When inquiring about an appraisal, you may be asked whether you are interested in knowing the cost to replace a specific item for insurance purposes or if you are curious to know the value for resale purposes. Because one item may have many different appraised values, the indented use of the appraisal will dictate which approach to value is utilized by and which type of value is appropriate to assign.
Here are several definitions of common appraisal terms to ensure you are informed for a conversation with an appraiser. All definitions as per the International Society of Appraisers and the IRS.
Approaches to value
Cost approach: approach to value that involves estimating the cost needed to replace the property in the event of a loss or damage.
Sales comparison approach: approach to value that involves comparison of the subject property with similar items that have sold within a similar market.
Income approach: approach to value that involves a comparison with income producing records of similar property.
Types of value
Fair market value: the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.
Market value: the most probable price that a buyer will have to pay, and that the seller is most likely to receive, for an item of property within the defined marketplace at a particular point in time.
Replacement cost: the cost to replace an item with another having similar qualities within a reasonable amount of time in the relevant marketplace.
Replacement cost comparable: the cost necessary to replace an item of personal property with an equivalent item having similar appearance, quality, condition, age, authorship and utility.
Replacement cost new: the cost necessary to replace an item with personal property with a new item of like kind, utility, and having similar qualities within a reasonable amount of time in the relevant marketplace.