Value of Appraisal after Purchase

[diamondsbylauren]

Point well taken Neil- I can not know what others charge- especially in the fancy colors- after all , you can''t "Pricescope" a Fancy Yellow!
Do you suggest I simply use the actual selling price as ''Estimated Retail Replacement Value" in all cases?
Or would there be a way to copmpensate for an item sold either at the bottom of, or even below fair market value.

We''ve already changed the title of our documentation- If I haven''t said this enough-thank you !!!

 

[denverappraiser]

David,

Be especially careful of the term ''fair market value''. Let''s make that one a subject of a different discussion but, for now, I strongly encourage you to avoid it entirely.

The issue is really how to properly document that your customers received a bargain, correct? Obviously the best option is to have them get a real appraisal from a real appraiser. I, of course, understand that the customers are resistant to this because of the effort and the expense and the dealers are resistant because there are too many idiot appraisers that will give opinions about products they don’t understand and without doing proper research. This can spike a perfectly good sale for no valid reason and leave you with no way out other than to issue a refund even when you’ve done nothing wrong.

As a dealer, I would recommend listing a ‘estimated replacement price’ as the price that you think the item could be reasonably replaced with another of like kind and quality at YOUR store - today. Not some mythical retail asking pricing mind you, the price you would really expect to get. Include a paragraph in the boilerplate portion of your template that explains what you mean. Written carefully this can be a pretty good advertisement by the way. People do read these things and they keep them forever. If the price listed is different from the actual transaction price, I would include a prominent explanation of why this is a special case. If it’s way different or if this is a very important issue to the client, I would insist on a 3rd party appraisal, even if you have to hire the appraiser yourself.

Neil Beaty
GG(GIA) ISA NAJA
Independent Appraisals in Denver

 

[diamondsbylauren]

Than you Neil.
I would be interested in learing what''s wrong with the phrase "Fair Market Value"- although I''m sure you are correct.

AS far as documenting a bargain- that''s not what I''m getting at. If I get a great deal on something, and pass it along, I am not looking for a pat on the back.
Especially when dealing with Fancy Colors, replacement value is often hard to gauge.
Estimating replacement cost on a G/SI1 1.02 57/61 EX/EX is almost like falling off a log- when compared to say- 1.02 Fancy Yellow SI1- which can be worth considerably more than a Fancy Yellow Internally Flawless- both with GIA reports.

So, if someone does buy a stone which is very difficult to replace, I feel it''s my responsibility to figure replacement cost on the high side.
Again- it all comes down to what the buyer is trying to accomplish, in terms of using this document to insure thier purchase.
Say they bought a stong Fancy Yellow, for $10k from a dealer who stocked the diamond. If it needs to be replaced, it may very well cost $12K to find exactly the right stone.
Buying fancy color stones on spec can make them considerably less expensive than buying when you need them.

The fact is- this thread has taught me a lot and we will adjust the wording of our documentaion accordingly.
Keep it coming!

 

[denverappraiser]

The link Rockdoc provided is a pretty good primer on FMV. It’s not what I would call easy reading but it’s very informative. This is required reading for all of the major appraisal societies. In the case of real estate appraisers, it''s the law.

What you are describing isn’t really that unusual a problem. It’s a daily issue for appraisers of fine art and other unique collectibles. The value of a painting has to do with the identity of the artist, the subject matter, the materials used, the age, the techniques, market selection, ownership history and many other variables. In this sense it’s fairly similar to valuing diamonds but it can almost never be replaced with an identical copy in the case of a loss. The explanation of the prices is the whole point of the appraisal. Why is one painting worth $100,000 while another painting of the same subject done in similar media by a similarly skilled artist worth only $2,000? This is usually done by tracing to comparable sales. Other paintings by this artist have traded recently for $XYZ and this one is better/worse in the following ways. A mundane item owned by a celebrity is worth more than a similar mundane item that was not and by careful comparison and research it’s possible to make a decent guess what Marilyn Monroe’s toaster might be worth. The appraiser can research similar items, they can research similar ownership history and quite a few other areas to make a decent connection. It’s different with each case and the decisions and assumptions made should be documented in the report. This process is what makes their opinions useful and valuable. The fact that a dealer who knew all of the relevant facts sold it yesterday for a certain price may not irrefutably define the value, but it’s a hell of a good place to start.

You’re absolutely right, the client’s purpose is a critical element in the process.

Neil Beaty
GG(GIA) ISA NAJA
Independent Appraisal in Denver

 

[RockDoc]

Date: 7/15/2005 9:28:05 PM
Author: diamondsbylauren
Than you Neil.
I would be interested in learing what''s wrong with the phrase ''Fair Market Value''- although I''m sure you are correct.

