Understanding Appraisal Bafflegab

The Segelman lawsuit, covered elsewhere on this site, is just one of a few scandals in recent times which have been particularly murky due to problems of widespread ignorance among non-professionals in their interaction with the string instrument trade. Likewise, ignorance on the part of those who have been reporting on the scandals in the news has served to heighten consumer suspicion of an industry that has always had to weather a degree of well-deserved consumer circumspection. Perhaps an enhanced understanding of the string instrument business and the terminology used in appraisals may help parties on both sides of transactions avoid the types of misunderstandings that currently dog the string instrument business.

In order to understand the code inherent in appraisal terminaology it is first necessary to understand some basic facts about the string instrument trade itself:

The first fact is the illiquidity in the string instrument market. Retail sales events are relatively rare and difficult to generate. Sales events at retail prices nearly always require a combination of conditions: generally the preponderance of retail business in the trade occurs when a highly qualified, credible dealer offers an instrument to a well-qualified customer, with the dealer prepared to accept considerable trade-in inventory on the transaction.

Because of the illiquidity in the market the difference between wholesale and retail pricing is often profound. Adding to the confusion is the frequent wide disparity in desirability of different examples of the same maker. The confusion created by this disparity is easy to explain: If an exceptional example of a particular maker is offered at auction, and two retail level bidders happen to be competing for the piece, then a price close to retail will be achieved at auction, where the norm is usually not highest possible price. Once the record auction price is published word travels to owners of other examples of the same maker, who inevitably presume that their own much-beloved treasure is now “worth” the record price achieved at auction, regardless of the quality of their particular example.

In fact the notion of worth is not so clear cut. To draw an analogy: Barry Bonds brings enormous value as a baseball player for whomever he plays. Any one Barry Bonds swing at the plate holds potential value only, yet the potential value is higher with Bonds at the plate, than with most other players. When Bonds strikes out, the immediate value goes unrealized even if Bonds’ long-term value as a player remains undiminished. Any one sales effort may similarly represent unrealized potential with the potential value directly linked to the sales effort underway. Occasionally even the best players will bunt or hit a safe sacrifice fly. This is because, in the judgment of the manager and/or the player, the situation dictates the need for better odds at a successful outcome, than an attempt at a home run. The same could be held to be true of high-end retail sales of string instruments, each one of which is in effect a home run. Other sales venues, such as auctions and wholesale, are appropriate in instances where a predictable outcome supercedes the value of attempting to achieve the longer odds, the “home run.”

To be thorough appraisals must reflect the needs and realities of the situation. With clients typically unaware of the myriad issues to be considered in any one appraisal, appraisers must often make judgment calls about what type of appraisal is appropriate. These judgments are not always easy for the consumer to comprehend. A knowledge of appraisal terminology can at least help the consumer understand what the appraisal actually says.

There are generally two types of appraisals in common use in the industry today: Insurance Evaluations and Estate Evaluations. The author also recommends that appraisers adopt a third type of appraisal: Liquidation or Auction Appraisal Evaluations.

Using the example of “a Stradivari Violin of the period 1720-1727, original in all principal parts, in a good state of restoration, and a good state of preservation”…

This instrument might produce an Insurance Evaluation of $2.8 million US in January of 2002.
The same instrument might produce an Estate Evaluation of $1.8-$2 million.
The Auction Estimate or Liquid Evaluation for this instrument could be $1 million or less.

All appraisals in the string instrument field rely on subjective judgment as to condition and value. However, to return to the baseball analogy, even though a manager might ask a player to bunt because the odds are better for a good outcome, the bunt may still fail. Judgments about how to handle each situation will sometimes vary from manager to manager. Similarly, the judgment of appraisers can be expected to vary, as can the actual outcome of a sale.

Glossary of Terms

Insurance Evaluation: Designed to protect an owner in the event of loss. Generally at the high end of retail, it should reflect what one would have to pay for a comparable example under retail conditions.
Estate Valuation: Designed to guide individuals, executors of estates, attorneys and courts as to what the proceeds of a normal, medium term, consignment arrangement might be.
Liquidation Appraisal: Designed as a guide to what might be realized in a relatively fast liquidity event, such as an auction or a wholesale transaction.
State of Restoration: Refers to the integrity of the instrument in terms of maintenance and repair work, and implies that the piece has undergone prior restorations. Not necessarily a major depreciating factor. Sometimes stated as:
State of Repair: Typically ranges from “poor” to “fair” to “good” to “very good.” This term should not be confused with
State of Preservation (see below.)
State of Preservation: Refers to the degree to which the piece is preserved intact, as it was originally built. State of Preservation is a subjective evaluation of the number of repaired cracks and the quantity and condition of the original varnish, typically from “poor” to “fair” to “good” to “very good” to “excellent” to “mint.”
Patina: Refers to the condition of the piece in terms of original varnish. Instruments that have undergone frequent polishing lose their patina and are somewhat less desirable than they would be with original patina.
Extensive Retouching: Refers to the originality of the varnish. More or less a euphemism for re-varnished. This term implies substantially degraded desirability and value of a piece, even if the utility value is unchanged.
Ground Coat: Refers to the coat of varnish closest to the wood. The ground coat generally contains little color and separates the later coats of varnish from the instrument, enhancing the refractive visual appearance of the piece.
Acoustical Patch: Refers to wood veneered into an instrument in an attempt to enhance the instrument tonally. This language is used to indicate the presence of a patch that is not a repair of a crack and so should not devalue the piece as much as a repair patch.
Post Patch: Refers to a patch used to repair a crack in the sound-post area. On the top of instruments this is common, on the back it is a major flaw with consequent effect on appraisal value and liquidity.
Evidence of Wood Worm: Refers to damage caused by wood worm. It can be difficult to detect the extent of wood worm damage as much of the damage can remain invisible externally for years. Skilled X-ray or CT scan is recommended for instruments that show evidence of wood worm.
Original in All Principal Parts: Refers to the body and scroll of string instruments, excluding the neck and fittings. Refers to the stick, frog and button on bows; excludes hair, mother of pearl ornaments, and head-plate.