USPAP Advisory Opinion 21: Valuation Services and Appraisal Practice

Meredith Meuwly, ISA CAPP
Director of Education

Your education team and I wanted to share some examples on how USPAP Advisory Opinion 21 applies to your business as you perform appraisals and valuation services. The examples below are taken from the USPAP FAQs, amended to relate to personal property appraisers, and explained how they affect you.

Example 1

Robert Agent is an individual who provides both brokerage and appraisal services. What are Robert’s obligations under USPAP when preparing a broker’s price opinion (BPO)?

Answer: USPAP provides flexibility for brokers/appraisers and others who have multiple professional roles.

If providing the service as an agent or broker, USPAP requires only that an appraiser must not misrepresent his or her role. In other words, if Robert was contacted by his client because he is an art consultant or broker and signing his report as a consultant or broker, then Robert need not comply with USPAP except to not misrepresent his role. If Robert is contacted by the client because he is known as an appraiser and is signing his report as an appraiser, then USPAP applies.

What does this mean for an ISA personal property appraiser?
Many ISA members wear multiple hats. You might be an art advisor, antique store owner, fine art gallery manager, estate sale person, auction house representative, broker, etc. The most important thing is that you let the client know up front what services you offer and how the services differ from one another. Once a client chooses a service, make it clear which hat you are wearing for that particular assignment. For example, if you offer art advisory services a client might hire you to advise them on what pieces of art to purchase for their collection. This assignment might involve market research, a suggested purchase price or price range for a particular item, negotiating a deal to purchase a piece of art, etc. In your role as an art advisor USPAP would not apply, except you could not misrepresent your role. However, if after purchasing the art the client then wants you to write an appraisal for insurance coverage you are undertaking a new assignment as an appraiser writing an appraisal. For this assignment, you must follow USPAP.

Example 2

Marie Vaughn has a diverse practice with a specialization in litigation services. She commonly aids attorneys in developing cross-examination strategies for expert witness testimony from appraisers. How does USPAP apply to Marie’s "litigation services?"

Answer: In order to determine Marie’s obligation, it is necessary to understand the nature of her role. If she is acting as an appraiser, her litigation services are part of appraisal practice. The PREAMBLE, the DEFINITIONS, the ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE will apply to the assignment. As an appraiser, Marie cannot act as an advocate for any party or issue.

If Marie’s services include providing an opinion of value, she must also comply with the appropriate appraisal standards (STANDARDS 7 and 8). If Marie’s services include providing an opinion about the quality of another appraiser’s work, the appraisal review requirements of STANDARDS 3 and 4 apply. If the service includes providing analysis, recommendation, or an opinion to solve a problem where an opinion of value is a component of the analysis leading to the assignment results, then Marie must comply with the ETHICS RULE, the COMPETENCY RULE and the JURISDICTIONAL EXCEPTION RULE for the entire assignment; and she must also comply with any applicable Rules and Standards if she performs an appraisal or appraisal review as part of the assignment.

On the other hand, if Marie provides litigation services as an advocate, then she is providing a valuation service outside of appraisal practice. When performing services outside of appraisal practice, Marie can act as an advocate and accept contingent compensation. The only USPAP obligation is that she not misrepresent her role. She must use care to distinguish her role from other roles that would carry an expectation of being impartial, objective, and independent, i.e., acting as an appraiser.

Marie may provide litigation services by either acting as an appraiser or acting as an advocate for the client’s cause; however, she must not perform both roles in the same case.

Plain English Please?
Sometimes, in the course of litigation, a judge will order an appraisal be performed of personal property. If you have been asked to provide an appraisal for litigation, then you must follow USPAP, specifically Standard Rules 7 & 8. Why? Because where the law requires an "appraisal" be done (for example, most states will require an "appraisal" by statute for probate), then you must act as an appraiser and follow USPAP. If you have been asked to review another appraiser’s appraisal report as an expert witness and submit that report in writing, you are also acting as an appraiser (See USPAP Standard Rules 3 & 4, the rules for Appraisal Review).

