Write It Up
Understanding the criteria for a professional jewelry appraisal is essential.
By Joyce Kauf
Professional appraisers create an invaluable tool by providing the policyholder as well as the insurer with an appraisal report that includes the most accurate descriptive information and credible value conclusion,” explains Teri Brossmer, American Society of Appraisers (ASA) education chair for gems and jewelry. “In the process of conducting appraisals, most professional jewelry appraisers find themselves on the front line when it comes to educating the public about unreliable laboratory reports, gemstone investment scams, treatment disclosure and other hot-button issues,” Brossmer points out.
While an appraisal can have financial implications for the owner of the jewelry, gem and jewelry appraisers are accredited, not licensed. “As a result, there are no official legal requirements for an appraisal report,” says Brossmer. Furthermore, although an appraisal is usually required to insure jewelry, most insurers do not have standard report-writing requirements in place. Brossmer notes that requirements for appraisal reports for insurance coverage vary from insurer to insurer and sometimes even from agent to agent.
“It is up to the profession to enforce report-writing requirements and uphold standards,” Brossmer explains. The ASA and other professional jewelry appraisal organizations have adopted the Uniform Standards of Professional Appraisal Practice (USPAP) as their guideline.
ASA requires that appraisal reports for gems and jewelry prepared by ASA-accredited appraisers are both USPAP compliant and meet ASA report-writing requirements as summarized. A professional appraisal report for insurance coverage should include the following:
1. A literal description of the subject property according to ASA descriptive guidelines.
2. A statement of the scope of work, structuring the amount of research necessary for a credible result.
3. A statement of the type of value sought in the assignment, such as replacement value — new or comparable — marketable cash value or fair market value.
4. A statement of the intended use of the report, such as insurance coverage, estate tax or equitable distribution.
5. A statement of the intended user(s) of the report, by name or type.
6. A discussion of the three traditional approaches to value, noting any exclusion of usual valuation approaches. The traditional approaches include the cost of components, labor and customary markup, the market data for sales of comparable items and the income-producing potential of the piece.
7. The effective date of the value.
8. A definition of the type of value sought, citing the source of the reference.
9. The identification of the property rights as they are known to the appraiser.
10. A statement of general limiting conditions.
11. A statement of any specific limiting conditions that have affected the valuation process and its conclusion and the extent of the effect of those limitations.
12. Statement of extraordinary limiting conditions or hypothetical conditions and their effect on the value conclusion, if applicable.
13. The statement of the assumption of reliability of the sources and data used.
14. A signed certification including the declarations outlined under Standard Rule 8-3. This USPAP standard refers to the veracity of the appraisal report and the impartiality of the appraiser.
15. The signature of each appraiser who contributed materially to the appraisal.
16. A statement that ASA has reaccreditation requirements and the appraiser is or is not in compliance, if applicable.
17. Privacy Statement.
The following components are optional in reports for insurance coverage:
• Narrative of market analysis where appropriate.
For insurance coverage, the description of the jewelry is probably the most important component of the report. “A well-written appraisal report protects both the insured and the insurer. The more accurate and detailed the description, the less chance for problems should a claim arise,” Brossmer notes.
While insurers do not often study appraisal reports when selling the policy, “the adjusters will most certainly scrutinize the report in an effort to settle the claim and indemnify their customer at the lowest cost,” Brossmer points out. ASA requires that all appraisal reports prepared for insurance coverage must meet ASA Gems and Jewelry Description Guidelines, which state that the relevant market must be identified and researched and the value conclusion — as well as the basis for that conclusion — must be included in the report.
“Good photographs are invaluable to all appraisals for insurance coverage,” says Brossmer. “If a diamond or gemstone is accompanied by a laboratory report from a respected laboratory, a copy of the lab report should be incorporated into the appraisal report. By respected laboratory, we are referring to one that has an impact on the value of the stone,” she added. Copies of supporting documentation for any endowed characteristic of value such as provenance, historical significance or publication should also be included.
• A description of the research process.
• Comparable sales data where appropriate.
• Statement of equipment used, metal market prices and rating scales used.
• Sources consulted or references used.
• Glossary of related terms.
Different criteria apply when appraising a period or antique piece. “The inspections differ slightly in that proper identification of the mode of manufacture and the condition are of paramount importance when dating and valuing a period or antique piece,” says Brossmer. Any and all evidence of repair of antique and period pieces should be noted, as well as condition issues that may impact an insurer’s coverage decisions. For example, a poorly executed restoration has a severely negative effect on value.
Another factor is that identification of the relevant market can be more difficult for period or antique pieces. After completing the inspection, the appraiser needs to ascertain whether comparable pieces are readily available and if so, where they would most likely be sold. Adhering to established industry guidelines will ensure that a professional appraisal includes the most accurate information and value assessment — and provide peace of mind to the policyholder.
Article from the Rapaport Magazine - May 2014. To subscribe click here.