Point of sale appraisals - Professional Valuation & Appraisal services can be a source of professional pride, customer respect and lucrative profits. So why do so many jewelers persist in embracing the hazardous pitfalls inherent to providing such services without the training requisite to doing so?
Pitfalls? Indeed, such as your world suddenly being turned upside down by the arrival of a notice that you’re being sued. For what? For an appraisal you wrote that was a “freebie” that was included with a very nice piece of jewelry that you had sold. Can’t happen to you? Think again. Bad point of sale appraisals have gotten more jewelers in trouble than you’d ever know. You’re thinking it is just an innocuous piece of paper that will help your customers bind insurance. However, if not professionally prepared, this “appraisal” document that you are providing may be viewed by the court as an express warranty of quality, or worse, evidence of prohibited misrepresentations which run afoul of fair practice and consumer protection laws - “fraud” or “constructive fraud”. In any event, if your client or a third party is harmed by relying on an improper “appraisal”, liability may attach.
So where do jewelers fall short with these documents? Valuing items higher than what they had just been sold for without a well-reasoned explanation as part of the document. Not disclosing that you, the appraiser, were also the contemporaneous seller. Those are two big ones. But there are numerous other pitfalls. Failure to specifically limit the intended use of the document to insurance, no defined market attached to the value, no defined nomenclature or system for grading and converting what may have been legitimate sales “puffery” into an express warranty are among other all too common hazards.
The past century has seen many court decisions regarding improper valuations and appraisals. Elly Rosen’s 1994 “Profits v Pitfalls in Professional Appraising™” article includes a timeline of twelve important appraisal court decisions sampled for the period of 1941 to 1987. The timeline can be found at the bottom of page numbers 116 thru 119 in the article found at www.aisociety.com/aicertify/read-profits-vs-pitfalls/.
So what is the solution? There are two. Become professionally qualified with a comprehensive rigorous 120 hour appraisal education program teaching fundamental valuation principles and procedures for their application to the ethics, methodology and reporting requirements appropriate to the ends of each assignment. Or, at the very least, instead of providing hazardous point-of-sale “appraisals” for customer insurance needs, provide a SEP™ (sellers estimated price) statement, the AIStandard™ alternative to an “Appraisal”. This SEP™ can be used for new or “old” items bought in your store and is based on the seller’s price; not to be confused with an appraisal which provides an opinion of “Value” based on typical selling prices in a defined market. There are reporting requirements to consider even for this alternative, so please contact the AiSociety for future AiWebinars pertaining to SEPs™ .
Ins and Outs of Insurance Appraising - Similar pitfalls as those common to point-of-sale appraisals often accompany walk-in assignments, which may be even more hazardous. Routinely contending with mounted goods, usually with unknown actual weights and grades, requires an understanding of procedures for required disclosures for related contingent and limiting conditions.
All important is the knowledge and professionalism which should guide the initial client interview. Once determining the clients intended use of the appraisal, e.g., to obtain insurance, appraiser-client agreement is needed on scope of work options and parameters and on the assigned use of the report to be provided at the end of the process. Options such as the extent of value related appraisal services to be included, such as authentication, identification and grading. You need to acquire as much information as possible from the client, as relevant to the assignment, e.g., including lab reports, original receipts, etc. Appraisers are not advocates and do not make decisions for clients which should be their informed decisions.
The Replacement Cost Estimate for consumer insurance would be typically labeled Retail Replacement Cost - New, if it is for an Insurance Replacement Policy providing replacement or compensation for a new item. So how do you arrive at the dollar figure? Market research is the cornerstone of the Market Data or Sales Comparison Approach. Market research, which might be ongoing or assignment specific is not as daunting as some might think. Not daunting at all for an AIS Accredited International Valuer™.
Advanced Appraisal Assignments - Advanced assignments, often for the professional client community, are usually extremely profitable for professional valuers competent in providing such services. Often relevant to litigation, divorce, federal and/or state estate, inheritance, donation or casualty loss tax matters, such assignments are typically regulated by federal, state and/or other jurisdictions. U.S federal regulations define “Qualified Appraisals” and “Qualified Appraisers” as well as appraiser and client appraisal related penalties for some otherwise lucrative tax assignments. Professional Valuation Appraisers must be competent in researching laws and regulations for regulated assignments in their jurisdiction(s). Values such as Fair Market Value (FMV), often including varied jurisdictional regulations must be thoroughly understood by professional appraisal practitioners undertaking related assignments.
Other advanced assignments include but are far from limited to: bankruptcy, collateral, jewelers or manufacturers inventory audit, insurance claims panel, multiple market analysis for consumer, estate sale or corporate liquidation, retrospective, prospective valuations, document review, trial consultancy and expert witness work. An unlimited number of Intended Uses for appraisal assignments, which is why it is so important that the Intended Use is clearly agreed upon, stated and limited in Reporting.
In an online forum I recently postulated some advanced assignment scenarios. Two examples are below which illustrate requisite expertise, competency and proficiency for you to consider. Are you trained/equipped to do such? Both of these have laws and regulations dictating what to do and how to do it.
1) A criminal defense attorney contacts you and asks if you are able to provide a valuation for jewelry seized by U.S. Customs. The attorney’s client attempted to smuggle goods into the U.S. and his client is facing a very large fine and stiff prison sentence in accordance with sentencing guidelines based on very high retail value provided by a gemologist. The defense needs you to examine the goods held by U.S. Customs, provide a written report for the court within 48 hours and then be able to successfully explain, justify and defend your value conclusions in court, under oath on the witness stand.
2) Mrs. Jones comes to you with a photograph of a piece of jewelry she just had stolen from her. She had no insurance, but needs a professional valuation report for a Casualty Loss as advised by her CPA. She will be claiming the loss on her federal income taxes and needs to make sure your valuation will hold up under IRS scrutiny.
Advanced assignments are typically very lucrative with hourly or flat rates rivaling well paid attorneys. Interested?
Elly Rosen, AiS founder and president, is a pioneer in the field of personal property appraising. His professional profile can be found at www.linkedin.com/in/ellyrosen.
The AiSociety (www.aisociety.com), with a global valuation standard has AiCore Alumni and enrolled AiCandidate members in 7 countries, on 4 continents, and growing. Through its 4th-decade program of education, testing, certification and referrals, AIS offers advanced, global, online, live audio-video Valuation & Appraisal courses utilizing state of the art Internet technology. Programs range from a 10-hour Appraisal & Valuation Essentials™ introductory module to the 120-hour AiCore, 50-hour Gems and Jewelry Specialty and 80-hour Advanced Valuation Specialist (AVS)™ diploma programs, including the AVS 3 course series of: AiS-Law™ Advanced & Regulated Assignments; AiS-Tax™ Revenue Valuation & Appraising; AiS-TEx™ Trial Expert Witness, Consultant & Document Reviewer. All told, 250-classroom hours for AiS-G&J Triple Crown Certification.