When acting as an appraiser, in either an appraisal or an appraisal review, you must maintain your neutrality. Being neutral does not mean that you cannot point out the flaws in another appraiser's report; in fact, that was what you were hired to do. Instead, it means that you must do so in a neutral and factual manner. If the other appraiser did not follow USPAP and claimed to do so in his or her report, simply state that. And, state how the failure to follow USPAP led to either flawed value conclusions or perhaps shows a lack of professionalism. Similarly, if providing values (i.e., an appraisal under Standard Rules 7 & 8), you can also remain neutral. One way to check yourself is to ask whether your final value conclusions would be different if you were working for the "other side." If your answer is no, then you are maintaining your neutrality.

Generally, if giving testimony or providing a written appraisal report that will be admitted into evidence, you should act as an appraiser and maintain your neutrality. First, expert witnesses are expected to be neutral. Of course, this does not always happen. But if the jury suspects an expert is acting as an advocate, their opinion will quickly be dismissed. Second, if a judge determines that the expert is acting as an "advocate" or "hired gun," the expert’s testimony will likely be disqualified. Finally, as an appraiser, and particularly as an expert witness, you have a reputation to protect. Every bit of testimony and every report that goes into a court can become part of the public record and available for anyone to see. That means when you get back on the stand in another case three years later, you should not be surprised if you are cross-examined on opinions that you gave in an earlier case. You cannot "flip" your opinion without good cause. The best way to do this is to remain neutral.

So, when would you be an advocate in litigation? In most instances you might act as an advocate (and NOT an appraiser) when you are acting behind the scenes and providing litigation services. For example, a law firm might hire you to give it opinions about an appraisal report, but not ask you to serve as an expert witness. An attorney might hire you to explain appraisal methodology to him or her and help draft cross-examination questions for an appraiser. Or, you might be hired to help one side develop a strategy for success in a complex case where the appraisal methodology might be particularly complicated. In these situations, you can act as an advocate. And, when acting as an advocate you CANNOT act as an appraiser because then you are not maintaining your neutrality.

Example 3

Chris Filo is an art appraiser and advisor who has an assignment to advise a client regarding a potential art purchase. The client has provided Chris with an asking price for the work. Chris has made the extraordinary assumption that the value provided is credible and will use that value as part of the analysis before making final recommendations. Which parts of USPAP apply to this assignment?

Answer: Chris must comply with the ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE for this assignment.

Because this assignment does not include an appraisal or appraisal review, neither the SCOPE OF WORK RULE nor the RECORD KEEPING RULE applies. In addition, there are no development or reporting standards applicable to this assignment.

What’s the message here?
Remember that if you are acting an appraiser and providing appraisal services (i.e. a valuation analysis without a full appraisal report), then you are still subject to the USPAP ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE. If you are an advisor and providing valuation services, then you must not misrepresent yourself.

Example 4

Jane Doe is an antique dealer who offers a variety of professional sales and advisory services to her clients. She is an antique dealer, consultant, authenticator, advisor, and is also a certified appraiser. Jane has been asked by a client to perform a service that is viewed by Jane and her client as a consulting service that relates to value, but is to be undertaken by her in the role of a broker/consultant, not as an appraiser. Which parts of USPAP apply to Jane in this assignment?

Answer: Individuals may fulfill different roles in different assignments. In general, USPAP applies only when an individual is acting as an appraiser. As long as it is clear that Jane is not performing as an appraiser, Jane’s only obligation when acting as a broker/consultant is stated in Conduct section of the ETHICS RULE, which states,


"An appraiser must not misrepresent his or her role when providing valuation services that are outside of appraisal practice."

