisal amounts for up to seven years before changing.)

If there is industry guidance, it seems to be that three years is a good allotment, although, I haven’t seen this in writing. This makes sense in a slow moving economy where prices are rising only slightly per year. It does not make sense, however, in a volatile or fluctuating market where prices are rising or falling due to many reasons. If the market is widespread, such as the downturn in 2008, it would be wise to suggest an appraisal update on almost every item. On the other hand, if only some of the items are affected, then only they need to be appraised. For example, silver prices may fluctuate wildly and coverage amounts from a year ago may not be sufficient today, or vice-versa. Certain art may escalate rapidly due to the death of an artist, special gallery showings, or record prices at auction. It would be prudent to revise those appraisals as well.

Some insurance companies now have in place special coverage which will actually pay a homeowner up to 150% of the stated coverage amounts in the event of a loss. Others may increase coverage amounts on an annual basis at a stated amount. It might be wise to advise your client to check on their type of policy and how coverage is handled.

The best advice is to have clients check their coverage and appraisals every year, even if no revisions are made or suggested. Most will not.

An updated appraisal does not necessarily mean higher premiums – even if the stated amounts have risen. The insurance company may have changed their rates and lowered certain categories. They may have lifted restrictions. They may have designed new pricing features and add-ons. One never knows.

If I were an astute appraisal marketer, I would probably design a letter to go out automatically at the anniversary of every client’s appraisal suggesting that a review be undertaken. This would provide assurance that coverage amounts are adequate, that any additions or deletions are noted, and that the cost of such an update would probably be a lot less in the long run than having to do an entirely new appraisal in 5, 6, or 7 years. Hope this helps. I would welcome other suggestions.

5 WAYS TO MAKE A BETTER REPORT

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.


There are always ways to make a report better, whether in content, form, or persuasion. A better report is one that is readable, easily understood, and conveys the answer to the client’s problem in a meaningful way. Read my latest ISA Now blog post for five suggestions to consider when improving the transmission of the appraisal.

1. Clarity
A report should be clean and orderly, both in textual content and in appearance. It should clearly state the client, the intended use and users, objectives, and all the elements on the ISA checklist. Whether a report is narrative, like a letter addressed to a client, or a chart type form with repeated boxes or tables for information, it should flow in a logical and methodical way.

Any intended user of an appraisal report should be able to understand what the appraiser did and what steps were taken to reach the final value conclusion. The scope of work should be addressed sufficiently so that even the research and analysis performed will be evident.

Clarity involves the written report appearance as well. It should follow grammatical rules and be free of punctuation and spelling errors. The numbers, when given, should be plain and not confusing. Parts of the report should be labeled and follow the steps of the process from beginning to end.

2. Headers or Footers
A report can be custom tailored for every assignment. This includes a unique header and footer with specific information that identifies the report. Some use a footer to include company and client name, effective date, addresses, emails, and phone numbers. Due to the ease of word processing programs, these effects are no longer difficult or time consuming.

3. Report Segments
It is relatively easy to construct an ISA report that includes a cover section, a body, and an addendum. Although we do not normally label these segments, it is wise to differentiate between them in the text. Starting a report with the appraiser’s qualifications is usually not a good idea since it is part of the addendum. Addendums, for a very good reason, normally fall at the end.

The USPAP/ISA certification is part of the cover segment of a report. It can follow the itemization and valuation, but should be labeled to separate it from the rest. Often it is included in the narrative as the ending to a cover segment. Remember that the cover section is appraisal specific. The body is item specific.

Use the addendum in an expanded fashion. It is a great place for an item-specific glossary, a grading scale, artist biography, and supporting documentation. It would not be out of line to have an addendum that contains more pages than the rest of the report.

4. Photographs
Photographs are not a requirement for any report, even an IRS one (the taxpayer is only responsible for providing a good photograph of an item for donation if it is over $20,000). However, particularly in an age of digital photography, you should include photos whenever possible.

Learn to use your camera well. Make every attempt to deliver sharp and realistic photos, including close-ups of signatures, hallmarks, and specific identifying characteristics. Use white space to enhance the presentation and label the photographs when possible. Put them in the body, next to the item description. If one is using comparable sales and a reasoned justification, adding pictures of the comps is extremely beneficial. Do not cut corners using photography.

