Have you ever seen the jewelry store commercial that states “We guarantee that the diamond ring we sell you will appraise at double the price we charge you”?
Well, appraisal numbers can be twisted to say pretty much anything you want. In this case they’re usually offering “Insurance Replacement Cost Value” as the appraised value which, by definition, is higher than the “Retail” value they charged you. And the “Retail” value they charged you is almost always higher than the “Liquidation” resale value that you might sell something for.
And herein lies the #1 problem with appraisal numbers. There are many different types of “value”, all mean something different, and most people don’t understand the difference.
• Market Value vs Fair Market Value
• Retail Value vs. Wholesale Value
• Insurance Replacement Cost Value vs. Liquidation Value
• eBay Value vs. Auction Value
• Book Value vs. vs. Theoretical Value
The three most common appraisal values I’m requested to provide as an appraiser are “Insurance Replacement Cost”, “Fair Market Value”, and “Liquidation Value”. In the very simplest of terms, these could be described as follows:
• Insurance Replacement Cost Value: What is the “Highest Price” it would cost to replace something that was lost, damaged, destroyed, or stolen. This assumes that you will pay a full retail price to replace the lost item, quickly, to purchase something comparable, and with the least amount of inconvenience to you. This represents a high retail value and is what you would insure something for with your Insurance Company.
• Fair Market Value: What is a “Reasonable Value” that an item might change hands for, between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts. This is typically used in Death & Inheritance Tax, Divorce, and Non-Cash Charitable Donation situations. Note that value here is not the “highest price”, but a “reasonable price”
• Liquidation Value: What is a best estimate that something could be sold for … quickly.
Highest Price … Reasonable Price … Quick Sale Price. Three different appraisal definitions, each representing a different appraisal purpose and situation.
WHAT’S IT WORTH: A major mistake people often make is their failure to understand what their appraised value actually means. I’ve seen it happen numerous times, and quite often with jewelry. For example, someone has a diamond ring appraised for Insurance Replacement Cost purposes at $10,000. And then they consign it to Auction, expecting close to $10,000. And when it sells for only $800 at Auction, there is a tendency to blame either the Auctioneer, or the Appraiser, rather than accepting responsibility for their failure to understand what their appraised value actually meant.
Mike Ivankovich is an Auctioneer, Appraiser, Home Downsizing Expert, and host of the “What’s It Worth? Ask Mike the Appraiser” Radio Show. Now in its 6th year, “What’s It Worth” airs live in the Philadelphia PA area on Friday mornings from 9:30-10:30 AM EST on WBCB 1490 AM, and on the Internet at: www.WBCB1490.com. You can also visit his Radio Show Web Site: www.AskMikeTheAppraiser.com If your local station doesn’t carry “What’s It Worth” tell them they need to add it to their programing mix. If you know anyone who needs any Personal Property Appraisal work, or if you need a Speaker for an upcoming meeting or event, call Mike at (215)-264-4304, or visit: www.michaelivankovichMEETINGSPEAKER.com