Leonard Joel

THE PRICE OF EVERYTHING

Leonard Joel Auctions 22 Jul 2012

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When Oscar Wilde so brilliantly identified the cynic as the one that could price everything but value nothing he perfectly described the difference between measurement and appreciation. Since then the phrase and the thinking behind it have been variously applied to all sorts of professions and individuals.

Occasionally the notion has been applied to “us auctioneers and valuers” over the years and usually with reference to our core skill of estimating something for auction. When the seller is happy with the estimate it is described as an “art”, when the seller is not happy it is usually described as “that brutal valuation”. A colleague of mine quite some time ago described the auctioneer’s life as that of someone expert at permanently letting people down; meaning that more often than not a sellers expectations were higher than the auctioneers. But while the dynamic between valuer and client can often be a little testy at the estimation stage and a little “cold”, it occurred to me recently that values and how they are defined is often what is at the core of misunderstandings between clients, their valuers and their advisers.

If the determination of value and the distinctions between the various types of valuations could be presented in a simpler and clearer manner and then disseminated through the collecting and professional community more thoroughly there would, in my opinion, be far fewer perplexed clients and less argument about value.

Recently this issue raised its head again and profoundly at Leonard Joel. A client had accepted on the advice of his solicitor the insurance value of a collection as the amount he would accept as proceeds from a will. The client was unaware (and presumably the solicitor too) of the distinction between insurance values and market or fair market values. So why does this matter? It matters for one very simple and relevant reason and that is because the insurance value is designed to ensure the insured individual is adequately covered to replace the item in the event of loss but it is not designed to represent what the item is actually worth to sell on the open market. Confused? Stick with me. Many people ask, and understandably, why the value to replace is not the value to sell? The answer lies in the fact that insurance values are driven by retail asking prices whereas market prices are driven by what retailers are willing to pay. Herein lies the distinction and that is that insurance values are “pregnant” with a margin or difference that is rarely recoverable when it comes to resale.

Unquestionably, this distinction remains the most significant point of confusion for the client when he or she is contemplating selling and requires urgent industry attention to ensure clients and their professional advisers under- stand the distinction. The client referred to in this discussion realised a fraction of the total insured value and had to stomach the reality that the insured figure on paper should not have been his guide as to value when it came to selling. This was disappointing for the client but an all too familiar scenario for us and I wonder what must change to rectify these continuing and fairly prevalent misconceptions?

In valuation documents there are all sorts of disclaimers and notes that we valuers assume are understood by the client. But I wonder whether the explanations need to be more explicit, less legalistic and simpler to read? To date I have never seen an insurance valuation that clearly states: THIS VALUATION IS TO ENSURE YOU HAVE PLENTY OF COVER TO REPLACE YOUR ITEMS IN A RETAIL ENVIRONMENT WITH SIGNIFICANT MARGINS SO IT IS DELIBERATELY HIGH. DO NOT RELY ON THESE VALUES IF YOU ARE CONTEMPLATING SELLING ANY OF THESE ITEMS BECAUSE THAT IS A DIFFERENT TYPE OF VALUATION BECAUSE PEOPLE WILL NOT PAY YOU WHAT THEY ARE WILLING TO PAY A RETAILER FOR THAT ITEM. I think bold and simple disclaimers are necessary and the sooner the industry broadly agrees on an approach and starts uniformly practicing it the better.

By John Albrecht