Auction value, retail value, insurance replacement value, appropriate marketplace, fair-market value, cash value—all terms applied to antiques, art and collectibles.
Most people when they see these terms listed behind a valuation are confused by what exactly is meant and ultimately why each term has a different dollar sign placed on it. So let me help you through the process with these basic definitions.
Auction Value: This is the price that an appraiser feels a given object could/would/should bring at auction. It is based on comparison of like items and recent past history of sales. And frankly has NOTHING to do with the actual value of the item.
Retail Value: We get this—usually. A competitive price is applied to a single item. It is expected that the item will be sold for that marked price. The retailer has purchased the product from one source at one price, adds his markup and sells the item at a profit. Appraisers never, or hardly ever, express values in this manner.
Insurance Replacement Value: A value is placed on any given item based on this definition that is universally known; “the amount of money it would take to replace a given item if it were lost, extensively damaged, stolen.” The dollar sign applied to this item would be what an individual or agency would be expected to pay to replace it from a retail source in the appropriate venue within a limited time frame
Appropriate Marketplace for Replacement: Appraisers use this term in the valuation/insurance replacement process and in written documents. Say you have a 1948 Rolex Oyster wristwatch purchased at Asprey in London, the insurance replacement value would be placed on the watch to be replaced at the appropriate marketplace, not, for example, Happy Pappy’s Watch Shop.
Fair-Market Value: Thank goodness our friends at the IRS have a definition of this term. “ The price that property would sell for on the open market between willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.” Now, let’s break down the meaning even further. This definition is important because it defines/forms the basis for charitable contributions, estate, resale and equal distribution appraisals.
Cash Value: Sometimes appraisers use the term cash value as if it were synonymous with fair-market value. THIS IS NOT ABSOLUTELY CORRECT! The correct term for cash value should be called the marketable cash value (or resale value). It is fair-market value minus, or less, the expenses of selling the item. The expenses might include the commission—which may run as high as 40% to 50%—advertising the item and/or moving expenses.