What a Client Needs to Know about Insurance Appraisals

By Leon Castner, Senior Partner, NAC

Having an insurance appraisal done for proper coverage of selected property in one’s house is a relatively easy process.  The appraiser needs to know what items should be listed and valued, what documents exist that relate to the property, and a hassle-free way to photograph, measure, and examine it.   This may seem redundant to most people, but it’s surprising how few people are ready when the appraiser arrives.

What Needs to be Appraised?

The selection of property that needs to be appraised is often determined by the type of homeowner’s policy the client has purchased.  The fine lines of the policy document often restrict or limit coverage on certain categories.  Things like “antiques, fine art, jewelry, collections, and guns” (to name just a few), are not normally covered under most policies.  They may have a dollar limit ($1,000 for total loss of jewelry) or even an exemption (not covered at all).  Antiques or fine art may require a separate “schedule.”  A schedule is an itemized listing of the property with appraised values allowing the insurance company to calculate the rates to cover those items.  Those rates may vary depending on the category of property, so the appraiser must list the property by the appropriate ones.

Often the decision of what must be appraised is left to the appraiser, since they are the ones that should know the difference between an antique and ordinary contents.  So even if the owner has a list of property that needs to be done, the appraiser may augment or even delete some items as being not relevant.  The appraiser should also know the difference between “fine” and “decorative” art, since the fine art may need listing, while the decorative pieces do not.  The appraiser should have a good eagle eye to discern the exemplary items from those that are more common and covered under normal policy guidelines.  (Since these objects are often specialized, make sure the appraiser is competent to do all your categories.)

The agreement on the itemization should be done at the commencement of the assignment.  If not made prior to arrival, the appraiser should be able to do a quick “walk-thru” and confirm the listing, adding or subtracting from the list.  This will also set the parameters of the job and allow the appraiser to develop a scope of work necessary to provide the value conclusions.  It should also be the basis for the cost estimate, which is often then put down in writing and given to the client, asking for a deposit or retainer.

A Careful Examination

The appraiser then examines the items in a much more careful manner, usually taking photographs, measurements, and turning things over and/or inside out in the process.  This means that items should be readily accessible and easily handled or reached.  Silver or jewelry (if part of the assignment) should be placed out on a dining room or kitchen table, the silver in sets or matched patterns.  (A tablecloth is a good idea to prevent any scratches or wear on the table.)  By the way, silver is usually weighed by a special scale.  Furniture should be clean, accessible, and relatively empty of contents (if possible).  It may not be necessary to move a piece, but all signatures, markings, and/or condition problems should be noted.  Artwork should be removed from the wall and stored in an upright position-usually right below where it was hung.  (No appraiser likes to remove wall hangings and then try to re-hang them.)  A diligent appraiser will construct a staging location, particularly for smaller items, that can be used to photograph better items.  They may bring extra lights, white boxes, or stands.  (Professional appraisers carry a lot of extra equipment.)

The appraiser will record the descriptions either on computer, pad of paper, or tape recorder.  Sometimes an assistant is brought to handle the mechanical procedures, which may be to your benefit since it cuts down on the head appraiser’s inspection time.  (Ask about this.)

Provide Any Documentation

Any documentation relating to any of the property should be provided to the appraiser.  This includes any original receipts, previous appraisals, or provenance (family history, etc.).  Owners are often cautious about providing these records, assuming the appraiser should be able to determine all the information necessary to place a value on the items.  Please note that good appraisers don’t use the records to establish values, but to minimize additional research and analysis, and to confirm observations and suspicions.

Two key elements in an insurance appraisal, as opposed to other appraisals, is the original cost and the market where an item was purchased.  Original cost indicates a frame of reference.  It places the item within a date and within an economic activity phase.  Records may indicate age, origin, and provenance (all of which may be true or made-up).  Sometimes a tidbit of information on the original receipt will provide a significant clue as to a value characteristic.  The place of purchase indicates a market where the client is accustomed to purchasing items.  In the event of a replacement the client will often return to the same place and pay the current retail price asked by the establishment, whether it may be available for a lower price elsewhere.  The appraiser should take this into consideration when estimating the replacement cost.

Replacement Cost is the Objective

Replacement cost requires the replacement of a property with another having similar qualities, within a reasonable time, and within an appropriate market.  When an item cannot be replaced with an identical item, replacement is based on similar characteristics such as size, condition, material, make, authorship, country of origin, subject matter, etc.  Replacement cost new is the cost of a new replacement with those characteristics.  Replacement cost used is for one with the same age (antique).  It is the estimated amount of money that may be required to either purchase the item, reproduce the item (if not an antique), or to manufacture an acceptable substitute.

The timeframe for replacement is called “reasonable.”  This means the normal time one is expected to reacquire the insured property in a market where one customarily shops.  Auctions are not usually considered since no one knows when a possible replacement would become available.  It may take years, if ever.  Replacement has a time constraint.  The client has lost an item and needs it replaced now, not in five years.  (This is why fair market value is not used in insurance appraisals since there can be no time constraints when determining fair market value.)

The appropriate market reflects the insured’s normal buying habits.  That is why an appraiser needs to know where or how the client purchased the item or where they typically shop.  So be prepared to provide receipts or at least discuss this with the appraiser.  (There is a time to chat-and a time not to chat.  Don’t be afraid to ask questions, but remember time is money.)

The Appraisal Report Document

The appraisal document should conform to something called USPAP (Uniform Standards of Professional Appraisal Practice).  It should contain a section, usually of multiple pages, that describes the appraisal process and outlines the scope of work used in the assignment.  The body is the actual property listing with the replacement cost amounts.  This does not have to be by room.  Somewhere the property should be totaled by category which can be used by the carrier to underwrite the category amounts.

The descriptions should be more than one- line listings.  They should provide sufficient information to assist in the replacement and include key elements-both physical and value.  Photographs should accompany the descriptions within the report.  (Pre-existing conditions should be noted in the event of a partial loss.)  The document should conclude with a value summary, a certification, and a list of the appraiser’s qualifications.  The report should be available in hard copy and a computer file.  The report should be acceptable and useful to the third party-the insurance company.  (We provide a copy just for your agent or carrier.)

Timing

The appraisal process can take a few weeks or more, depending on the amount of property and the necessary research needed to value the items.  Consultants may be needed, but they should have been mentioned at the outset.  The final report and bill should not be a surprise.

Summary

So, here’s a quick summary.

• Select the right appraiser. You need one with the right credentials and the competency in your objects.
• Gather all documentation (original receipts, older paperwork.)
• Spread out small items on tables.
• Have fine art and furniture arranged for inspection.
• Provide a walk-thru with appraiser and get a final estimate. Pay a deposit (if required).
• Talk with appraiser but then let them do the work.
• Receive appraisal and send copy to insurance carrier or agent.

An insurance appraisal is not just a good idea.  It may be necessary to adequately cover your treasured personal property.