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Tuesday, October 16, 2018

Ask an Instructor: Charitable Donations

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

Question: If a donor incurs expense to remove an article and make it available to a charitable organization, is that expense considered part of the donation? Or if a donor pays for shipping of the item to the charitable organization, is that expense considered part of the donation?

Answer: Unfortunately, no. These expenses cannot be included in the item's fair market value. There may be another way to write off these expenses, but that is a question for an accountant to answer.

- Meredith Meuwly, ISA CAPP
Director of Education

A Really Scary Halloween Story

Kirsten RabeSmolensky,
Recent question:
Does my report meet USPAP requirements and the ISA report writing standards? I copied the template in the Core Course manual.

One of the scariest creatures that I have ever met is the dreaded TEMPLATE MONSTER!! She sneaks into appraisers' templates, making little changes or gnawing at key words necessary for one appraisal and not another, ultimately making items from the ISA checklist disappear. She appears in an appraisal report in the form of unclosed parentheses (example below), or in useless paragraphs that have no particular relevance to the report at hand. Worst of all, she makes appraisers think that they do not need to use their brains! Oh my!! And, while the template monster can sometimes just take a nibble out of your report, sometimes she bites REALLY HARD and leaves big gashes in your USPAP compliance, appraisal methodology, or justified reasoning. OUCH!!

Even if you are using a template that meets USPAP and ISA report writing standards, you need to edit it for EVERY report EVERY time. Each appraisal report is unique, and no two reports should ever be exactly the same. Even with a really good template, you should know that every appraisal report you write will have different requirements. That is why there is a list of items on the ISA checklist that only apply "if applicable." USPAP clearly states that an appraiser must "perform the scope of work necessary to develop credible assignment results." The scope of work will differ for every appraisal report. Therefore, an appraiser needs to understand what they are doing and adjust any template accordingly. Borrowing a template will not guarantee that you are doing a report correctly. This is a common misconception. Instead, as one of my favorite high school teachers used to say, "You need to put on your thinking cap!" This is particularly true when writing your market analysis, choosing your effective date, listing the intended users of the report, etc.

"What were you thinking?"

And for goodness' sake, when copying the USPAP certification statement, PLEASE remove the parentheses. The appraiser needs to make a choice. The sample certification statement provided in Standard 8 of USPAP is an excellent place to start and ISA suggests that you copy it word for word into your templates. BUT THEN, you need to edit it. For example, USPAP Standards Rule 8-3 reads in part:

I have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved.

I have performed no (or the specified) services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. 

You need to either take out the language in the parentheses or explain what your interest was. Did you previously appraise the items for an estate and now you are doing an insurance appraisal of certain items for one of the heirs? Did sell the item to your client two years ago and now you are doing an insurance appraisal? Is the client a friend? Have you discussed with the client the possibility of selling this item at your auction house? If so, then you need to disclose that information in your USPAP certification statement, and this is the perfect place to do it. Change that template!

So this Halloween, make every effort to bust those monsters and ghosts.

Helpful Hints for Avoiding the Template Monster:
  1. Create one good template for every intended use you regularly do. If you add a new intended use to your repertoire, then save a copy as a template.
  2. Highlight, italicize, or bold all parts of the template that should be revised for every appraisal. This includes your paragraph on market analysis. In fact, instead of having any language there you might just have a paragraph that reads "INSERT MARKET ANALYSIS."
  3. After you complete the appraisal report, make sure that you set it aside for a day or two (or at least overnight) and then give it a fresh read from start to finish before you send it out. It is horribly embarrassing (and scary) to send out a report where you fail to edit your template.
Now, go get that template monster!!

Happy Halloween from all of us at ISA!

Friday, September 21, 2018

An ISA Member in the Far East

Khadinn Khan, ISA AM
I was the Chief Claims Adjuster and Risk Surveyor for AXA ART, the global art insurance specialist, in Asia, when I applied for ISA membership in 2016.

Art insurance is still a developing business in the region, where more collection owners or custodians elect to self-insure rather than taking up specialist coverage. I worked with a small team at AXA ART and was the only member with adequate art knowledge, therefore, I was tasked with the responsibility of verifying and approving the sum insured (on agreed value basis) of artworks proposed by brokers and clients on their insurance policies. People began to approach us with items which they thought were of high worth and wanted to insure, including items purchased many years ago or passed down to the family, and expected us to provide a solution or referral for valuation. These requests were particularly common when I was conducting risk surveys at clients’ homes. After a while, it became apparent that if I could add art appraisal expertise to my skill set, it would help to progress my career.

There are a very low number of professional art appraisers in Asia due to lack of demand. In Hong Kong, we have a low tax rate and a simple tax system that provides no tax relief for charitable donations, except for cash contributions. Additionally, estate duty has been abolished, so neither estate duty accounts nor clearance papers need to be filed. With no governmental requirements for appraisal, there is simply limited demand to support professional appraisal businesses. At the same time, China and Hong Kong have emerged dramatically as an art market and are now considered the world’s second largest, according to The Art Market 2018 report published by Art Basel and UBS. The lack of professional art appraisal service is hindering the growth of other financial services, such as art insurance and art-backed loans.

There is clearly enormous potential for appraisers in Asia, but what convinced me to obtain a formal education in art appraisal was my personal involvement in a unique damage claim.