What’s the take-home?
Remember that the "main purposes of USPAP are to protect the public and to promote public trust in the appraisal profession." This means that you must:

1. Make it clear up-front which hat you are wearing.
2. If you switch hats mid assignment, then it is a new assignment.
3. Properly advertise your services. If you currently advertise only as an appraiser, but perform other services, you should change how you are advertising your services. Why? Because if you advertise only as an appraiser, the public is calling you as an appraiser. If you then try to "switch hats," you will be misrepresenting yourself.

Meredith Meuwly, ISA CAPP,

Protecting Your Collection and Your Wallet: What You Could Lose If You Suffer a Loss Without an Appraisal

Kirsten Rabe Smolensky, JD, ISA CAPP

As an appraiser, I have worked on a lot of insurance claims, including losses due to fire, theft, transit damage, and flood. The number one mistake most insureds make is not being prepared in advance.

Imagine that your house has burned to the ground and everything inside it destroyed. The insurance company requests an inventory of EVERYTHING inside. Do you know how many kitchen pots you have? Shoes? Tools? Most people remember the large, expensive items, but forget numerous smaller items. These items add up quickly.

And, those large, expensive items? They may or may not be covered depending upon how your policy is written and whether you have the appropriate riders in place. Most insurance companies will require an appraisal to insure these items.

This article will help you prepare for a potential loss. Some steps you can take on your own, but others will require the assistance of a professional appraiser.

Understand Your Homeowner’s Insurance Policy

The biggest problem I see after a devastating loss is underinsurance, meaning that homeowners suffer a loss yet fail to recover tens of thousands of dollars just at the time when they have lost everything they hold dear. How do you prevent this?

Every insurance policy is different and you should work with your insurance agent to understand how your policy works. However, there are a few common traits most homeowner’s policies share. If you understand these commonalities, you can ask the right questions to ensure that your coverage is adequate.

Take steps to insure your home - and its contents.

Most homeowner’s policies have a total coverage limit for household contents that is based upon a percentage of your home’s value. For example, if you have a $400,000 home, you might have 50% in personal property coverage ($200,000) or you might have 75% in personal property coverage ($300,000). You need to know what that amount is and feel confident that you can replace every item of personal property in your home, from fine art to furniture to clothing, for that amount. If you are buying furniture from designers, have some nice rugs and fine art, or are a collector, these limits can be easily exceeded. If you have expensive tools or lawn equipment in your garage, you should also consider those items.

Next, even if that limit appears sufficient, your policy may have special limits for certain categories of items. Most homeowner’s policies have dollar limits on jewelry, fine art, rugs, silver, collectibles, antiques, guns, etc. The limits generally range from a few thousand dollars to $5,000 or $10,000 per category. However, if you have two or three nice rugs or pieces of fine art in your home, you can quickly exceed those limits.

For example, assume that you have three nice, original paintings in your home. You inherited one and are unsure of its value, you purchased one ten years ago for $3,000 and you recently bought a third painting for $4,000. At this point, you know you have at least $7,000 worth of fine art. If you have a $5,000 special limit on fine art, you will need a rider adding coverage to your homeowner’s insurance. Otherwise, in the event of a loss of the three paintings (and any other fine art you may own) you will only be reimbursed up to $5,000, regardless of the total value of the paintings. So, if the inherited painting turns out to be worth a fortune, you just lost it. Adding a rider, or additional special coverage, to your homeowner’s policy will protect against that loss. And, it will often require a professional appraisal of the paintings in advance. Understanding your policy and making sure you have adequate coverage is crucial to protecting yourself against such unanticipated losses.

Be sure to keep track of all your antiques and collectibles,
not just fine art.

The most common mistake that I see clients make is that they remember to get their jewelry appraised but forget about their rugs, silver, antiques and collectibles. Make sure you ask your insurance agent the right questions and fully understand your homeowner’s policy.
I recommend having a conference call with an appraiser and your insurance agent so that everyone can be on the same page as to which items need to be appraised. Many competent, ISA-trained appraisers can help facilitate a discussion with your insurance agent to ensure that you get the necessary items appraised and properly insured.

