Quality Condition Adjusted Mean Methodology: A Comparative Valuation Tool for the Appraiser by Todd W.

Sigety, ISA CAPP

Introduction This paper explores the process of using a quality/condition adjusted mean methodology (Q-CAMM) to determine value of a subject property. A quality/condition adjusted mean regulates comparable values based upon condition level and quality points, and arrives at a final value conclusion relative to the subject propertys intrinsic features and state of preservation. Q-CAMM continues to rely upon the personal opinion and experience of the appraiser while introducing additional mathematical components to basic statistical averaging. Relative to the subject property, the appraiser determines and selects sample comparables from an appropriate market level population and assigns quantified ratings for subjective quality attributes and condition levels. To use Q-CAMM correctly and effectively, the appraiser must have sufficient knowledge and points of reference to assign the subjective factor data points within the selected data set. A quality/condition adjusted mean appraisal methodology should reduce the amount of guesswork and randomness in arriving at final value conclusions for singular items of decorative art. The final value conclusion of the subject property will be directly correlated to relative comparative values, as determined by appraiser ranked quality and condition. Before delving into the mathematical valuation model, a discussion on measures of central tendencies, market levels, quality characteristic, and condition is necessary. Measures of Central Tendencies Personal property appraisers typically use a combination of methods and techniques when arriving at value conclusions. Depending upon circumstances, such as number of comparables located, similarity of comparables, quality characteristics, and property condition, different appraisal techniques and

methods can be employed in developing value conclusions. Some appraisers use mathematical or statistical formulas, such as measures of central tendencies, including the mean and the mode when appropriate. Appraisers may also rely upon connoisseurship and experience in determining final value conclusions, intuitively adjusting values based upon research and comparable samples located and deemed suitable. Using a mode appraisal methodology is one of the more statistically significant methods in determining credible value conclusions. This holds true so long as sufficient parallel items are located within a sample population having similar age, utility, quality, and condition characteristics. Valuation using a mode methodology works well on objects such as household appliances and relatively new items of property. With this type of property a large sampling of nearly exact items can typically be located in sufficiently large numbers and in similar condition. In these instances a mode methodology functions properly from a statistical point of view, and perhaps more importantly, removes much opinion and guesswork in determining a suitable and objective value conclusion. USPAP (2008) Standards Rule 7-6 states that in developing a personal property appraisal, an appraiser must reconcile the quality and quantity of data available and analyzed within the approaches used and reconcile the applicability and relevance of the approaches, methods and techniques used to arrive at the value conclusions. In short, the data analysis and method of determining value must be relevant and appropriate for the type of property being appraised. Methods of central tendencies do not work nearly as effectively as valuation tools for singular items, such as antique decorative arts. In appraising singular items, the subject property and similar comparable items are assessed and evaluated on their own individual aesthetic qualities, provenance, age, rarity, condition, and utility. When dealing with subjective evaluations of singular form decorative arts, there is typically room for additional variables and reinterpretation based upon appraiser background, experience, prejudices, connoisseurship and emerging scholarship. Depending upon the uniqueness of the subject property and scope of work issues, exact or suitably close comparable samples may not exist or may not be available for comparison in sufficient quantities for significant statistical

34

Todd W. Sigety

averaging. In these instances markets are researched and similar or parallel property is located for comparison. Values are then typically adjusted accordingly for differences in design aesthetics and condition in determining final opinions and value conclusions. In situations where a central tendency methodology is deemed inappropriate, the appraiser, based upon comparables and data points found, may use subjective experience and empirical knowledge in adjusting value. The appraiser may intuitively adjust value based upon condition levels, rarity, and design aesthetics relative to the subject property. This is a system that typically works well yet may be considered somewhat arbitrary and random especially to the uninformed. If final value conclusions are not repeatable or are lacking in supporting documentation an intuitive method in arriving at value can become problematic. This is especially relevant in an appraisal review situation where finial valuation is scrutinized, leaving the appraisers opinion open to challenge and potential legal exposure. When researching comparable decorative art values the appraiser frequently reviews and researches a large statistical population of similar items, then selects appropriate samples to use as comparables in valuing the subject property. Sample or comparable property selection is not an arbitrary process. The appraiser must select sample comparables from a statistical population of possibilities which are similar in quality and condition in addition to selecting the appropriate market level for comparison to the subject property. In statistical terms, the population should have a normal distribution (bell curve). The selected sample items should fall near the middle/mean of the data range, avoiding outliers or extreme occurrences within the population which might significantly alter the final value conclusion of the subject property. Comparables should be selected within the appropriate market with items of similar utility, quality, and condition. As an example, an appraiser seeking a valuation on an inlaid American Federal mahogany sideboard should select similar inlaid American mahogany sideboards of the Federal period with related design aesthetics, condition and provenance as comparables. For the proper selection process to occur the samples can not be randomly chosen; the appraiser must rely on his experience and expertise to select relevant samples from the statistical population as comparative examples to the subject property.

