Managing:Appraising

Court precedents and laws on the books create boundaries for appraisers

by Al Gilbertson

Last month, we talked about how most appraisers in the marketplace must shoot at two moving targets: value and market. While we'll look at these in more depth in the future, this month's moving target is legal precedents.

To better understand the implications of legal precedents, we need to look at the impact of laws seemingly unrelated to appraisals. Most states have laws related to "reference pricing." To illustrate how they can be interpreted, let's look at Oregon. The attorney general's office in Oregon bases reference pricing on the state's Unlawful Trade Practices code (ORS chapter 646) and the Administrative Rules related to this code (OAR 137-20-010).

The attorney general's office assumes that if a document states it's an "appraisal," it reflects research in the market based on comparable sales. If such a document is issued at the point of sale, it's viewed as "reference pricing" – just as an ad appearing in a newspaper that says 20% off a normally higher price is viewed as "reference pricing." It's assumed comparable sales have been researched and used to "reference" the price represented in the "appraisal."

If a document is issued and describes the quality of an item and its cost but doesn't call itself an appraisal, it no longer needs to reflect the market and comparable sales. It can simply reflect the store's pricing. In this case, it's critical the monetary figure be based on the normal selling price of the item in that jeweler's store.

To summarize, an appraisal must represent market prices to be considered true; documents such as the diamond bonds offered by some stores or any representation not labeled an appraisal must represent the store's actual pricing practice.

Place a "Value"
When you place a value on something you sold, you assume some liability if you call the document an appraisal. For example, imagine a jeweler who has not based his monetary figure (appraised value) on market considerations but on his actual pricing, though his pricing is above the market. He sells items costing $10,000 at a typical keystone markup while everyone else sells them at a 1.5- to 1.4-time markup. His "appraisal" reflects the keystone price. This would be a violation of the code. If he would merely call it "an estimate to replace for an insurance company" and state that the monetary figure reflected his actual selling practices, there would be no liability.

This is even true of "list price" situations, such those involving Rolex watches. The jeweler might simply state in his document the monetary figure on the document represents the list price (and not the 20%-off he usually sells the watches for).

The Oregon attorney general's office released a guide book in 1991 that specifically deals with list prices. It reads: "Comparisons to a list price are permitted only if you can document the list price as having been used in good-faith offers to sell similar goods within your market area during the preceding 30 days." This is a tough standard to meet because advertisers and their competitors do not commonly offer to sell goods at list prices. "The burden is on you to substantiate good-faith offers to sell at the list price in your market area during the preceding 30 days." To meet these guidelines you must complete market research.

The guide book also says: "The best test of good-faith offers is whether substantial sales of the merchandise have been made at the reference price. If a retailer is using a manufacturer's suggested retail price and not selling merchandise at that price, there is a good chance the offer is not in good faith."

Think about this – if you did the research, that makes it an appraisal so call it an appraisal.

Basic Interpretations
Most groups are teaching basic interpretations of the law as handed down in court decisions. However, there are a number of codes or laws that touch upon our profession the appraisal associations have not yet explored – and these associations are not peopled with attorneys. The associations get their information from cases that affect appraisers after the fact. There is now much being taught that comes from long looks into how the courts have handled different scenarios.

Another fundamental problem: laws change and are modified every year. The legal profession can't even keep up with all the changes each year, so how can we?

Jewelry appraisers may not understand all the legal ramifications of what they call an appraisal. But understanding the legal world in which we operate is crucial. Past courses for the appraisal associations have been compilations that various appraisers have researched. They're updated every once in a while, but they're limited in scope of their legal perception.

There is hope, however. The Jewelers Education Foundation of the American Gem Society has been working hard to create a more up-to-date appraisal course, based on legal precedents, laws and codes. Its "Advanced Personal Property Appraisal Course," written by William D. Hoefer Jr., is nearing completion – the first installment of the three-part course is already done. Hoefer also has written other works regarding the legal aspects of our profession. He plans to provide periodic updates as court decisions and new laws impact our profession. The next column will discuss more legal ramifications as we gain a better sense of how the law impacts our approach to appraising.

Al Gilbertson is the owner of Gem Profiles, an independent appraisal service in the Pacific Northwest. He is a member of the American Gem Society, the International Society of Appraisers, the JVC task force on appraisals, the AGS Appraisal Committee and the Gemological Advisory Committee to the AGS Gemological Laboratory. He is also a Fellow of the Jewelers Education Foundation and current lab director of Diamond Profile Laboratory.

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