Create an Inventory

Create an inventory of items that you own. This can be done on your own or with the assistance of a professional appraiser. A written, photographic, or videoed inventory can mean the difference between coverage and non-coverage.

The purpose of an inventory is two-fold. First, it proves to the insurance company that the items existed and were in your home. Second, a good inventory will provide details about the items (type, style, quality, condition, brand, etc.) that will ensure accurate replacement should replacement become necessary.

If you do not want to do this yourself, or fear you may not know what information to capture, many appraisers will create an inventory for you. If you know you have valuable items that will require a rider, then ask the appraiser to create an inventory for you while they are already on site appraising your other items.

Take stock of all the contents of your home and garage -
You may be surprised at how much you own.

Many appraisers can photograph every room of the house in an organized, orderly fashion that is easy to follow, and focus on the more valuable items. Appraisers generally have a good eye for value and quality and will know what objects to focus on and what types of photographs to take, but we never want to miss anything that is important to you. Make sure that you point out items in advance that you know are particularly valuable or important to you so the appraiser knows what to capture.
Photographic inventories can be invaluable in the event of a loss, and I generally recommend clients store photographs on a flash drive (or two) and keep at least one flash drive off site in a secure location.

Keep Good Records

For those expensive purchases, including jewelry, fine art and the riding lawn mower in the garage, make sure that you keep receipts. Insurance companies will often ask for proof of purchase price for expensive items, particularly if they are not listed on a rider prior to the loss and/or you paid cash for them. Keep copies of the receipts in a secure location offsite or digitize them and save them in the cloud. Alternatively, you should be able to look up major purchases on your credit card statements. Insurance companies will often accept those records as proof of purchase.

For items such as fine art or an important antique, keeping the receipt may also help prove provenance. Provenance is an item’s record of ownership that is often used to help determine authenticity, quality and ultimately value. An item with a good provenance often has more value than an item without a provenance. Keeping good records should become a habit whenever a substantial purchase is made.

If the Worst Happens

Unfortunately, claims sometimes happen. Here are a few things you should keep in mind if you need to file a claim:

1. File your claim as soon as possible. Do not miss the deadline for notice. If you do, you may not be covered.
2. Make sure that when you file a claim it is as complete as possible. If you’ve had items damaged in a move, take an extra day or two to make sure you’ve listed EVERYTHING as long as it won’t cause the claim to be late. If you find items later and add them to the list, it may look suspicious.
3. When asked how old an item is and what was paid for it, be honest and reasonable. When possible support your statements with receipts and/or credit card statements. If you are unsure how much was paid, just say so and explain why. Perhaps the item was a gift or it was inherited.
4. Once you open a claim, keep a file for that claim. The file can be electronic or printed, but it should include all correspondence, any photos, any receipts, all emails, etc. Ideally, you should also keep a notepad handy to record every verbal interaction with the insurance company. Include the date of any call, who you spoke to, what was discussed and how long the call was. Keep a copy of the insurance policy handy too. If you do not have one, ask for it. If you need to hire an appraiser, it may be helpful for the appraiser to see the policy. This will let them know the type of policy and any special limits, etc.

What You Should Do TODAY

Call your insurance company and make sure that you understand your policy. If you have items that need to be put on a rider, call an ISA appraiser and have them assist you in:

1. Figuring out which items should be appraised 
2. Creating an inventory
3. Writing an appraisal for high-value items.

A little bit of work up front can save you LOTS of time, money and frustration should the worst happen.

Kirsten Rabe Smolensky, JD, ISA CAPP is the owner of Minerva Appraisal, LLC, a general personal property appraisal firm offering a full range of professional appraisal services in the Nashville, TN area. She appraises antiques, fine art, silver, furniture, ceramics, etc., and considers herself a "general contractor" of appraisal services.

