One such discussion was published in 2011: Auctioneers as appraisers.
Today, we discuss more, “how not to appraise” property — how not to estimate value.
Stephanie’s father was a dentist. Upon his death, Stephanie inherited all of his older dental equipment and supplies. Since his death, these dental items have been stored in Stephanie’s basement.
With the urging of Stephanie’s husband and children, she has decided to investigate selling these items. She thinks selling at auction would be best.
She calls an auctioneer and describes some of the equipment to him. After some detailed discussion, the auctioneer tells her that one item — her father’s vintage “Meissen” dentist sign — may be worth upwards of $5,000.
Stephanie is pleased with the auctioneer’s assessment of the sign, and the other items in her basement. She makes arrangements to have the items picked up and sold at the auctioneer’s auction house later in the month.
The auction goes well. Over 300 are in attendance, including many area dentists and vintage dental collectors. All is sold, and thereafter a settlement is mailed to Stephanie including her net proceeds.
Stephanie receives her settlement. She sees that most items sold for about what the auctioneer estimated, but the Meissen dentist sign only demanded $1,200. She decides to call the auctioneer to discuss …
This Meissen sign was “appraised” by the auctioneer for as much as $5,000. The auctioneer looked at three sources for this appraisal:
- Craigslist — where three such signs were for sale.
- Antiques Roadshow — where two such signs were appraised.
- eBay — where four such signs were listed for sale.
So, why did a sign that was clearly “worth” upwards of $5,000 sell for a mere $1,200? Because it wasn’t a $5,000 sign — and that’s because the auctioneer looked at items “for sale” rather than “sold.”
Appraisals cannot be based upon items people have up for sale. Appraisals must be based upon sale results.
Anyone can ask $5,000 for a Meissen dental sign, but that doesn’t make it worth $5,000. It’s only worth what someone is willing to pay for it, and “for sale” results don’t reflect any buyer perspective.
Further, when looking at sale results (and thus, the sales comparison method), the sale results must meet three criteria:
- Like in kind
- Sold recently
- In the same neighborhood
As a result, only similar or identical signs which have sold in the last 6 months or so in the same market area can be used to help estimate the value of Stephanie’s sign. Dissimilar signs, signs selling over 6 months ago and/or signs selling in a different part of the country or foreign land cannot be considered.
And certainly signs which haven’t sold at all cannot be considered.
As with any client of an auctioneer, Stephanie has a right to sound advice and counsel. Appraisals based upon unsound or inappropriate data are at best, less than accurate and constitute a breach of fiduciary duty.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.