There is a lot of jargon flying around appraisals, and it can get confusing! Here are just a few helpful terms to help you navigate our world.
BUYER’S PREMIUM (BP) – This is the percentage of the bid or “hammer” price paid by the buyer to the auction house when purchasing an item. The fee usually ranges between 15% – 30%.
FAIR MARKET VALUE (FMV) – The IRS defines Fair Market Value as 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. This is the value used for IRS purposes, including appraisals submitted for Estate tax liability, gift tax and charitable donations.
RETAIL REPLACEMENT VALUE (RRV) – Usually employed for insurance purposes, RRV is defined as the highest amount in terms of US dollars that would be required to replace a property with another of similar age, quality, origin, appearance, provenance and condition within a reasonable length of time in an appropriate and relevant market. When applicable, sales and or import tax, commissions and or premiums are included in this amount.
QUALIFIED APPRAISER – An individual who has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met the minimum educational and experience requirements set forth in regulations prescribed by the IRS.
TCHOTCHKE – Most contents of the average home unfortunately fall in the “tchotchke” category: trinkets, ornaments or objects that may have decorative or nostalgic appeal, but little to no resale value.
USPAP – The Uniform Standards of Professional Appraisal Practice are the generally accepted standards for professional appraisal practice in North America. USPAP was developed with the express purpose to promote and maintain a high level of public trust as well as public confidence in professional appraisal practice. USPAP contains standards for all types of appraisal services, including: real estate, personal property, business and mass appraisal.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 recognizes USPAP as the generally accepted appraisal standards and requires USPAP compliance for appraisers in federal-related transactions.
As there is no national license for personal property appraisers, USPAP compliancy is an important credential, and one that the IRS uses to measure appraisals as acceptable for tax purposes. The IRS is much less likely to question appraisals completed by USPAP compliant appraisers.
Definitions provided by the Appraisers Association of America. Here are some more helpful terms from the AAA website.