Art Appraisals: Which Definition of Value is Right for You?

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by Alexa Shitanishi, Asset Archives Content Specialist

In an art appraisal there are various value definitions but how do you know which is appropriate and what they all mean?  Here are the most common value definitions and their purpose.

Retail/Insurance Replacement Value (RRV) is the amount of money it would cost to replace an item with a like item of similar quality from a retail venue, in a relatively short period of time.  This is generally the highest valuation figure for personal property and is the equivalent of buying from a high-end art dealer.  RRV is used primarily for insurance purposes.   

Fair Market Value (FMV) is the amount a willing buyer would pay a willing seller in an open market, usually at auction, with both parties having full knowledge of relevant facts.  FMV is generally less than RRV and reflects how much it would cost to purchase an item at auction.   FMV is used for estate and income tax appraisals and is defined in several IRS rules and regulations.

Marketable Cash Value (MCV) is the net value of FMV and the relevant costs of selling the item such as commissions, insurance, and transaction costs.  Both the willing buyer and seller must be reasonably knowledgeable of the relevant facts with neither being under constraint to buy or sell.  MCV is applied in equitable distribution situations, such as divorce, when tangible property may be exchanged for cash or other financial arrangements.  Some tax attorneys believe that MCV should substitute FMV for the calculation of estate tax liabilities.

 
Liquidation Value is the realized sale price under limited conditions and time constraints, with the sale situation being initiated by the owner or a crediting institution.  Liquidation value will generally be lower than other types of valuation.

 
Salvage Value is, as the term implies, the lowest price that would be realized in a sale situation.  Salvage value entails abandonment by the rightful owner of an item, in which the recoverant may be entitled to an agreed percentage of any net price realized from a future sale.  

Now that you know these definitions of value, it’s important to figure out the appropriate scenario and purpose for your art appraisal.  Any certified art appraiser should be able to provide each of these values, so which one is right for you?

Source:  “Art Appraisals, Prices, and Valuations” in Fine Art and High Finance, ed. Clare McAndrews, 2010.