An appraisal report is a legal a document in which the appraiser concludes an opinion of value based on inspection, research, analysis, and reporting on the subject property. The following steps must be taken when completing an appraisal report:
1. DETERMINE PURPOSE/INTENDED USE
The first step in preparing an appraisal is to determine the intended use, which may be for:
Insurance coverage or settlement - An appraisal is necessary to ensure that property is covered at its full replacement value when purchasing insurance or in the event of a claim for loss or damage.
Consultation for acquisition or disposition of fine art property - Involves determining the value in the appropriate market when considering the purchase or sale of fine art property.
Charitable contributions/donations - Appraisals are required by the IRS for tax deductions for personal property with fair market value in excess of $5,000.
Estate Planning and equitable distribution for estates - Appraisals are often required to determine the fair market value for tax purposes upon the death of a collector or artist.
Property Division for dissolution of marriage or business - An appraisal is necessary to help ascertain equitable distribution of the collection.
2. DETERMINE TYPE OF VALUE
Once the intended use is determined, the appraiser must decide which type of value best fits that assignment. Common of the types of value include:
Replacement Value - This is the what it will cost to promptly replace property with a like kind. It is most commonly used when appraising for insurance purposes.
Fair Market Value - This is the price at which property would change hands between a willing buyer and a willing seller with no pressure on either party to buy or sell. This is the only type of value recognized by the IRS. It is used to conclude value for estate and gift tax purposes and charitable donation purposes.
Marketable Cash Value - This is similar to fair market value, but expenses related to the sale (including shipping or commissions) are subtracted. This might be used to when considering the resale of a property.
3. DETERMINE APPROACH TO VALUE
The next step is for the appraiser must determine what approach to use in concluding value. These would be:
Sales or Market Comparison Approach. This is the most common approach for appraisals of personal property, and involves the comparison of recent sales of similar properties.
The Cost Approach. In this approach, valuation is based upon the initial cost of the property.
The Income Approach. This approach considers the income that a property may generate.
4. PROVIDE ESTIMATE AND SCOPE OF WORK
After ascertaining the intended use and determining the type of and approach to value, the appraiser then provides an estimate to the client. Fees include time spent inspecting, photographing, identifying, and researching the subject property, as well as analyzing findings and preparing a detailed appraisal report. Fees vary depending on the scope of the project and can be based on an hourly or project basis. Depending on the complexity of the assignment, the turnaround time for an appraisal can be anywhere from two to six weeks.
Why you need an appraisal: https://www.worth.com/advice/needs-art-collection-appraisal-anyway/
Difference between valuation and appraisal: https://www.artworkarchive.com/blog/guide-to-professional-valuation-of-your-collection