An Unflattering Look at Appraisals - Ouch

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Bloomberg has an interesting, and unfortunately an unflattering piece about appraising, initially based on a lawsuit and valuation of a Anish Kapoor sculpture. It appears the sculpture, while being stored in a London warehouse was lost and assume destroyed. A court case ensued in order to determine value to compensate the owner.
As usual in court disputes, two appraisers had two very different valuations of the lost sculpture. According to the article one appraiser found the sculpture to be an excellent example of the artists work and valued at around $900,000.00. The other appraiser was not impressed with the piece, and valued it near $400,000.00. The judge disagreed with both appraisals and set his own value of around $590,000.00 based on a previous sale of the artist.

The article then goes into more ethical issues of appraising and interest in the property as well as biases and motives.  We of course know this is not the case, or should not be the case, but there will probably always be appraisers in the profession who are advocates, one way or the other, for their clients and for benefiting their own self interests.  It is a shame, but a reality.

A very interesting article to read. The article has several comments about both the value and importance of appraisals as well as the potential for widely different and ineffective values.

Working at large banks, auction houses and small firms, appraisers exert influence in every corner of art finance. In a secretive market where accurate information is scarce, these experts guide high-end collectors in setting sale prices, making tax deductions, buying insurance and establishing collateral for loans.

While the appraisers’ reach is broad, their valuations are influenced by everything from their personal tastes to the desire to make higher commissions, says Philip Hoffman, chief executive officer of the $100 million Fine Art Fund Group Ltd. in London.

Fudged Valuations

“Appraisers give a lot of meaningless valuations,” says Hoffman, who relies on the ones he trusts to value his funds’ holdings. “Their work can be based on fashion and connoisseurship. The art world is complicated, and valuation is a part of that.”

Appraisers who negotiate the sale of artwork sometimes jack up valuations to boost their commissions, says Lewis Baer, owner of decorative-arts gallery Newel LLC in New York. Auction house experts play a different pricing game, regularly giving low-ball values in catalogs with the hope of creating bidding wars.

Adding to the variation in pricing, appraisers fudge valuations submitted to the U.S. Internal Revenue Service so clients pay less tax on inherited art and get bigger deductions on donated works. The IRS says that from 2006 through 2008, a majority of audited estate and gift tax appraisals understated the worth of the art by an average of 44 percent.

To read the full Bloomberg article, click HERE.