Is that appraisal reliable? Here are some good tests

Claims adjusters dealing with complex, higher-value art and antiques claims must treat appraisals cautiously, since the people doing the valuations reflect a broad spectrum of professional standards and expertise.

It’s important to understand that, technically, anyone in Canada can issue an appraisal. Personal property appraisers who deal with art, antiques, and collectibles are essentially unregulated. Except when submitting valuations for certified cultural property donations to public museums, appraisers here are not required to meet any specified standards.

Which means Canada’s personal property appraisal field is populated by an array of valuers.

This includes accredited appraisers who meet professional standards; valuers with some training or credentials; dealers and auction house specialists with market experience and product knowledge who often lack formal training; and others with little trade experience and no training.

Setting standards

Many appraisals in circulation meet recognized professional standards, but a substantial number do not. This uneven landscape means claims adjusters should apply a critical eye to appraisals that cross their desks.

Before examining the essential components of any appraisal, adjusters should look at the credentials and standards employed. Although this approach doesn’t guarantee a report’s conclusions about value are beyond reproach, it can indicate whether the appraisal’s author works within a professional context.

Several identified appraisal society memberships, accreditations, and certifications exist. These include the American Society of Appraisers, International Society of Appraisers, Appraisers Association of America, and Royal Institution of Chartered Surveyors (RICS).

All these organizations have websites that let an adjuster check the author’s accreditations and whether or not the accredited author is a member in good standing. This helps build a picture of the appraiser’s professional background, education and training.

Similar, but not the same

Next, consider the appraisal standards in effect.

U.S.-based appraisers subscribe to a set of official guidelines called the Uniform Standards of Professional Appraisal Practice (USPAP) developed by the Appraisal Foundation, a U.S. advisory body.

RICS appraisers, on the other hand, subscribe to their own ‘Red Book’ standards, which are used by members in 146 countries. These comply with International Valuation Standards (IVS) — a more globally accepted appraisal framework.

Practice standards and report requirements are mostly similar for USPAP and IVS. But because the three large U.S.-based appraisal societies have a bigger presence in Canada than RICS, Canadian adjusters are more likely to see reports using USPAP rather than IVS. The two standards are expected to be aligned in the future. Differences between the two standards are largely technical and relate to definitions and departure provisions.

Most of these won’t be of particular interest to claims adjusters reviewing appraisal reports, but one key distinction is that IVS valuers must provide clients with more detail on the scope and limitations of work in advance. This will be relevant when an adjuster commissions a post-claim appraisal.

Theoretically, appraisals containing signed certifications indicating compliance with USPAP or IVS, plus a bona fide accreditation, should provide assurance to claims adjusters.

Adjusters reviewing appraisals for art, antiques and collectables should consider a valuer’s professional qualifications and memberships, and use of accepted standards. Doing that can help claims adjusters better assess the quality of work and accuracy of appraisal reports, enhancing the process of properly making insured clients whole.

How to judge an appraisal

Adjusters need to assess the quality of a client’s appraisal. A professional report will include the following:

A letter of transmittal outlining the assignment and providing the value conclusion
A statement of the intended use of the appraisal
An accepted definition of the type of value used in the appraisal
The document’s effective date
The name or names of intended users
An indication of the extent of investigations undertaken in the assignment, including discussions of relevant markets and recent trends
An explanation of the valuation procedure
A listing of basic assumptions and limiting conditions
A signed certification indicating the analyses and opinions in the report are true and correct, absent of bias, and not contingent on providing predetermined results
An indication of whether or not the subject property was personally inspected
Descriptions of the items with individual or group values
Photographs of the items (not required but useful)
When higher values are involved, reports often include comparable sales and a rationale of value for each item or group of items
The appraiser’s professional profile or CV.

Stephen P. Sweeting, MA, MRICS is an accredited art and antiques appraiser and president of Toronto-based S. P. Sweeting Appraisals.

This article is excerpted from one appearing in the August-September 2024 print edition of Canadian Underwriter. Feature image courtesy of iStock.com/ramzihachicho