Jasper Maskelyne, a magician serving in the British army during World War II, who came from a family of stage magicians, made the harbor at Alexandria, Egypt disappear - preventing the German Luftwaffe bombers from bombing the Royal Navy ships moored there.¹ Magic is a well preformed misdirection. There is no room for misdirection in appraising.

        Pick Any Card

One obvious misdirection occurs when someone offers free appraisals that are really offers to buy. An offer to buy is not an appraisal. Another misdirection is what are called "guesstimations [sic]" that are mere speculations without any market analysis. Could such appraisal sleight-of-hand exist because the definition of an appraisal is vague?

        The Shell Game

Now, you may be wondering what is the definition of an appraisal?

"Appraisal - valuation of property for damage resulting from an insured peril or for estimating the base amount of insurance coverage to be purchased."²

If your appraisal is for obtaining insurance or determining value for a casualty loss, the above cited definition is adequate. Of course, the definition is from an Insurance Dictionary. Thus, we can expect such a definition for a particular assignment, namely insurance. However, notice that it did not detail what a valuation involves.

Most appraisers cite one of the International Revenue Service (IRS) fair market value definitions. Yes, there exists more than one. But few appraisers know that the IRS has appraisal definitions. This is a regulation, not a dictionary definition.

"Appraisal - a valuation or an estimation of value of property by disinterested persons of suitable qualifications. The process of ascertaining a value of an asset or liability that involves expert opinion rather than explicit market transactions."³

The IRS definition is somewhat misleading. Did we read that right - an appraisal involves expert opinion but not actual sales? Or do they mean that an appraiser is required, not just transactions? Now you know why there are so many cases involving federal tax liability to fine tune definitions. But wait, it does state that an appraisal consists of ascertaining value.

Maybe a law dictionary will reveal a definition that encompasses most appraisal assignments and is less restricted in scope. Black's Law Dictionary, a commonplace book on attorneys' desks and well cited in case law, provides us this definition:

"Appraise - to fix or set a price or value upon; to fix and state the true value of a thing, and, usually, in writing. To value property at what it is worth."⁴

The probative key word is the word "worth." Value is almost synonymous with worth. What is missing are the elements of an appraisal. Maybe what is needed is a definition from the Uniform Standards of Professional Appraisal Practice (USPAP), a standard widely embraced by both real and personal property appraisers:

"Appraisal: (noun) the act or process of developing an opinion of value; an opinion of value."⁵

Perhaps we need to revisit the Federal Regulations for another definition of an appraisal.

"Appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information."⁶

The definition is vastly superior to all the definitions so far revealed. With some tweaking, the definition can be a base for an improved definition. What does the definition provide?

        Breaking it Down

It was important for the regulation to require a written report. However, some appraisals are not written reports. Testimony in litigation accepts an appraiser to state values without written reports.

If you are a professional appraiser, you must always be unbiased. And you must be objective. Appraisers are not advocates. Avoid rendering valuation reports that have a predetermined outcome, or fees depending on your client wining their case, etc.

The Federal Rules of Evidence states, "A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case."⁷

        Magic Wand

An appraisal includes an effective date(s) that are directly linked to the value conclusion. There can be several dates involved in an appraisal, such as date of inspection, date of the report, etc. But one that is mandatory to state is the effective date. And yes, there may be more than one effective date in some appraisals such as those rendered for litigation.

Of course, an appraisal logically must report a value. And yes, value is an opinion. That opinion is linked to a property which is adequately described. To be adequately described, all the value elements must be stated. Value elements may increase or decrease the value. The appraiser has no choice and must include all value elements.

Lastly, the appraisal must include a presentation and analysis of relevant market information. No guessing.

        Not Appearing from Thin Air

To render a professional appraisal, the expert must have adequate expertise in the property being appraised. Yes, one can seek an expert to rely upon. But, depending on the amount of assistance, that expert may need to be mentioned or even become a signatory to the report.

Appraisement methodology involves the profession's acceptable ethical standards. General appraisal theory requires both accepted research and conclusions. That translates to having an understanding in market analysis and research. The conclusions are scientifically structured and defendable.

Vague is a non-appraisal concept. The appraisal must have a specific assigned use. What is the reason for the appraisal? Will the report be used to obtain insurance? Will the report be used to determine tax liability in a probate? Never render a valuation that is for "insurance and other purposes!" Such a statement opens one up to endless third-party liability in some jurisdictions.

Professional appraisers are often involved in the judicial system. Thus, they have a judicial public interest obligation. In fact, professional appraisers have a public interest obligation even without participating in the judicial system.

One area that is often overlooked is that the appraisal must have an acceptable and specific value definition. It is almost without exception that there is not a value definition in the legal arena that mandates the methodology. The appraisal report's value conclusion is governed by the requirements of actual cash value, fair market value, fair cash value, net value, etc. and professional appraisers know what value definition is required for the assignment and apply it.

The evolutionary result of the regulation definition for an appraisal became the definition used in the Advanced Personal Property Appraisal (APPA) course used by the American Gem Society (AGS) for their Independent Certified Gemologist Appraiser (ICGA) professional designation.

"A professionally rendered appraisal is a disinterested and impartial value conclusion determined by using an accepted value definition that is executed with an understanding in market analysis and research, appraisement methodology, and the personal property and evaluation therein involved; and has a specific assigned use; and has a judicial public interest obligation; and has been rendered by a qualified appraiser; and has an adequately detailed property description as of a specific date; and has a rendered value that is supported by the presentation and analysis of relevant market information."⁸

        And for the Final Act

Professional appraisers embrace standards, precise definitions, and acceptable and defendable methodology. You do not need a well detailed definition for an appraisal to render professional appraisals. Instead, you need to embrace, self-mandate, and apply its tenants into your appraisal practice. No magic needed.

Written by Bill Hoefer