All about valuation and apprising for estate liquidation professionals
A lot of people who are starting estate sale businesses already have experience in resale and they feel confident with pricing and researching values. Sometimes people have only dabbled or specialized in a specific area, so they don’t feel confident about doing the appraisals on everything in an estate the way liquidation experts must.
If you are an estate seller, you are going to have to put prices on and liquidate everything in the home, whether it is an antique, Jewlery, art, rugs, silver, or crystal. It will all have to be quantified and a valuation has to be determined.
One of my first jobs out of college was for auction house, I learned a lot about appraising there. Everything that would be going into the auction, and anything that was being considered for consignment had to be researched.
Just like everything that's going to be in any major auctions has to have a valuation, you have to determine what your estimate is going to be for everything you are selling in an estate sale.
The company "Everything But The House" gets around this pesky valuation problem by offering every item they sell with no minimum or reserve and just a $1 opening bid. I am not crazy about that solution. Personally, I would not want to rely this formula for my estate sale. There are people who think, everyone will bid the items up to what they are worth, but that is not necessarily the case. If an item is described wrong or if not enough competing bidders are present for the auction - items can sell for less than they might bring in an estate sale or tag sale format.
If you are in agreement on the need to appraise the estate and you want to know more about it, read on! I am going to talk in detail about appraisals for estate sellers.
You have to open with a number - if you think the item would be valued at $200-400 as a fair market value, start at $400. You know what they say, “You can always go down, but you can’t go up.” Actually, that isn’t even true, because I had times where people starting to fight over an item. My solution - I took the item and told everyone who wanted it to present their highest and best offer. Supply and demand at work is a beautiful thing.
I've read articles from other experienced liquidation experts who talk about estate sale appraisals and discuss what people are selling things for - sometimes their advice seems more designed to scare liquidation professionals than to help. That is not my style. I'm here to tell you the truth. (It is scary sometimes, but not that scary.)
What you need to know about appraisals is there are several different kinds of appraisals. I am going to tell you about them here, and I am going to walk you through selling everything for the right value. First we have to understand different types of appraisal values.
If you're selling something for the estate and the family had an appraisal done previously, chances are you're looking at an appraisal that was made for insurance purposes. Appraisers should always identify what the appraisal purpose is and the valuation method.
Frequently insurance related appraisal reports are using a replacement value for their figures cited in the report. This is the cost that someone would pay to buy the item retail. The cost to replace it. It is easy to explain to clients that the retail values have no bearing on the fair market value, because the retailer does not sell items for what they buy them for. There are other costs associated with having a retail shop that are covered in the purchase price. Another term sometimes used for this type of value is, surprise, surprise, retail value.
Actual Cash Value:
Some insurance does not cover property for replacement values, sometimes you will find an insurance report listing the Actual Cash Value. Policies with Actual Cash Value are usually cheaper to issue because they are not covering the full replacement cost but they are covering Actual Cash Values. Actual Cash Value considers depreciation costs of an item.
The best examples of this: let’s look at electronics, Do you remember when they first started making giant home entertainment TVs? People paid about $9,000 for a TV that filled the entire wall and it stuck out around 2-3 feet into the room. Today, at the time I am writing this, you can get an 85” flatscreen Sony LCD TV for between $3,000-5,000.
What is the actual cash value today on the 1990s living room tv? You would be lucky to get someone to give you $50 for one. If I were appraising one, I would put down about $25 as its actual cash value. it has deprecated greatly in the marketplace. If you had to replace one at replacement value in today’s market - you can’t buy those TVs anymore they are obsolete. You could buy a comparable size in today’s at a price of $3,000. Some appraisals would list the replacement value at $4,000 to average out the price between the two I found for $5,000 and $3,000.
Does a Tiffany diamond ring depreciate really? In real estate deprecation is much more quantifiable but in personal property collecting categories “depreciation” is hard to quantify. The cost basis often has nothing to do with any of the current market valuations for the item. In 1965 Florence Barron commissioned an Andy Warhol for $1,600 - paying him for it in installments. In 2011, that painting sold at auction for $38.44 million.
If I were to appraise that as an actual cash value item, I would justify the Actual Cash Value as the Fair Market Value minus the auction commission expenses and the costs of selling, shipping, and maintaining the item. Which would be less than the fair market auction record but lots more than the $1,600 cost basis.
Fair Market Value:
This is usually referred to as “What a willing buyer will pay a willing seller when neither one has to buy or sell.” There is no outside factor forcing a sale. A longer definition looks at it as - Probable price at which a willing buyer will buy from a willing seller when (1) both are unrelated, (2) both know the relevant facts, (3) neither is under any compulsion to buy or sell, and (4) all rights and benefit inherent in (or attributable to) the item must have been included in the transfer.