Hong Kong Harborfront © Art Basel 

An auction house client reported a claim for damage to a Song dynasty ceramic vase that was on consignment to them. The damage was a hairline crack to the edge of the base. In these situations, restoration may not be the best option, as the market preference is to avoid alteration on minor damage. We agreed with the client and consignor to settle on a diminution of value basis. As there was no qualified appraiser available to take up the assignment, and because of an urgency to settle the claim, all parties agreed to a proposal of having two antique dealers inspect the damaged vase. Each dealer would separately suggest the percentage loss in value, then we would use the mean as the basis of settlement. In the end, both dealers came up with the exact same extreme percentage, which took everyone by surprise. They did not provide any reasoning or justification of their valuation, and were not obligated to. We had no option but to settle the claim accordingly. This experience motivated me to source an independent, transparent appraisal process for future claims in order to leave no party confused or suspicious. My research subsequently led me to ISA.

Attending ISA courses in Naperville turned out to be one of the best decisions I made for my career. First of all, it was achievable. I was able to start from scratch and complete the Core Course, the 15 Hour USPAP course and Fine Art course in three weeks. The courses were well structured, with visits to art museums and a printmaking studio. The classroom discussions were particularly lively and often based on real-life examples shared by fellow colleagues encountered in their daily businesses.

Coming home with my new credential, I was determined to spread the word and do what was necessary to promote good appraisal practices with the goal of raising overall personal property appraisal standards in the region. Using knowledge I gained through my ISA education, I was able to educate industry professionals and art collectors. I informed bankers and insurance professionals on what USPAP is and asked them to consider USPAP-compliant reports only for their insurance policies or lending out loans. For art collectors, I promote periodic appraisal as part of a good collection management program, together with a robust inventory system, maintaining good documentation of provenance and purchase records, a secure display/storage environment, and adequate insurance coverage. My message is that an appraisal report is essential for accounting and estate planning purposes, or if one wishes to secure loans using their art collection as collateral.

Lecture at Art Taipei Forum 2017

My ISA education helped me a great deal in improving communication with our claimants. Although I would not perform appraisal on damage claims that I directly handle, I could use my knowledge to guide loss adjusters to look for the correct data and comparables, seek opinions from the right experts to determine the settlement offer amount, as well as make sure their communication with the client is clear and appropriate. I demand that the loss adjusters demonstrate clearly how they arrive at the settlement offer. There are always brokers or clients who are dissatisfied with the offers, yet there has never been any complaint on the communication or lack of transparency since. Also, we’ve seen a significant drop in claim disputes for my department and my company was able to highlight our claims service as a selling point for our insurance products. I’ve also noticed in places where there is no local law governing personal property appraisal, highlighting USPAP and the ISA Code of Ethics always provide confidence to clients in knowing that the appraisals are being conducted in a responsible manner.

I would advise fellow appraisers living outside of the USA to try to attend courses on site or attend the ISA annual conference, Assets. One can feel isolated sometimes due to having few peers in the market, and for our profession, it is important to build a network of experts of different backgrounds and knowledge. Attending ISA courses or the Annual Conference is a great way to tap into the vast experience of fellow appraisers, and from my experience, they are always happy to share.

Khadinn Khann, ISA AM, is an appraiser based on Hong Kong and has been a member of ISA since 2016. To learn more about ISA membership, visit the ISA website.

Tuesday, September 18, 2018

Revisiting the ISA Dealer Directory

Christine Guernsey,
At Assets 2018, we announced the new ISA Dealer Directory. This new directory connects prominent invited and vetted antique, jewelry, and fine and decorative arts dealers with our qualified ISA appraisers across the United States and Canada. The purpose of the Directory is to provide ISA appraisers and dealers with opportunities to facilitate appraisals, acquisitions, and the disposition of fine and decorative art as well as antiques and jewelry. This directory is a subscription-based service for dealers and gives free access of the postings to all ISA members.

The ISA Dealer Directory is an exclusive ISA member benefit. Only ISA members and subscribed vetted dealers have access to the Directory. It is completely private and not accessible to other appraisal organizations, non-subscribed dealers, or individuals. The directory is the first of its kind to be created by a professional appraisal organization.

The directory provides many unique benefits for our membership. Most importantly, the directory introduces our appraising members to leading dealers across the US and Canada. Using the directory, appraisers will discover top dealers along with the areas of collecting and selling in which they specialize. This creates opportunities to meet and build relationships with these featured dealers.

Whether we are in search of replacement cost information or have general questions about an artist, creator, movement, or market trends, working with dealers directly can give our appraisers access to current information they wouldn't normally find researching online. Asking price information for works in galleries or works which will be sold privately, usually isn't listed publicly. Calls have to be made to acquire this type of information. Dealers unfamiliar with an appraiser are often hesitant or too busy to share this type information. In becoming known as a qualified ISA appraiser and developing relationships with dealers who specialize in what you are appraising, you can gain valuable information about sales and market trends, discover unpublished asking prices and learn about private sales which will elevate the credibility in the final valuations of your appraisal reports. This alone can help you stand out among your appraisal competition.

Knowing which dealers specialize in specific areas of collecting and what items they are looking to acquire helps our appraisers add another service to their appraisal practice. Often appraisers are in the front line of knowing when their clients are thinking about selling something from their collection. This is especially true when we do estate appraisal or work with a client who has recently inherited something that they don't particularly want to keep.

There are many options for disposing of an item. Often these many options are confusing to the client especially if they are unfamiliar with collecting. Being able to connect your client with an appropriate dealer who can offer a fair deal, adds additional service for your client. The client is able to dispose of an item in an efficient and private manner, often for a higher sale amount and without additional fees. A successful transaction will make your client very satisfied with your services.

If you have clients who are interested in selling an item, be sure to log into the ISA member site and check out the Dealer Directory. Dealer requests change often. Our list of dealers continues to grow. If you know of a dealer you feel should be included in the Directory, please let us know so we can send them an invitation.

- Christine Guernsey, ISA CAPP, is recent past president of ISA and currently serving on the ISA Board of Directors. She appraises all areas of American paintings, works on paper, sculpture, and outdoor sculpture, specializing in 19th and 20th centuries.