5. Avoid Needless Repetition
Many appraisers use templates. Some templates are not appropriate for all intended uses and may contain information not required or useful in a specific circumstance. Proofread your reports and delete unnecessary and/or duplicate information. This is particularly true when people try to follow checklists and often duplicate material to ensure it is present.

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.

What is the Difference Between the Distance Education Formats

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.

Question: What is the difference between all of the Distance Education formats that ISA has to offer?

Answer: ISA offers three types of distance learning experiences for our students, all of which are excellent venues that provide a class catered to their specific needs. They include the following: regular “Distance Education,” “Self-paced Online,” and “Live Online.”

Regular Distance Education

Regular Distance Education is the “old” version or original version of the process. Students receive their textbooks, a tracking sheet for assignments, and are assigned an instructor who will communicate with them on a regular basis, answering questions and grading lessons. These communications are done via email at the pace of the student. There are numerous assignments or lessons that must be completed after reading chapters in the manual. They are sent to the instructor for grading and are returned as a PASS or a REVISE. The student may not continue until each section has received a PASS. The instructor will offer guidance and review the material on a timely basis. The instructor may be available for a review prior to the final exam, which is usually given via proctor at a local university or institution.

Generous timeframes for the courses are set at the outset with the possibility of extensions. Students proceed at their own pace and are not reminded (pestered) to proceed. Most students have some difficulty in completing these quickly since outside influences often conflict with study time, but they do provide an easy option for those not able to take an on-site offering of the same class. The Core Course in Appraisal Studies, the Requalification class, and the two specialty courses (Antiques & Residential Contents and Fine Art) are all available in this format.

Self-Paced Online

Self-paced online is basically the typical home study version that allows the student to read the material, watch a short video, and then answer assessment questions according to their own schedule. Interaction with an instructor is minimal, but a few assignments are still required that need instructor’s personal approval. A final exam is given, usually administered through the learning program.

We call this the Online Learning Center. Students may send messages through an online forum and progress is tracked automatically as the student continues. The Core Course in Appraisal Studies is currently the main course presented in this manner.

Live Online

A live online class is a webinar type program that uses your computer and/or phone lines to join the class with other students. It is done at specific set times with an instructor who lectures using video chat. Students can usually see the instructor and watch a side screen at the same time. The instructor may use video, power point, or other documents to enhance the presentation, just as on does in a classroom.

Students will be asked to participate by answering questions posed by the instructor. Short breaks may be given during the presentation, especially if the class is over one hour in length. If an exam is given, it may be administered in an online fashion, although most of these courses at present do not include exams, except for the 15-Hour initial USPAP. Attendance is kept by tracking participation by the instructor. This format only requires the use of a computer with microphone/audio capability. The ISA Requalification Course and the USPAP 15- and 7-hour courses are presented in this fashion.

What are some arguments for photographs in a divorce appraisal when one party asks that they not be taken?

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.

Question: I am working on a divorce appraisal. One of the spouses asked that photographs not be taken during the onsite inspection. What would you suggest be my argument for insisting that I be allowed to take photographs? I would rather not do the appraisal without being able to take photographs, especially since I already completed the onsite inspection of the contents of the other spouse’s condo and photographs were allowed then.

Answer: The answer depends not on what I say, but what your contract states, if you have one. The first issue is not the photographs, but the client and/or intended users. If the court has ordered you to do the appraisal and it acts as the client, even though you will be paid by the arguing spouses, and if taking photographs is your normal procedure, then you should take the photographs or go back to the court and explain the problem.

On the other hand, if the spouses are your client(s), then a request by one not to take photographs must be approved by the other. It should have been stated in the original contract as part of the scope of work and agreed upon by both. If the other spouse agrees, then you can decide whether doing an assignment without the use of photographs is something you can or want to do. (It’s your choice.) It could be done as a limiting condition with critical assumptions listed in the report.

The fact you have already taken photographs may cloud the issue, but you do not have to include those photos in the report. They could stay in the workfile.

I once had a divorce situation where I did the appraisal but did not include photographs in the report. Months after the report had been delivered, I received a call by “the other side.” (I had been contracted by only one party.) They requested the photographs. I refused stating they weren’t my client and needed permission by my client or an order from the court, which they eventually received and I had to turn over the photographs.

It turned out the request for photographs had nothing to do with my work or any part of the valuation. They were looking for evidence of someone else living in the matrimonial home, which was supposedly at the heart of the complaint.

