For What It's Worth - Why Do You Want an Appraisal?

There seems to be some confusion as to what an appraisal is. I can’t, and won’t, be the last word on it, but I think I can make provide a little clarity.

First of all, an appraisal is not the same as making a bid or purchasing books. A number of people over the many years I’ve been in the business have asked me for an appraisal, but what they really wanted was for me to make a bid. An appraisal is a stated, written or oral, opinion of monetary value.

Anyone who is professionally appraising should not make a bid on something they appraised. The American Society of Appraisers and the Appraisal Institute do not allow any of their members to appraise and to purchase. If you think about it, this makes sense. What’s to stop an appraiser from giving a low opinion of value on an item, then make a wholesale offer on that item, and thereby vastly underpay a person selling that item? The first and foremost thing about any appraisal is that it has to be objective. Any condition or act that compromises the objectivity, or might suggest a compromise to objectivity, cannot be allowed. Why does this have to be so objective?

It is because of what an appraiser’s opinion of value ultimately is: a legal statement that is nothing less than being an expert witness in the course of a courtroom trial. An appraisal is a statement of defined value that must come from a process which is called the appraisal process. This process generates an appraisal report which, once stated, verbally or in print, becomes testimony, and as such becomes a legal document. The report to fulfill the minimal requirements to be a legal document must be signed, dated, identify the owner and have a sufficient description of the item, or items. The more information one can put into the opinion of value, the stronger that opinion will be. I will talk more about this in a moment.

Why would one want an opinion of value?

Traditionally, there are three reasons one needs to have an opinion of value:

1) Insurance Purposes
2) Estate purposes
3) Tax Purposes.

Most insurance companies have standard tables they use to determine the value of something that is destroyed or damaged. If you have a book collection that you have spent many thousands of dollars building, you ought to contact your insurance company and find out if their standard tables match up to the amounts you have invested in your collection. One insurance company pays two dollars per running foot of bookshelf. One running foot of bookshelf could hold the first four folios or Shakespeare, or even the Gutenberg Bible! Most insurance companies will honor the amount requested to replace or restore a book collection if they have on file an appraisal of the collection beforehand. And that’s a key requirement: before, the damage was done.

Sometimes people need their book collections appraised for estate purposes. In the course of a divorce, usually the parting couple divide up the belongings and are assigned comparable value in the estate. A wife may keep the house, but the husband may get to keep half the equity, as well. Sometimes when somebody dies, they want to leave a book collection to one of their children. An appraisal will be necessary so that the value given that child can in some other way be compensated to the other children by other means, perhaps more money from the sale of the house, or to be given the silverware, or the like. These are examples of why one needs an appraisal for estate purposes.

The third reason people need to get appraisals is for tax purposes, and most often this is because they are giving a non-cash item, such as a book, to a non-profit organization, such as a library. The Internal Revenue Service only allows one Library to provide an appraisal – or statement of value – and that is the Library of Congress.

The I.R.S. has strong opinions about donating non-cash items and about appraisals and appraisers. As mentioned earlier, they are very “big” on having the report of defined value be objective. They do not want anyone who is related to the client, or the client, him or herself, to provide the defined value, as the likelihood for a fraudulent report of defined value will increase. For more on this, refer to the IRS publication number 526.

Of course, one can have an item appraised because they want to have a record of its value just to have that record. But if you want to know generally what an item is worth, a good used or rare bookseller should be able to givel you a general range of retail value for a book or collection, and you may be able to go online and look at the price some of the used booksellers are asking for their copies.

What goes into a good appraisal report?

It should have the following elements to be as thorough as possible.
1) It should define the client, and the user of the report. Often these are the same person, but not always.
2) The effective date of the appraisal must be stated.
3) There must be a legal description of the property, sufficient to identify items and their owner – that is to say, relevant characteristics of the property or owner so that by the description it is clear who and what we you is being talked about.
4) Assignment conditions the appraiser had to work with – such as he had to hurry, or keep the fee to a minimum, or was not allowed to see the books, or had to catalogue each and every one of them, and so on. This is important because, depending on the assignment condition, one might have to work under several assumptions.
5) The assumptions I’m talking about are called extraordinary as well as hypothetical assumptions. An example: suppose a man gives me a list of books and tells me that all of the books on the list were first editions and in great condition. But they were burned in a fire, so I couldn’t look at them. If I take him at his word and appraise the books without looking at them, this is making an extraordinary assumption. Suppose further that I tell the client that the books are very recent and will only fetch the in print price and the guy tells me that my assignment condition is to tell him what they will be worth in a few years: This Is an example of a hypothetical assumption. The insurance company may not wish to honor a report based on extraordinary or hypothetical assumptions. But then again, they might.
6) An appraisal report should discuss the scope of work, which is what the appraiser is specifically going to have to do to come up with an appraisal report. As a rule, except for what I just talked about, all appraisers must examine the books within arm’s length. So, this understanding will have to go into that discussion of the scope of work. The scope of work will address such things such as if the books should be catalogued, or not, or if there were difficult assignment conditions that limited what the appraiser could do during the course of his or her appraisal,
7) Every appraisal report should discuss the data collected, and source of the data, that examines the market for the book collection. It is also good to provide any sales comparable data that there is that is relevant for the creation of an opinion of value. It is also good to state whether or not the appraisal report is a mere summary of all the data collected, of if all of the data will be provided in this report.
8) The next phase is perhaps the hardest for an appraiser, and that is to study the available supply of the item, the marketability, the highest and best use for an item, and the specific marketplace for such a book or a book collection.
9) An appraisal should also contain a comment on the three applications to the approach of value, and if possible, provide the value determined on the book given each of those approaches. The first approach is simply cost: what did it cost the client to buy the book. Sometimes this is very relevant to an appraisal. The second approach to value is sales comparison: That is, what is a copy that is like the copy being appraised being sold for, or offered for sale for, at the time of the appraisal. This is the most common form of the approach to value used by appraisers. Many booksellers simply state what they would price such a book and if the booksellers are accomplished, this should be enough. However, the experienced appraiser finds it very useful to provide examples to the client of other booksellers asking for those prices in order to assure the objectivity we stated earlier. There are occasions, however, where the bookseller is the only authority available and whatever he or she would price an item is, de facto, the sales comparable price. The third application or approach to value is that of sales income. What would the collection be worth if it were sold, and how would it normally be sold? In some cases, booksellers might find a collection of items that includes an unpublished manuscript by a famous author. The value on this item could be a great dealer higher than if it were treated as a used book. It might fetch many thousands of dollars from a publisher.
10) Once the data is in and the applications of the approaches of values are discussed, the appraiser reconciles the value indicators to the assignment conditions. Why was the collection appraised? Depending on the assignment condition, may one, or another of the approaches to value be used. It is not “kosher” to mix and match approaches to value in the same report. One must write a separate report for a separate item if it is to be appraised with a different application of value. This is for the sake of clarity and objectivity.
11) This being done, the report of defined value is given.
12) After that, an appraiser should offer the conditions and terms of the report, which will serve as the fine print, as it were. For example, the terms might say that this is the appraiser’s opinion and not a statement of fact for what the item will sell for at auction.
13) The next step for the appraiser is to provide a certification that he or she is in no way connected to the sale of the item, but is as objective as objective can be.
14) And finally, a good appraisal has the appraiser’s curriculum vitae, or resume, to show his or her qualifications for performing this resume.

(My profound thanks to Gene Baade - a very dear and special friend - and one of the great booksellers I've had the pleasure to do business with over many many years - for his proof-reading of this piece)