The most common source for fair market values is auction comparisons, you can a quick good spread of current auction sales records by searching the keywords for the items you are selling in databases at liveauctioneers.com or by looking at past sales results at major and regional auction houses. You have to know what you have in order to do a search. If you think you have a Chippendale Highboy but you actually have a reproduction, your search results won’t give you the right value for the item you are actually selling.
With an estate sale, I priced at fair market values, but in the end, unless something was special and worth moving and selling outside of the estate sale venue, you are dealing with selling items at both fair market and liquidation values.
Fire Sale or Liquidation Values:
These values reflect lower sales results because of the circumstances that come up that forced a sale. Remember when we talked about a fair market value and the seller and buyer are both willing? In liquidation value we are factoring the reality that there is a forced sale. Divorce settlements, estate liquidations will at times require this type of appraisal, probate and loan collateral appraisals often cite this value (but your clients will not usually bring you a written appraisal report with these numbers on them). You are going to have to outline for them why in some cases, this is what the realistic value is for many of the items in their estate sale.
You do have to consider that it's really a liquidation value that you're looking at from the beginning. While you might get the $400 asking price for half of the things at the estate on the first two days, and you might find a special item or items that merit doing a fair market sale to either a specialty dealer or at an auction venue, a lot of other items will bring liquidation prices.
Valuations types for estate sales:
In most cases you are going to be working with numbers ranging between fair market and liquidation values in order to do your job for the estate.
You probably have about a month from when you sign your contract until when you're completing your estate sale work. It varies a lot, there are sales where you will have more time because the family contacted you early, or sales that demand more time due to having more high end items to appraise. But there is always a deadline.
How much time is needed to appraise and market the estate? That is something to consider at the consult and plan appropriately.
You want to get the most you can for each item you sell, but you are selling under a time deadline.
If an estate’s heirs are selling an estate with large furniture or specialty items and they want to get the most in fair market values for each item, that could mean 6 months or a year of marketing and showing the inventory to potential buyers. If it is in a home, this will lock their real estate up for the selling period. In most estates, their biggest asset is the real estate, holding the real estate liquidation up for a considerable amount of time to sell home goods, freezers, hammers, and tool chests doesn’t make sense. Holding the estate sale over a longer period of time requires home insurance, taxes, maintenance, mortgage, and utilities expenses.
If an estate’s heirs plan to do this themselves, it is is very stressful. They might find a vendor who sells what they have but who does not call back, they can develop a wait lists for appointments but the interested parties forget to come and are late, or their unqualified potential buyers just don’t have the actual money that they said they would be willing to pay when they first expressed interest.
If you find something in the process of setting up your estate sale that is worth sending to a live auction - it going take more than a month to sell, in most cases auction houses will have about a 3 to 6 month window between when you get an appraisal estimate to when your item is actually going to be sold.
There are some smaller or regional auction houses that hold a monthly or even weekly auctions, but those are generally not the regional or national venues that you are going to if you have to pull say a $25,000 or painting or $50,000 piece of jewelry.
If you come across a piece like that, obviously, you will talk to your clients about postponing selling that item (or items in that category) since the amount of time that it is going to sell will result in a higher return which will be a good justification for holding the estate settlement up for some extra time. The item can be removed from the house, consigned, and the house can proceed to be readied for the real estate portion of the liquidation.
If you can’t find the extra time, you can also see if it is piece of art, furniture, or jewelry and you can do is search looking for what dealers sell that artist or similar item for. For high end listed artists, you will find galleries that represent or sell works by that artist - then call them and see what kind of fair market price you can get.
You do not know the exact amount you will get until you do your estate sale, you want the most you can get! When you hold the sale, that is when you find out what the willing buyers will pay in your area on that day. If there are 100 other estate sales on the day you are conducting your sale, while normally there are only 20 others in your area, that will have an impact on your sale tally for the day.
As a seller, I've had times where people told me I got more then somebody paid for something at a store. I got more than replacement value! Usually when this happened, I was expecting the item to sell on the second or third day at a discount but it sold on the first day to my surprise. I did one sale when a home buyer wanted a private walk through before the estate to shop. I sold a painting for $150 to them, and my client later said he was with his mom when she bought that painting and I got more than she paid. It was not a listed artist, but I explained that it looked really good there and it was easy to get more for it because his mom had showed it off just right in her house.
Other factors impacting values:
If there is damage to the item, it is going to impact the value. Look at it as something that will have depreciated and requires repair. Let’s say the folks who bought the Warhol left it in garage after they bought it, and someone drove into it accidentally. Whoops, it is not worth $38.44 million in the fair market anymore.
Condition is always extremely important in appraisals. Good written reports should inform the reader of the current condition of the item.