Does the IRS require photographs for an Estate Appraisal?

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.

Question: I have talked with several of my fellow appraisers about how best to include photographs with an estate appraisal…It seems a waste of trees, my time, and the client’s money to try to print a large numbers of photographs in a report. Can the photographs be put on a disk and appropriately numbered or named so that they reconcile with the items in an appraisal? As you’re well aware, when photographs of appraised items are reduced in size to fit an item description in a report, they frequently become unreadable.

Please give us the definitive answer. What does the IRS require?

Answer: The IRS regulations do not address the issue of photographs in an estate appraisal. They do address the issue in a donation appraisal but state that the taxpayer is responsible for submitting a clear photograph if the item claimed for a deduction is over $20,000.

However, the appraiser is responsible for providing a fair market valuation based on the facts that support it, including sales comparisons with other pieces. Identification is the first part of an appraisal process. Descriptions may be incomplete or inadequate. A good photograph will assist in clearly visualizing the piece. In addition, part of an analysis is certainly the comparison of item being appraised with items that have actually sold. Comparisons without photographs are sometimes difficult. It’s always better to have a photograph of the item and, if warranted, photographs of any comparables.

Often an estate consists of rooms of general household furniture and items of minimal value. It makes no sense to do individual photographs. I would suggest group or room shots. Items having significant value should have individual shots. Those of even higher value might require numerous shots including those of comparables. Use your common sense.

I wish I could give you dollar levels or thresholds, but there are none. One must decide if or how many photographs support the claims. On the other hand, if photographs are not clear or distinct, what point is there to including them?

The ISA Report Writing Standard currently does not require photographs for appraisals. It does require a statement be made about the use of photographs, if applicable. I would suggest that a change in this standard is imminent. I think that every assignment warrants the use of good photographs, unless otherwise specified. It makes no sense in the world of digital photography to skimp or ignore their importance or use.

Deducting materials? Is a written appraisal required or do they just submit receipts?

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.

Question: An artist is donating a work to a museum. I understand they can only deduct the cost of the materials, which in this case is over $21,000. Since this amount is over the $5,000 threshold, is a written appraisal required or do they just submit receipts?

Answer (from Karin Gross, Office of the Chief Counsel for the IRS:Yes, the artist needs to have the work appraised. The fair market value allowed would either be the cost of the materials or the value based on comparable sales – whichever is less. (Just because an artist has $21,000 in materials doesn’t mean it would sell for that much.)

Aside (Leon): The item must be appraised for fair market value using the sales comparison approach. If the comparables suggest the piece has a fair market value of only $5,000, that’s the amount – not the $21,000. Very interesting!

Trivial Pursuit III
Tidbits Taken From our Core Course Exam
These statements are ALL TRUE!

1. A USPAP certification must be proceeded by the words identical or similar to “I certify.”
2. An electronic signature is acceptable in an appraisal report.
3. The present worth formula is often used in an appraisal blockage analysis.
4. Age-life depreciation is often applied without discrimination to the property’s condition or to the property’s level of use.
5. Appraisers are responsible for recommending to their client if authentication should be done.

Ask Leon: I was asked to do a local radio show and need six points to give them to ask me questions. Any ideas?

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.

Question: I was asked to do a local radio show and need six points to give them to ask me questions. Any ideas?

Answer: The key to any good interview is having the right questions to answer. That means one should suggest the types of questions to ask. (This will not only ensure you have the correct answer, but does a lot of work for the interviewer. You make their job easier. They will be happy to use your questions.)

Here are six I would suggest:

1. What makes a good appraiser?
2. How can you make sure you get a good one?
3. Do appraisers specialize in certain areas?
4. Is there licensing for appraisers and is that important?
5. Are there different types of values or costs for personal property?
6. Does one need a written document when one gets an appraisal?

That’s certainly not all of them and maybe it isn’t even a great list, but it sure gets the ball rolling. It allows you to speak confidently about your qualifications, the uniqueness of ISA, and makes everyone look smarter, both you and the interviewer. They will thank you for it.

Trivial Pursuit II
Misconceptions taken from our Core Course Exam
These statements are ALL FALSE!