For more information on the importance of working with a credentialed ISA appraiser and to search for one by location or specialty, please visit the Find an ISA Member page.

Would you like to be an ISA blog contributor? Email us.

ASK AN INSTRUCTOR: What is a reasonable formula to help create an inventory in the estate of a noted historian?

ISA members are invited to send in their questions on all things appraising and education to ISA's instructors. One of ISA's instructors will share answers on the ISA Now Blog. Please send questions to directorofeducation@isa-appraisers.org.

Question: I am working on an inventory in the estate of a noted historian. He’s well known in certain circles, but not a household name. What is a reasonable formula to assist in this area?

Answer: You ask a difficult and repeated question from many members, i.e. regarding what role ownership plays in determining value. The notoriety or celebrity status of ownership does play an important role in determining value since it is a value characteristic of an item. Unfortunately, there is no formula or set method I can suggest that would provide a quick and easy answer. However, I do have some guidelines that might be useful.

1. Ownership must be viewed in both a short term and long term perspective. Short-term perspective is based on current fads and pop culture. It may affect the value significantly, but is apt to drop rapidly depending on the fortunes and tastes of the fickle public. If Michael Jackson owned a sofa, the value at the time of his death might be considerably more than it is right now. A sofa owned by Elvis might not have peaked. In the long term, one looks for a traditional historical or cultural significance of the owner, i.e. if George Washington owned or sat on it. These examples are much easier to substantiate and document with parallel comparables.
2. The object’s value is proportional to the relationship it might have to the owner’s notoriety or reputation. For example, a cigar humidor owned by George Burns, the well-known cigar smoking comedian, would be worth more than a humidor owned by another celebrity since it doesn’t have that symbiotic relationship. A chair owned by Joan Rivers that sat in her guest room will not have the same value as one she used constantly while hawking her jewelry on QVC. It could be the same chair, but the emotional ties are not present.
3. Notoriety may be select and difficult to market, unless there is an attempt to promote and eulogize to the public. Al Capone’s cocktail shaker sold by Leslie Hindman years ago brought in more than ten times any other shaker would have brought, partially, if not completely, based on the fact that she made a fanciful and very successful effort to publicize the sale, even having all the auction staff wear “gangster” clothing to the preview. Since as appraisers we do not often know if there will even be an attempt to promote and “embroider” the objects, we must be more objective and value them in light of what is currently known and recorded.
4. One of the tests an appraiser must consider is the “highest and best use” of the goods. Although I am not suggesting every single item has another employment that might result in a higher value, it often is worth the time and effort to consider it. USPAP states in Standard 8-2-a-ix that “value can be a function of the current and alternate use of the subject property, the choice of the appropriate market or market level for the type of item, the type and definition of value, and intended use of the report.” What if you had to appraise the Jackie Onassis estate? What would you have done with the strand of costume pearls? I doubt you would have appraised them at over $75,000, unless you were aware that they might be considered a “prop” in an advertising campaign to sell reproductions of the strand.
5. The public can be both more savvy or less discriminating at any given moment. Short-term fads have a way of become even shorter. I would be very cautious of using overnight recognition to base serious value conclusions. On the other hand, narrow areas of knowledge have blossomed in the past few years, and science (scientists) and history (historians) are two of those areas. Part of that comes from the amazing sale results of Nobel prizes and related archives and material owned by prominent and respected world leaders in their respective fields. You are right in considering the fact that a well-known historian’s objects may have added value.

I once appraised the household goods of a “famous” couple who were part of the “housewives of …” television series. They were declaring bankruptcy and the court ordered a bankruptcy appraisal to learn the forced sale value of their assets. The items were appraised based on similar sales of contemporary household goods and accessories in bankruptcy situations. The appraisal was sent in and an auctioneer was chosen to hold the auction. Since even bankruptcy auctioneers have discovered the potency of the Internet, they listed the upcoming sale on their website. In the first 24 hours, they had over a million hits! The trustee called and questioned whether this might be a bigger event with higher prices than anyone had imagined. We decided to write a letter to the court suggesting that the marketing and publicity of the case might alter the outcome and raise the potential proceeds much more than the original values given in the appraisal. To make a long story short, the sale never occurred.