AS far as documenting a bargain- that''s not what I''m getting at. If I get a great deal on something, and pass it along, I am not looking for a pat on the back.
Especially when dealing with Fancy Colors, replacement value is often hard to gauge.
Estimating replacement cost on a G/SI1 1.02 57/61 EX/EX is almost like falling off a log- when compared to say- 1.02 Fancy Yellow SI1- which can be worth considerably more than a Fancy Yellow Internally Flawless- both with GIA reports.

So, if someone does buy a stone which is very difficult to replace, I feel it''s my responsibility to figure replacement cost on the high side.
Again- it all comes down to what the buyer is trying to accomplish, in terms of using this document to insure thier purchase.
Say they bought a stong Fancy Yellow, for $10k from a dealer who stocked the diamond. If it needs to be replaced, it may very well cost $12K to find exactly the right stone.
Buying fancy color stones on spec can make them considerably less expensive than buying when you need them.

The fact is- this thread has taught me a lot and we will adjust the wording of our documentaion accordingly.
Keep it coming!

Hi David

I''ll try to explain what FMV is for you.

Fair Market Value "dictates" a specific methology for the determination of he value in the report.

But in order to comprehend this you need to know that the more "useful" and proper terminology is Market Value.

Market Value is generic in substance. The appraiser can choose what market or markets he is basing his value conclusion upon. It is sort of his choice in this type of valuation. However, just because you have the option of selecting a particular market level doesn''t mean this will get you off the liability "hook" should the value be improper or useless for the funtion and purpose of the document. A very interesting tidbit of case law is here in FLorida. It involves the sale price of a railroad. Florida East Coast Railroad ( FEC). The case is rather interesting and fascinating. The judge in this matter rejected BOTH appraisers work. A such don''t believe that just cause someone writes a valuation report that it will always be accepted. Additionally, if the report is prepared incorrectly, the client has a darn good case to get a complete refund of the fees charged for the work, that was determined essentially useless.

Fair Market Value actually varies based on the function and purpose as well as the proper legal jurisidction. Before using the terminology of FMV, the appraiser needs to know what the requirements for the FMV is.

Let''s use an example.

The IRS, which many FMV documents have specific FMV requirements are published in their codes. FMV for estate tax and donation have specific requirements. The appraiser must adhere to these requirements and provide a narrative explanation that supports the methodology he used. Now take a look at the FMV definition for Casualty Loss. It is totally different to the FMV for the above purposes. Quickly expressed and in a "nutshell" NOT COMPLETE DEFINITION. is that for estate tax and donation, the value is what a willing buyer pays a willing seller, neither under compulsion or duress to enter in to the transaction, and that the value is in the MOST COMMONLY occuring market. Use and research of the values in the MOST COMMONLY Occuring Market is absolutely VITAL to preparing the report correctly. THe FMV definition for Casualty Loss says that the FMV must be the current commonly occuring market or cost at the time it was acquired, WHICHEVER is LESS!
On the surface this seems unfair, but as you become more familiar with the concepts of these definitions you begin to interpret the wisdom of those who wrote them and why.

There are also a myriad of FMV definitions for other functions and purposes. In many states there is a specific FMV definition for what is called Measure of Loss. (Generally this is the value of an item that was stolen). Various states and even various counties have these FMV definitions published. Most commonly they are found in the JURY INSTRUCTIONS, and they sometimes have very opposing requirements.

For Florida, for instance there is no FMV definition for Divorce, except for the sale of a law practice. Thompson v Thompson.is the case cite. BUt what complicates matters even further is the judicial opinion written in that case that FMV and Market Value are syynomous. In that this is written in case law, it is law in FL, and to depart from it can be extremely difficult.

In Florida Statutes, it states the value of the marital property has to be at Market Value. In the Pro Se Guidlines written specifically for people valuing the marital property, the requirement is that they report FMV. Interesting when there really isn''t an existing FMV definition for that function!

The really sad part of this is that the legal community, even though advised of these problems, is in a Coma as to straightening them out.

This is why Neil has advised you to avoid using FMV, without the knowledge of the subleties of understanding the methodology in each particular instance.

This is one of the reasons that I keep stating that the appraiser needs to know how a client''s insurance policy will settle a claim. To author an appraisal that ignores this is simply negligent. Unfortnately, I estimate the 99% of the appraisals used for insurance reasons, are prepared without the appraiser having put forth due diliengence in obtaining this information. This is especially true for appraisals, that are sent with the item when purchased and are prepared without knowing in advance who the client is, and without relevant reasonable knowledge of what type of insurance policy the client is purchasing.

Rockdoc