1. Value is defined as the amount of money paid for an item of personal property.
2. The IRS requires that an appraisal report for the intended use of filing for a charitable contribution include a statement of original cost.
3. Revenue Procedure 96-15 outlines the format and types of market research required when writing Federal tax appraisals.
4. Replacement cost new considers wear and tear and economic obsolescence.
5. ISA appraisal standards mandate that all appraisal reports be in narrative form.

Ask Leon: How can I appraise something that is reportedly non marketable?

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.

Question: How can I appraise something that is reportedly non marketable? I have been asked to appraise paintings owned by a government agency for insurance coverage.

Answer: The answer is found in the Core Course manual in lesson 3 (page 3-8). One normally uses the cost approach to value or estimate the cost of non-marketable property. As we know, the cost approach is based on the cost to reproduce (reproduction), produce an equal substitute (production), or the cost to purchase. In the event of a painting owned by a government agency that can’t be sold, here are a few guidelines:

1. What would it cost to have a competent artist duplicate the painting? (This assumes the original artist is deceased and can’t paint another.)
2. What would it cost to have an artist make a suitable equivalent? (The artist should have a similar standing within the art world as the original artist.)
3. What would it cost to purchase the piece if it were available in the marketplace? (One can use the sales comparison approach to gather data and adjust for inflation, location, timing, or find similar paintings available in the marketplace at retail settings.)

Trivial Pursuit
Misconceptions taken from our Core Course Exam
These statements are ALL TRUE!

1. The value to be determined for divorce cases is based on individual state or Provence laws.
2. The IRS qualified appraiser definition does not include a requirement to be at least 25 and a resident of the US.
3. Change in condition is not a type of obsolescence. It is physical depreciation.
4. Auction company estimates are not values. They are used as marketing tools or a guide for buyers and sellers. They may have no relationship to the real value of an item.
5. Authentication is not absolute. It is an informed and recognized opinion.

Ask Leon: How Do I State My USPAP Compliance?

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.


Question: Could you please let me know, unequivocally, how I’m supposed to state that I am up to date on my USPAP?

Answer: This is one of many versions of the same question that seems to be foremost in our members’ minds. USPAP is a set of minimum standards-not a certification or accrediting organization. One belongs to ISA-an appraisal organization that mandates their members write appraisals according to USPAP and ISA Report Writing Standards. This requires members to take an initial 15 hour USPAP class and a 7 hour update every 2 years. If you have, you are in compliance with those requirements. You are required to write your reports in conformity with those standards and provide an attestation (a signed certification) that is an integral part of the appraisal.

Since we have previously discussed the fact that taking the USPAP class (15 hour and/or 7 hour updates) does not provide any kind of “certification” to the appraiser, it becomes important to be able to demonstrate and express to the public and our clients that we are following the rules and are current in our ISA membership and the requirement that we attend USPAP courses on a regular basis. This is done by including the attestation (certification) in our report.

Often, however, this is not sufficient for advertising or explaining our credentials to the public. I would suggest a declaration similar to the following that states exactly your position.

I am an ISA member (either member, accredited member, or certified member) in good standing, having fulfilled all the membership requirements including the completion of mandatory USPAP classes. My reports are done in compliance with the current version of USPAP and the ISA Report Writing Standard.

FAAQ

(Frequently Asked Appraisal Questions)

Question: Are photographs required for estate appraisals?

Answer: To my knowledge there is no requirement for photographs for estate appraisals. It is always a wise idea, particularly if it is a significant estate. Remember that a picture is worth a thousand words. It will certainly clarify your descriptions and allow the IRS to decide whether the comparable sales are indeed comparable and accurate. (I would use common sense in my use and placement of the photographs. Not every single item needs one, particularly if they are nominal items. Room shots would be appropriate in those cases.) It’s always better to have more than necessary – even if they are only kept in the files.

Question: One of the guardians that I do work for needs a letter of opinion. I usually do this instead of an appraisal due to the fact the contents of the condo are pretty much worthless (everyday items totaling less than $500, if sold at an estate sale), but the probate court needs a letter. I usually state in a letter to my client that the contents should be donated or disposed and I don’t put down a dollar amount. 1. Should I put down a dollar amount? 2. If I don’t put down a dollar amount is it still an appraisal?

Answer: According to both USPAP and ISA, an appraisal is an opinion of value. This can be expressed as a single number, a range of numbers, greater than or less than, or something in relationship to a previous value opinion or numerical benchmark. For example, if you say something is worth more than zero but less than $500 (or use the term “junk”), it is still an opinion of value from someone calling themselves an appraiser. As such it must include all the elements of a properly prepared appraisal.

