Personal Property Divorce Appraisals

Many divorce proceedings require the appraisal of spousal property to assist in the equitable distribution settlement.  Most are familiar with the need and procedures for any real estate being valued, but are usually uninformed of the process and practice of having the personal property done as well.  This becomes a somewhat touchier subject since personal property involves personal feelings, sentiment, and attachments, and often disagreements about what the property should be worth.  That’s why it’s extremely important to find a professional, unbiased, and impartial appraiser who is competent to not only to “do the right thing”-but to value the property according to the correct standards in the appropriate jurisdiction.

Advocacy

Many wrongly assume that an appraiser is an advocate to a client and can tilt the figures to the client’s advantage.  Nothing is further from the truth.  A professional appraiser, according to the Uniform Standards of Professional Appraisal Practice (USPAP), is one “who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.”  Advocacy is not allowed.

In essence, that means that whichever side hires a “professional” appraiser (I use this term with utmost caution), the outcome (value conclusions) will be the same.  This means that there is no legal, ethical, or smart reason for each side to hire their own appraiser.  We aren’t “hired guns.”  It also means that the cost of each side paying for the same service is really duplicated to each party, an unnecessary expense.

So, the wise decision is to have both sides agree to the selection of the appraiser which allows them to proceed in the most efficient and effective manner.  However, this often can’t be done.  One party may not agree to the appraisal.  The property may be in different marital homes.  The agents (attorneys) for the two sides may have their own choices they use on a regular basis (which should not be a reason to hire them).  Stick to your guns, and if, at all possible, reach a decision for a single person, but if that’s not possible, make sure you are confident the person is qualified and trustworthy.

Speaking of qualified, the most important factor in the appointment of an appraiser is the selection of a competent and ethical professional.  The appraiser should be competent in both product knowledge (the items they are appraising) and the methodology (how it should be done).  They should be educated in appraisal principles and theory and have taken courses to receive a level of accreditation that is awarded by various appraisal organizations.  They must have taken a recent USPAP class (two years at the latest) and be USPAP compliant.  If they don’t know what that means, then they are not.  DO NOT DISREGARD.

Jurisdiction

Above all else, the appraiser should know exactly what is required for a divorce appraisal in your particular jurisdiction.  Your state will have regulations about the process and will stipulate the exact value definition required.  This is important since the definition indicates the appraiser’s objective, i.e. what type of value, which markets are explored, and which approach to value is used.  Since items can have many values or costs, depending on markets, you want the proper one.  That’s how figures can be way off.  Doing an insurance coverage appraisal requires estimated replacement costs or what it would cost to reproduce, produce, or replace an item in a top retail market.   Those figures tend to be very high and do not consider depreciation, wear or tear, or current condition.  They are not appropriate for divorce situations where the property is normally valued in a “fair market” or even orderly liquidation market and on an “as is” and “where is” basis.  Those numbers are based on actual comparable sales of used items in certain marketplaces.  Comparing replacement costs with fair market values are like comparing apples to carrots.  You certainly wouldn’t want one side to have an appraisal based on replacement costs (very high) and the other based on fair market (middle of the road) or one based on forced sale (bankruptcy) which would be extremely low.

This is not unusual terminology for the competent, professional appraiser.  They will know which definition to use, which approach top value is necessary, and what type of report is required, including the format, the justification for valuation, and the type of certification.  You do not want someone who calls themselves an appraiser who provides a laundry list of items with numbers that have no justification.  It’s the biggest way to get an appraisal thrown out of court immediately-without even considering the conclusions.

Examination

Once the selection of an appraiser has been made, the next step is the examination.  Prior to the actual physical inspection, the parties should prepare a mutually agreeable list of property to be seen.  This may create additional problems, since each spouse may indicate property to be included/excluded-based on whether the property was seen as gifted or “owned” specifically on a personal rather than communal level, but the list assures that nothing will be missed.  Items that are questionable (not sure if personal or communal) should be starred and the valuation should be done anyway. (It can always be crossed off later.)

