• What’s It Worth?

    What’s It Worth?

What’s It Worth?


It depends. Don’t you hate that answer? Me too! However confusing it sounds, that is the correct answer your appraiser should give you. Value depends on the purpose of the appraisal. If the purpose of the appraisal is estate planning, estate settlement, donation, estate division or liquidation, the value to be determined is fair market value. On the other hand, if the purpose of the appraisal is insurance coverage or claim, the value needed is replacement cost. It sounds confusing but makes sense in the context of the intended outcome of the appraisal.

Fair Market Value

The U.S. federal government provides the definition of fair market value for determining tax liabilities such as estate settlement, gift tax or charitable contributions. The definition of Fair Market Value is set forth in U.S. Treasury Regulation 20.2031-1, which states that:

“The Fair Market Value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such an item is most commonly sold to the public, taking into account the location of the item wherever appropriate.”

Consider a situation in which you are dividing an estate which includes a circa 1910 family heirloom oak chest of drawers. What’s it worth? Well, the purpose is an estate division, so the appraiser needs to determine the fair market price. The process for determining it’s fair market value is to review completed sales of comparable chests to determine the most common price in the most common market for the sale of such a chest of drawers. So, if similar chests of drawers sell most commonly at auctions, your appraiser will review auction records for completed sales and determine the most common price.

Replacement Cost

The insurance industry defines replacement cost as the cost to replace an item with another having similar qualities within a reasonable amount of time in the relevant marketplace. It also takes into consideration possible costs incurred by engaging an interior designer, shipping and the costs associated with purchasing from a specific source.

Consider a situation in which you arrive home to find your home is flooded with water from a burst pipe. In addition to the damage to your home, you have the same circa 1910 family heirloom oak chest of drawers, which is water damaged. What is the value of this piece of furniture? For the purposes of your insurance claim, you need a replacement cost for the item, whether it is going to be restored by a professional or is beyond restoration and needs to be replaced with a chest of drawers with similar characteristics.

What’s it worth? Your qualified personal property appraiser will ask you questions about the purpose of your appraisal in order to best determine the value of your property. The next time you watch Antiques Roadshow on PBS, listen for the appraisers full valuation. Did they say “you should insure this for $1,000,000” or did they say, “in a recent auction one similar sold for $1,000,000”? They are addressing the purpose of the appraisal in their response.