There’s no reason, however, that you can’t provide this to the client in a form or template. This would contain all the elements, including the USPAP certification. The “body” of the report would be a short description of the property (could be the entire houseful) with an opinion of the value-even if it is “worthless.” It wouldn’t take that much extra effort to provide this to your client, still keeping expenses low. This would provide the client exactly what they need and make your performance a lot more professional.

No New USPAP Revisions

By Leon Castner, ISA CAPP, Director of Education

Every time we see the passing of another year, we must consider whether any significant changes have been made in appraisal standards, either ISA or USPAP. Since USPAP is on a two-year cycle, any new revisions will be announced and become effective as of Jan. 1, 2016. That gives us a full year of relief from learning and practicing any changes.

That’s not to say that one should be unaware of communications given by The Appraisal Standards Board, since advisory opinions and notifications are provided on a frequent basis.

The last, for example, was on advice given about how one must state which approach or approaches to value/cost were used in a report and which one or ones weren’t. This guidance was delivered by way of an Oct. 28, 2014, “Q & A” announcement explaining the exclusion of approaches. It stated that simply stating “an approach was not developed” does not meet the USPAP requirement to explain why it was not developed. Stating that an approach was not necessary, without providing some basis for that opinion, fails to meet the definition of explain. The report must explain why an excluded approach is not necessary for credible results.

In another Q&A, the board commented on a question about the term “USPAP Certified.” Numerous advertisements and resumes seem to describe individuals who have completed the USPAP course as certified. The board said there is no such credential. The use of the expression “USPAP Certified Appraiser” is misleading. Completing a USPAP course does not entitle one to call oneself a USPAP Certified Appraiser.

Although we have commented on these issues and addressed them in Education Update newsletters, it is a welcome reinforcement of our earlier comments. So just because the current standards remain in effect for the upcoming year, it is a wise idea to keep your eyes and ears open for any clarifications or amplifications that may be issued.

Ask Leon: What is correct in determining fair market 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.

Question: The past three reports graded for D&R all used solely auction results for determining fair market value. The existence of a valid retail market was totally ignored. What is the current teaching of the concept in the core course?

Answer: The IRS definition of fair market value for an estate (Section 20.2031-1(b) adds the clarification that the determination should not be based on forced sales, markets other than that which such items are most commonly sold to the public, and takes into consideration the location of the item when appropriate. If items are most commonly sold to the public at auction then that would be the appropriate market. Many items, however, are sold in various markets. It is the appraiser’s responsibility to select the correct market and substantiate the value. Auctions are often used not because they are the most common market but because they are easy to locate and have published transactions. A dependence solely on auction sales is not correct. Where the most common market is retail every effort should be made to use those sales in the final determination. This is probably more likely in the fields of art and/or jewelry/gemstones than in normal used furniture and decorative art. Be aware that the IRS has written that even sales resulting from classified ads are acceptable.

New Report Requirements

EFFECTIVE SEPT. 1, 2014

The ISA Board of Directors has approved the following new report requirements for our accreditation levels in ISA, effective as of Sept. 1, 2014. Those involved in the process of receiving their AM or CAPP designation will be allowed to finish under the old requirements, but any new applications will reflect these new guidelines.

Member Level: As part of the member level process that includes satisfactorily completing the Core Course for Appraisal Studies, each applicant must submit an appraisal for the intended use of a Federal (US/Canada) tax submission. This is done during the Core Course and must be passed as part of the course requirements. (This is our current requirement and does not change.)

AM LEVEL: As part of the AM process, each applicant must provide an insurance coverage appraisal that consists of five items in one’s specialty. For ARC, the list includes one from each of the following categories: silver, furniture, glass, ceramics, and textiles. For FA, the list includes one from each of the following: painting, sculpture, print, watercolor, and frame. The appraisals must be both USPAP and ISA compliant and demonstrate competency and expertise in the specialty areas. All other product areas must be submitted to the Specialty and Advanced Studies Committee (formerly Specialty Studies). They will provide guidance in terms of the five specific items. Applicants will have 45 days from the end of their specialty class (or application if in SASC) to submit their reports.