If I could only provide a handy formula, I would probably become the toast of the town (the appraisal town), plus I might get a shot at a few late night talk shows. It certainly would make a good book! (Not a bad idea.) Too bad it just doesn’t work that way.

Awards from Assets 2013

One of the highlights of the ISA Annual Conference is getting to recognize some amazing ISA members and other individuals for their contributions to the appraisal world. Last Monday we held our Annual Awards Luncheon during Assets 2013 at the JW Marriott in Chicago. We’re pleased to acknowledge and congratulate the following award recipients:

President’s Award Sally Ambrose, ISA CAPP	Marketing Matt McNeil, ISA CAPP
Lamp of Knowledge Kathryn Minard, ISA CAPP	Publication Steve Roach, ISA AM
Outstanding Member Francine Proulx, ISA AM	Leadership Cindy Charleston-Rosenberg, ISA CAPP
Distinguished Service Marcene Molinaro, ISA AM	Lifetime Achievement Leon Castner, PhD, ISA CAPP
North Texas Chapter Chapter of the Year	Special Merit Tom Helms, ISA CAPP
Media Meredith Meuwly, ISA AM

Also recognized were our 2012-2013 Committee Chairs, each of whom received Service Awards:

Annual Conference Chair – Judy Martin, ISA CAPP	Ethics Chair – Beverly Morris, ISA CAPP
Awards Chair – Kate Martin, ISA AM	Finance and Audit Chair – Sally Ambrose, ISA CAPP
Bylaws & Governance Chair – Logan Adams, ISA CAPP Life Member	Nominating Chair – Marian Aubry, ISA CAPP
Chapter Relations Chair - Nan Ruth Chardoul, ISA AM	Resource Development Chair – Maureen Winer, ISA AM
Designation and Review Chair – Kathy Yellen, ISA CAPP	Marketing & Promotions Chair – Garrett McCormack, ISA
Divisional Committees Chair – Leon Castner, PhD, ISA CAPP ARC Chair - Martha Peck, ISA AM SS Chair – Scott Hale, ISA AM FA Chair - Christine Guernsey, ISA CAPP	Membership Chair - Marcene Molinaro, ISA AM

Thank you for your hard work, dedication, service and all that you do for ISA! To view some of the pictures from the meeting click here.

New this year, we also had a prize drawing for those attendees that stayed onsite as part of the ISA room block at the JW Marriott. A total of ten prizes were available:

Diamond Prize (1 available): Three night free stay at the JW (over a $700 value) –
Bob Boykin, ISA CAPP
Platinum Prize (2 available): One night free stay at the JW (over a $200 value) –
Linda Marin, ISA AM and Bob Banks, ISA AM
Gold Prize (2 available): $100 off a 2013 ISA course offering –
Eric Claus, ISA AM and Daphne Rosenzweig, PhD, ISA CAPP
Silver Prize (3 available): $100 off 2014 membership dues –
Richard Adams, ISA CAPP, Shell Payton, ISA AM, Susan Tarman, ISA AM
Bronze Prize (2 available): Complete sets of ISA course manuals (a $200 value) –
Diana Williams, ISA CAPP

Evaluations
Please take a moment to fill out the overall conference survey here. If you did not have a chance to fill out the session evaluations via Message Blocks while at the meeting, you can provide session and speaker feedback online. We ask that all surveys be completed by May 20, 2013.

Professional Development Credits
Professional Development Credit claim forms were provided in the conference bags. If you did not turn in your completed form at the meeting – you can fax or email it by May 20, 2013. PDC forms are also available here.