If you are looking at an appraisal from 1995, today, if the item was in fine condition at the time of the report, but it has since been broken and glued back together - that is a clear negative impact on what the item’s potential worth to the buyer is.
The markets go up and down for different items, some things appraised decades ago might be worth more now, some might be worth less.
Take the replacement values on old appraisals with a grain of salt and do your own research into the current fair market value based on the current condition and market factors.
I’ve seen sellers take an old appraisal on Jewlery and just mark items at half off of whatever the old appraisal value was. That could be a huge mistake. If your client purchased gold when gold was low - the fair market value today could be much higher than the old replacement value that is listed on an outdated appraisal.
If any appraisal was made with replacement values for in insurance purposes, then that value has very little to do with what your fair market value is going to be in your estate sale.
There may be people out there giving advice who are trying to scare you and tell you you're going to get sued if you are not an appraiser, but appraisals are not rocket science. There is a lot you will learn as you are working.
It is fine to run an estate sale company without having an appraisal credential you just have to be able to call in appraisers to help you with the items you don’t know about if you are dealing with something high end. Most estates have run of the mill items and you do not always need reinforcements.
You can’t just rely on spotty eBay searches to fill in the gaps. eBay is full of fakes and it is not the highest market for selling. I once researched a specific tea set that I had to sell for a client, and found Christie’s had sold the same set for thousands of dollars. I also found the same set sold on eBay for just a few hundred. I always wondered if it was the same set. The dealer who consigned it to Christie’s may have very well been the same person who got it from the unsuspecting eBay seller who did not know the potential.
If you have Cartier, Tiffany, and other high end items you have to make sure you know their fair market values. There is no reason you can’t realize fair market values in your estate sale venues if you:
market the items correctly,
know their authenticity,
understand the current fair market value.
You have to do your homework and know what it is that you have.
I'm not here to scare you and tell you that this is an impossible task. It’s defiantly not an impossible task and there are a lot of people who can help you with doing your due diligence in researching items of value that you are putting into your sale. Running a business involves risks, doesn’t it? You could open a noodle shop and someone might choke on a noodle one day, does this mean you should not open your noodle shop? What if you really want to sell noodles? You will have to address and mitigate the risks.
Make sure you know you know which things actually makes sense to hold in the sale, if you can keep them secure and you know their value, an estate sale could be a great venue to sell high end things.
If the house is in an area where the market is depressed, moving items to a better location or selling online might be a better option.
In some cases you may be mandated to liquidate right away: as is, where is. A quick sale might mean there will not be time for relocating and consigning at auction. If the family needs money today, and they can’t pay to hold the real estate for another 3-6 months, the liquidation values will apply. If you are worried about rushing a sale for those reasons, you can get that in writing from your client to protect yourself.
How to identify hidden treasures:
I am putting together resources in an ongoing series to help you with identifying hidden treasures and how to find their values. If you're not sure about something figure out who can help you with the appraisals - it is money well spent! Usually it will only cost you $20 to or $50 dollars. You might have missed out on a $7,000 sale or even a $750 sale because you did not know what the item or group of items you were selling was worth.
Good auction houses will even offer free evaluation on items that you are considering consigning to them.
Get your game on and get your inventory valuations done with confidence and help that you need.
Errors and Omissions:
You should carry errors and omission coverage if you are worried that you might make a mistake. I do have a caveat about that - you won’t make a profit on anything that you need to put a claim in on an errors policy, it might give you and your clients peace of mind to have one but it won’t put money in your pocket.
You want to earn your commission on the value of the item, not resort to putting in an errors claim.
Nobody is perfect and no one person can know the value of every item in the world.
Communication about values:
Conversations with your clients about the kinds of things they believe are in the estate of value are always a great starting point for getting the experts you need when you are starting and unsure.
I had a client once who claimed someone offered her $10,000 for her framed Navajo rug. Sometimes claims like this will be true, sometimes, your client is just trying to get you to sell an item for more than it is really worth.
That information was great to know - but the rug was not authentic, and her belief in its value was my starting point for the intensive research I put in to get to that conclusion.
Ultimately, I gave it back to her and never offered it for sale, because the value of the rug was so minor and she believed it was worth so much. I told her what I found and I told her that she should keep it.
I always felt that if I sold something for a low price that my clients had believed was worth an extreme sum like that - it just was not worth the commission to have them believe that I might have been ripping them off.
I had a baseball that had "Babe Ruth" signed on it, I returned to the client. One person I showed it to thought it was authentic but the expert I spoke to doubted it was. I could have spent money to authenticate it, but even if it had been authentic, it was in bad shape and would not bring much. It doesn’t take up much space, it is a great conversation piece for the couple that owns it.
If they go to another expert and they find out what you had already told them, it just solidifies for them that you really did know you stuff - making you the person to turn to whenever they need help.