Appraisals For Insurance Purposes

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• For Valuable Possessions, Getting An Appraisal May Be Wise

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  Many people have possessions they would hate to lose, either because of sentimental value or what they’re worth. In the case of items with a high dollar value, an appraisal can really help make the insurance claim process go more smoothly.

  Shirley Baumann is a certified personal property appraiser, a registered Wisconsin auctioneer, and the owner of Baumann Auction Services and Heirloom Appraisal & Estate Services. According to her, an appraisal is “an opinion of value based on research, knowledge and experience. It usually comes from an educated, credentialed appraiser.”

  She said that there are many reasons to get appraisals done, like assuring the equitable distribution of an estate among siblings. But one of the most common and most useful reasons is to have documentation in the case of theft or loss.

  Without proof to the contrary, Baumann said, insurance companies estimate the value of the contents of a home as a set percentage of a home’s value. For example, the contents of a $300,000 home would be estimated at a much higher value than that of a $100,000 home.

  “The assumption is that someone who can afford a $300,000 home would invest more in their furnishings, could probably afford more, and would have more in quality and quantity,” Baumann said.

  Of course, there are many reasons why that formula may be incorrect. An inherited piece of art or a once-in-a-lifetime purchase of a collectible might be worth much more than a small percentage of a modest home’s value.

  Therefore, it makes sense to inventory those items in a separate schedule that is added to an insurance policy, Baumann said. That listing alerts the insurance company to the items’ existence and worth.

  She said that insurance companies are not experts in assessing the real value of items, especially in the realm of art and antiques, which can appreciate in value significantly. And because they aren’t invested in a policyholder getting the best replacement value for their items, an appraisal can be a useful tool.

  Some items can be more difficult to appraise, Baumann said. One-of-a kind items lack natural “peers” to compare it to for a value. But in the case of a piece of artwork, for example, an experienced appraiser can look at what other, similar works have sold for — as well as what the works of other artists of that time, genre and reputation are worth.

  “It’s got to be logical, so we can defend where we got that value from,” Baumann said.

  Baumann cautioned that an appraiser’s valuation and the price originally paid for an item are seldom the same amount. Something bought many years ago, at an estate sale or possibly on a vacation overseas, may have a much higher monetary value now than when it was acquired. On the other hand, some types of collectibles can lose value because trends make it less desirable than before.

  Once an appraisal is done and the items are added to the policy, the insurance company will determine the additional cost to cover it. The owner can then pay that additional premium to ensure an adequate replacement rate, or not.

  Baumann said that people sometimes balk at paying an additional premium just in case the item is lost, damaged or stolen. But she cautioned against hoping for the best in order to save a little money.

  “I’ve seen so many situations, unfortunately, with fire damage, flood, theft or even just breakage. What are you going to do if it’s not insured?” Baumann said.

  Even once an item is insured, the owner can’t just forget about it, Baumann said. In the case of a loss, the insurance company will want to see an appraisal that is no more than five to seven years old.

  “Much older than that and it is considered pretty old and out of date, and it gets questionable,” Baumann said.

  She added that the update of an appraisal is generally less expensive because a lot of the information is just transferred from one to the other.

  If there is no recent appraisal available, Baumann said that the insurance company will bring in an appraiser to try and estimate the value. These appraisals done after loss of the item are called forensic appraisals, Baumann explained. While they can do much of the same research that would be done to value an existing item, there are some important differences.

  Normally, an appraiser would note the condition of the item, including any damage, repairs, or defects. They would also take measurements and photos. But when the actual item isn’t present, the appraisal is more hypothetical, Baumann said. As a result, the insurance company could say that they don’t believe a 200-year old document was in perfect condition.

  The value the insurance company then assigns to the item may be much different from what it was actually worth, but without proof, an owner has no way to counter that undervaluation, Baumann said.

  Baumann advised people looking for an appraiser to visit one of the three major appraisal organizations: The International Society of Appraisers, The American Society of Appraisers, and The Appraisers Association of America.

  For those who live in an area where there may not be a registered appraiser nearby, Baumann recommended asking for help and a referral from a local museum, library or cultural organization that would have a familiarity with that type of item.