People have art appraisals done for various reasons: curiosity, resale vale, tax purposes, etc. One of the most common reasons for art appraisals though is for insurance purposes. And, this is where the difference between fair market value and replacement value becomes important.
About Art Appraisals for Insurance Purposes
Insurance companies require valuables like jewelry, paintings, antiques and other items you may wish to insure to be independently appraised before they will extend coverage.
In general, the purpose of most art appraisals is two-fold: (i) to provide the owner with information about their objects so that they can fully appreciate and understand it; and (ii) to assess a market value that can be used in cases of sale, insurance, replacement costs, etc.
Now that you understand why it’s important to get your item appraised, let’s look at the difference between fair market value and replacement value.
Art Appraisals: What is Fair Market Value?
In simple terms, fair market value is the price an object could be sold for if it were put up for sale on the open market.
For example, if you offered it for sale on a website and you and a knowledgeable, willing buyer agreed on a price. The key phrase in the last sentence is knowledgeable. To get fair market value, it’s important that the buyer and seller both understand the intrinsic value of an appraised piece.
Otherwise, one may feel taken advantage of, and could be cause for legal action. This is why an independent art appraisal is key.
Art Appraisals: What is Replacement Value?
Replacement value is how much it would cost to replace a similar item, of the same quality in the current market dynamic. There are various kinds of replacement value, ie: (i) new; (iii) second-hand; (iii) facsimile; and (iv) liquidation. Each is described briefly below.
New Replacement Value: This value is based on an item still being available elsewhere new.
Second-hand Replacement Value: Value that reflects the current cost to replace a similar item in roughly the same condition.
Facsimile Replacement Value: Value that reflects the cost of recreating an item in the likeness of the original, adhering to the same quality standards and using roughly the same materials.
Liquidation Replacement Value: Value that reflects the price garnered when an item is forced to be sold under unusual circumstances – eg, time constraints or other limiting conditions.
The Value of a Professional Art Appraiser
A knowledgeable art appraiser will know not only the specifics and history of your collection/piece, he or she will also know details about the recent market demand as it relates to your them. Eg, how it’s performed in the market recently, is demand for it growing or subsiding, interested collectors, etc.
Considering all of this, the value of a reputable art appraiser can’t be understated.
By: Judith A. Tartt
© 2010 Wildlife Art