CAPP LEVEL: Candidates for CAPP must still sit for the CAPP exam and provide an appraisal report for Designation & Review grading. This report will be a Broad Evidence Report that requires the member to show competency in both methodology and product expertise. The applicant will choose three items in their specialty as if they were part of a claim. They will be asked to provide the following information: fair market value, replacement cost, salvage or scrap value, and loss on value. A specific scenario will be provided upon application. Time limitations will be similar to the AM level. (Please check the CAPP application packet for additional details.)

Notes: These new requirements were issued based on recommendations submitted by the Credentialing Task Force set up last winter. These changes will improve the level of our credentialing process and not duplicate requirements. Each member of ISA will have submitted a formal Federal appraisal for grading. Each AM member will have shown expertise in product knowledge application in an appraisal report done for replacement costs. The CAPP level will demonstrate a candidate’s proficiency in applying different appraisal objectives to the same property. These standards are clear, easy to implement, and provide more uniformity in grading. Guidelines and timelines will be provided to all applicants and graders.

Future Revisions to USPAP

The Appraisal Standards Board has issued their third exposure draft of proposed changes for the 2016-2017 edition of USPAP. Although the last thing on your mind is what might occur with USPAP in 2016, it does give rise to pondering issues that are sure to be significant in only a few years. Since the ASB is requesting comments on these proposals, I thought it might be wise to list a couple of them that might raise an eyebrow and even result in a few of members taking the time to put their thoughts on paper.

• Changing the definition of an appraisal report to any communication of an appraisal or appraisal review to a client or authorized party that includes a signed certification. (Oral reports will still require the certification to be included in the workfile.) This will allow other correspondence sent between appraiser and client to be considered as preliminary and/or a “draft.”
• Drafts must be clearly stated as “drafts” and that the opinions rendered are subject to change. They must not contain a signed certification. These communications must be kept on file or in file until superseded by the subsequent report.
• Appraisal review reports may be exempt from the requirement to report the effective date of the review, unless it includes an assignment to value the property.
• The ASB is suggesting retirement of ALL Statements on Appraisal Standards.
• Any fees paid for the procurement of an assignment must be disclosed including referral fees or fees associated with a delivery system required by the client (a portal).

As you can see, revisions and issues never stop. These are only proposals, but this is the last draft for public comment. Go to www.appraisalfoundation.org for more information or to submit any personal comments.

Leon Castner, ISA CAPP

Ask Leon: What to do when people want you to appraise everything

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.

Question: I just finished the Core Course. I was at a party and I mentioned the class. Now people want me to appraise everything including stamps and rings. How on earth do I start appraising rings? (J.M.)

Answer: The short answer is that you only appraise what you are competent to appraise-no matter what class you took. However, we all have general specialties, either fine art, antiques & residential contents, gems & jewelry, etc. It’s the next step in the education and membership process. Take a specialty class! It will provide guidelines for many of the things you will encounter on a fairly regularly basis. However, classes do not take the place of hands-on experience, which one learns diving into things. In a sense, it’s like a Catch 22-if you recall the old Joseph Heller book. (You shouldn’t appraise items you’ve never done but you can’t get to the next step until you actually appraise them.)

Many of our members have a mentoring process and/or use interns and new appraisers. They assist the appraiser in physical examinations, research, and ancillary jobs that provide them training in items they may not be qualified to appraise on their own.

We learn by doing. Almost every job provides an opportunity to expand our expertise and broaden our specialty field and, yes, we often encounter items we haven’t seen. (The methodology you’ve learned usually applies across the board.) How else does one learn to skate or swim or ride a bike without attempting to do it?

Of course, I think one should be very careful about tackling a type of item they’ve never done before, particularly if it falls out of the general category of one’s background and interest. After all, we not only have ourselves to think about but our clients and third parties! (If our bike crashes they go down as well!)

To your particular question: Stamps are a paper collectible that are not the same as furniture, glass, or art. If you’ve never heard of a Scott’s number or a perforation, stay away. “Rings” could be anything, but in all probability involve precious metal and gemstones. Having no training in either leaves one up the creek without a paddle (and probably without a boat).

That’s why we love to network at ISA. We can often share our assignments with those who are competent. We can send emails and digital photos. We can ask questions and be the eyes and ears for others more qualified. As we share we begin to see the fruits of our labor. Our own expertise begins to grow and we develop a strong network of associates. The business pie gets bigger…and so does our slice.