So what do you think of the new law?
Tropper: I think it makes an awful lot of sense. Anybody who wanted to be an appraiser before could say hey, I’m an appraiser, hang out their shingle and go for it. Now I think what you have to do—I mean it specifically says you have to be somebody who is recognized by one of the organizations that both educates and accredits. I think it makes an awful lot of sense.
So the ASA is supporting these changes?
Tropper: Oh yes, this is somebody whom you hope is going to be independent. It is not somebody who is a dealer who once in a while writes an appraisal for somebody and probably has a stake in the value that you come up with. I think an independent appraiser and many appraisers do a little bit of both but you have to know that when you are doing an appraisal you have to remain independent from the property. In other words, you are not going to buy it, you are not going to sell it, you are not involved in the transaction to speak of or the value that you conclude is going to have any bearing on your income. In other words, I’m going to say it is worth twenty thousand dollars because I’m going to get paid more rather than say it is worth ten thousand dollars which is its real value and get paid less. You want somebody who has that kind of objectivity. All three of the personal property organizations have codes of ethics and so prohibit that kind of action. So to use somebody from one of the organizations I think does kind of put you a step ahead in that area.
The other thing is that we follow something called the Uniform Standards of Professional Appraisal Practice which is something called USPAP. USPAP was set up for real property appraisers at the end of the eighties when the whole real estate debacle took place and the federal government came and said we’ve got to do something and the industry said let us self regulate. We have a congressional oversight committee and USPAP is put together by something called the appraisal institute which is a membership organization and the people that belong to it are the various appraisal organizations in the U.S. so it’s a self regulating industry. It is the only set of standards that appraisers follow and there are now standards specifically for personal property. They’re not just all real estate based which is how they were initially because that’s what was required. The profession has really grown and as it became clear that we weren’t just kind of an off shoot to real property appraisers, that personal property appraisers—let’s face it, when you’ve got paintings selling for over a hundred million dollars you’re not talking about property that’s just kind of an off shoot of something else.
As a result of that, USPAP really has or the appraisal institute has—foundation rather, appraisal foundation—has made a real effort to include personal property appraisers in changes that occur because USPAP is reissued every two years with changes and really made an effort to—I don’t want to say accommodate but take into account what a personal property appraiser does which is different from a real property appraiser. July itself calls for somebody to follow the standards of the profession as an appraiser. There are no other standards. It is time though, that it was recognized and that dealers who follow absolutely know standards and do it how ever they would like to do it with whatever background they have, with what ever knowledge they have and how ever they want to approach these various appraisal problems. They just went ahead and did them.
Now all of a sudden the smallest thing might not be quite acceptable. There are standards within this profession. Somebody needs to follow them, who are putting together something that is going to have the importance of a document that is going to allow people to take deductions on their taxes. Does that help? Am I giving you too much information or?
When mistakes are made by an inexperienced appraiser, in your experience are the evaluations typically high or low?
Tropper: Everybody assumes they are going to be high. They are not. If you are an independent appraiser and you make an error because you have missed a property, you didn’t know about a particular sale, it should be a fifty/fifty split quite frankly. If you have a stake in this, if you are the dealer who wants to see that this property has a higher value because you want to sell it at a higher value, yes, it is always going to be higher. But if you are indeed an independent appraiser who follows the standards that are in USPAP and follows the code of ethics that these organizations have, it really should be—I mean nobody says you’re not going to ever make a mistake but if you make the mistake the chances are it could be high or it could be lower.
I guess the trick is determining fair market value, right?
Tropper: The trick is to determine fair market value and the biggest problem is probably to decide what market level you are at. I mean when clients call me and say to me, I need an appraisal and I say well what do you need it for, what is your intended use, well I just want to know what it is worth. Well yes that is fine but why do you want to know? Well because I’m not sure what I want to do with it.
Okay well here, let me try and explain it to you and the way I explain it to them is look, somebody gives you a diamond ring. They ask you to marry them and you say yes. They bought it at Tiffany’s, they paid ten thousand dollars. You decide after a year you are not going to marry this person and you take it to the pawn shop and the pawn shop is giving you one thousand dollars for it. I look at it in the window, he’s got five thousand marked on it and I know it’s a Tiffany diamond ring. I go in and offer him four thousand. Now it is worth one thousand, four thousand, five thousand and ten thousand. So that is what its value is, all those numbers. You have to decide what your intent of use is and if you can tell me what the intended use is and it is for a charitable contribution, then it’s going to be fair market value, then it’s got a very specific weight to hone in on where the market is because what fair market value says, one of their definitions and IRS has a number of definitions for IRS, they are the same definition but they use additional criteria in various places for donations. It is what is the most common market where the property is sold?