When children are involved, their property (bedroom sets, televisions, computers) is usually not done.  You must tell the appraiser at the outset.  In addition, items that are not owned by either party should not be done.  Real estate fixtures are normally included with the real property, i.e. stoves, lighting, window treatments, etc. and not with personal.  Closet and dresser drawer contents are not usually examined.  Anything of “hidden” nature should be included on the property list and placed visible on tables.  Collections or contents of safety deposit boxes should be available and listed on the property lists.  Note that often a specialty item may require an additional appraiser or expert.  Make sure the appraiser is aware of those items and can accommodate them and/or supply an associate to handle those items. Also, items that have liens or encumbrances (loans) should be identified since they may necessitate providing a net value.

The appraiser makes an appointment and requires someone to be at home during the inspection.  They are greeted, set up a “work-area,” and usually preview the entire house, explaining the process and how long it might take.  Then the appraiser will examine the property, room by room, listing the items (or following the prepared list), making careful notes, measuring items where appropriate, and taking adequate photographs.  (These photographs may not be required in the report but are useful for any research and analysis and are kept in a workfile.)

Sometimes a benchmark or threshold can be agreed upon.  For example, if items under $100 are not to be listed separately, it will save time and effort (cost).  Those items can be “lotted” or “grouped” in bulk fashion, i.e. kitchen contents, everyday glass and china, cookware, tableware, etc.  On the other hand, the appraisal can be as specific and exhaustive as necessary.  (In some households the cookware can be very expensive and gourmet, demanding much more itemization.) Some spouses will argue over what might appear to be trivial, but is important to them.  Make sure the appraiser knows that and is ready to include those items.   Clothing is not usually done, unless vintage or coulture.  Toiletries, food, liquor, and sundries are also excluded as are most disposables.  Remember, this should include the garage, basement, attic, and storage areas, even workshops, sheds, and outdoor areas.

This process goes quickly, but can be hindered by physical limitations, such as access to the property, barking or jumping dogs, talkative or combative hosts, poor lighting, etc.  our firm can usually do the contents of a four-bedroom house in just a few hours, yet a medium size “good” coin collection or the contents of a small jewelry box can take a day or more by itself.  Any invoices, documentation, and history of the pieces will be helpful, particularly if the items are antique or fine art.  (We’re not concerned about the cost, but we do need origin, maker, date, etc.)  Much of this can be gathered ahead of time, thus saving money.

Speaking of money, appraisal costs are based on hourly rates, so it behooves one to provide as much information as possible and streamline the examination.

At Their Office

Once the on-site inspection is done, the appraiser’s real work begins.  They must research the correct markets, gather collectible sales, and analyze the goods based on both physical and value characteristics.  (This is part of what we call “scope of work.”)  Eventually, final value conclusions are determined and a report can be generated.  This should be what USPAP defines as an “appraisal report” that can be utilized by the client(s) and any designated third parties.  Our reports are bound and provided in duplicate original copies, as well as PDF versions.  The reports should include all information required in USPAP Standard 8 (see The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, Standard 8-The Transmission of a Personal Property Appraisal).

Fees

Some firms charge different rates for different services or for different experts in the firm.  Those with higher certifications or very narrow specialties warrant higher amounts.  Some use associates on site to expedite the inspection.  This may, in the long run, save money.  Travel time may be an extra expense, as would be document preparation (secretarial).  This should be discussed at the outset.  Please realize that an hourly quote from one appraiser to another may not be really comparable.  Some work fast, others slow.  Some charge portal to portal, others lower their travel rates.  You need to base your judgment on credentials, qualifications, and referrals.

Our divorce assignments are done on a retainer basis.  That means we provide you an estimate at the time of engagement based on our initial conversations.  When the assignment is complete, we will render a final bill.  If the retainer was not sufficient to cover the expense, then the invoice must be paid prior to sending the report.  If the retainer was more than the final invoice, a check will be rendered.

The appraiser may be called to explain or defend the report in court.  This expert witness testimony is not part of the original retainer agreement.  The appraiser may seek another retainer based on their customary fees for such service.  Remember, the appraiser is not your advocate or agent.  They are an advocate for their work and should stand behind it.

Results

An appraiser’s work is objective, based on facts and evidence.  They should not be biased, to either a person or an item.  They must be competent at the engagement to provide the services they state and render their work product in a timely and expected fashion.  You should expect proficiency, clarity, and confidentiality.

The whole point of having an appraisal done is to provide an equitable distribution or settlement-one that is fair, impartial, and unbiased.  Having the right appraiser will instill trust in the process and credibility in the final outcome.