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Keeping Values Current

Posted Jun 12, 2013
Written by Abigail Athanasopoulos
Category General

According to the Uniform Standards of Professional Appraisal Practice, “value” is defined as “the monetary relationship between properties and those who buy, sell, or use those properties.” The USPAP comment to this definition clarifies that it is an economic concept, and, as such, is an “opinion of a worth of property at a given time.”[1] A key factor in this definition is the component of time: values report the market as of one particular date. It is important to consider the time factor as it applies to appraisals for insurance coverage, as replacement values can, and most typically do, change over a period of time, sometimes quite drastically. In other words, the appraisal that you had done of your artworks ten years ago is most likely not an accurate reflection of the current market. What this means for you is that, if values have increased, you may not be adequately protected in the event of a damage or loss and, if values have decreased, you may be paying too high of a premium. In light of these factors, it is advisable to have your appraisal updated every few years, particularly if there are significant changes in the market (as it applies to your properties) that may result from a whole host of reasons (a notable auction sale, the death of an artist, changes in collecting trends, etc.).

The temptation may exist to, rather than hire an appraiser to complete an updated appraisal, use a quantifiable market/economic indicator such as the Consumer Price Index (CPI) to adjust values from an old appraisal to current dollars. However, this can be very problematic, as it does not account for the many other factors that might affect a property’s value. Although an extreme example, the limitations of using the CPI for fine art can be clearly understood when considering a recent (record-breaking) sale at Christie’s New York of a painting by Jackson Pollock. This particular painting, titled Number 19, 1948, sold at the auction house’s Post-War & Contemporary Evening Sale on May 15, 2013 for $58,363,750.00 premium. A decade earlier (May, 1993), it was sold for approximately $2.4 million. Using the CPI, $2.4 million in 1993 “adjusts” upwards to $3,862,107.00 in 2013; however, a buyer was willing to pay substantially more than this (approximately $54.5 million more!) to acquire the painting, which speaks to the fact that there must have been a number of other factors (beyond inflation/purchasing power as measured by the CPI) affecting the market for paintings at this level of the market. Based on what this 2013 sale tells us, it would be near impossible for the owner/policy-holder to replace  Pollack’s Number 19, 1948, (or a comparable painting by this artist) if it were only insured for the “adjusted” $3,862,107.00.

The bottom-line is that you can make sure you are protected for unforeseen damages/losses to your properties (and thus rest a bit easier) by making sure the replacement values used for your insurance policy remain up-to-date. If you uncertain as to whether or not it is “time” to have the appraisal updated, please call us and we will do our very best to help you make an informed decision.    
[1] Appraisal Standards Board, Uniform Standards of Professional Appraisal Practice 2012-2013 (Washington, D.C.: The Appraisal Foundation, 2011), U-5.