The Case for Independent Personal Property Appraisers

by Caroline Taylor, Founder & CEO, Appraisal Bureau

The field of independent appraising exists to provide a neutral and unbiased opinion of value. The use cases include insurance, collateral loan, charitable donation (IRS income tax deduction) - the appraisal is the basis for the underlying financial liability or obligation. Qualified Appraisers adhere to the ethics and standards put forth in the Uniform Standards of Professional Appraisal Practice, which is adopted by Congress and the IRS. USPAP is governed by The Appraisal Foundation, an independent organization established in 1987 by the US government that receives federal funding and is empowered by Congress to establish standards for the appraisal field. Appraisers are further trained by centralized organizations such as the Appraisers Association of America, who require continuing education and renewal of USPAP training every two years to retain one’s standing. There is no ‘license’ to be an appraiser, but rather one must be compliant to relevant governing bodies. The status of ‘Accredited’ or ‘Certified’ applies to the field of one’s expertise, for example, I am Certified in Post-War, Contemporary and Emerging Art at the Appraiser’s Association of America. The appraiser’s credentials and experience within a specific field is mandatory to support the validation of the appraisal.

With limited regulation in the art world, it is crucial to understand if an appraiser has interest in or bias to appraised property. From a high level it is very straightforward, auction houses are in the auction business and are motivated by consignments. A dealer has interest in sales and the market for particular artists. Lenders profit from interest rates on money loaned against collateral property. If an organization has established a valuation on an object of art, has financial interest on the loan against it, and further stake on what the property may sell for, it is very hard to see where ethical lines are drawn. 

In addition to conflicts of interest on business services, the label of ‘appraisal’ or ‘valuation’ may be mistakenly applied to estimates of value that are not compliant to USPAP. For example, if a gallery issues an insurance appraisal of $1,000,000 USD for a painting recently sold to a client, are they reporting their prior sales activity with the property to comply with the USPAP three year disclosure rule, which states the appraiser must disclose any services regarding the subject property, not limited to appraising it? Probably not. If the insurance value of the painting is more than the transacted amount in the sale of the property, what is used for evidentiary support of the valuation that excludes the gallery’s interest in that particular market? 

The case of Estate of Kollsman vs Commissioner in 2019 illustrates the potential risk of auction house appraisals. A US tax court rejected an appraisal written by a major auction house on the basis of bias and lack of objective evidence. The client then sought out an additional appraisal meeting USPAP standards to rectify the situation. 

Centralized, neutral data and reporting is the keystone for responsible and compliant management of personal property assets. Appraisal Bureau is built on this foundational core value as our practice is strictly limited to data analysis and valuation. We do not participate in sales, advisory or consulting of any kind. In addition to our industry credentials, our proprietary technology further supports human expertise and opinion. Our appraisal co-pilot of machine learning and centralized algorithms measures and reconciles activities across various markets and verifies artworks, allowing us to reduce days of work to a few seconds. We will continue to report on our technology developments, stay tuned to AB Editorial.