Recently, the 9th Circuit Court upheld a U.S. Tax Court opinion that an appraisal from a highly regarded auction house did not carry adequate assurance of expertise or competency, as well a signaled a conflict of interest. It was an additional blow to the auction house’s reputation since their appraiser was significant among the company’s personnel.
This dovetails with something I’ve found over the years, namely that many of my clients are reluctant to approach auction houses for appraisals because they suspect the house’s ultimate interest may not align with their own. It’s a quiet suspicion, of course, but compelling for them nonetheless.
Having worked closely with auctioneers for more than 20 years, I understand the apprehension – even if I don’t always agree.
Yes, there are unscrupulous auctioneers out there. Some are ‘old school,’ and may hold in contempt ideas like appraiser credentialing and association membership. They might talk a good game – especially if a client is reassured by platitudes, generalities and attractive numbers. Some appraisers still rely on the ‘because I said so’ method of valuation, preferring to point only to their resume to project authority rather than making the effort to research past sales that will truly justify their valuation.
That’s not to say you cannot get a trustworthy professional appraisal from an auction house. You certainly can! There are many good auction houses with competent and qualified experts…it may simply take diligence on your part to confirm the qualifications of the auction house’s appraiser(s) and their adherence to USPAP standards.
The additional message to wealth managers and estate attorneys is that they have an increased fiduciary duty when vetting appraisers for their clients’ personal property, namely the standards they uphold as well as their appraisal qualifications.
Of course, the ultimate solution for avoiding potential conflicts of interest, qualifications or intellectual shortcomings is hiring an independent professional appraiser who is credentialed by one of the big three appraisal associations in the United States – International Society of Appraisers (ISA) – my credentialing organization, the Appraisers Association of America (AAA), and American Society of Appraisers (ASA), as well as one that certifies their appraisal report to USPAP standards.