Quality Condition Adjusted Mean Methodology

35

Simple mathematical formulations such as averaging have a tendency to foil the appraiser by not taking into account subjective quality and condition differences of comparative property relative to stated value. These factors greatly impact comparative value and should be recognized within any appraisal related mathematical model or statistical formulation. Fundamental measures of central tendencies such as the mean and mode, when calculated by an appraiser typically are used without regard to any subjective weighting, and are specifically limited to the data set of selected comparable values. Since exact comparables are typically not available within many antique decorative art property specialties, a defendable appraisal methodology should be used to document and reconcile quality and condition relative to the comparative value data points. QCamm was developed as an accurate, repeatable and defendable appraisal methodology. Markets When selecting comparable property the appraiser must be mindful of the multiple levels of trade available for sample selection, including retail, wholesale, and liquidation markets and various sub-divisions within each market model. When comparing property, it is important to stay within the same market level and also understand that markets are imperfect and are not always balanced. Imperfect markets can result in similar property with related quality, condition, age, desirability and provenance being valued differently. According to USPAP (2008) section 7-3, comments, The appraiser must recognize that there are distinct levels of trade (measurable marketplaces) and each may generate its own data. For example, a property may have a different value at a wholesale level of trade, a retail level of trade, or under various auction conditions. Therefore, the appraiser must analyze the subject property within the correct market context. On October 3, 2007 Christies in New York sold an 18th century Philadelphia pie crust tilt top tea table for the record sum of $6,761,000.00 including buyers premium. The table is thought to have been carved by the Garvan Carver of Philadelphia. The previous auction record for a pie crust tilt top table was $2,442,500.00, and the Christies table also exceeded the previous high of

36

Todd W. Sigety

$4,620,000.00 for all Philadelphia colonial period furniture. The differences between the two record sales add to the subjectivity and uncertainty of property valuation and connoisseurship, and reinforce the concept that markets are not perfect. Christies had a 2/3 million dollar estimate on the tea table with access to the previous record auction price of 2.4 million dollars. Was the estimate an intentionally low value? Typically not when international auction houses catalog and estimate the upper market level of property in specialty sales. It appears the auction pre sale estimate was based upon the previous record and possibly an allowance for economic appreciation. Sothebys NY auctioned a similar Philadelphia tea table during Americana Week on January 19, 2008. The similar tea table at Sothebys now carried an expanded pre sale estimate range of 2/6 million dollars and was entitled in the auction catalog as the Acme of Perfection. The tea table at Sothebys was also attributed to the Garvan Carver, was in similar condition and had a strong family provenance dating back to the creation of the table. The Sothebys table failed to reach the low estimate and sold for $1,833,000.00 including buyers commission. These drastic differences in value opinions and ranges versus final sale or hammer prices all support the difficulties and subjectivity in properly selecting pre-sale estimates, and by association potential appraisal valuation conclusions within any given market level. The value of the tea table can be debated by appraisers based upon pre sale estimates, hammer price, previous sale comparisons and past record prices. The final record selling price of $6,761,000.00 for the tea table remains difficult for the appraiser to rationalize based upon past sales and previous record prices. As such, the Christies tea table may not be a suitable candidate as comparative property for an appraisal, yet the record price should be revealed and analyzed within the report. Additionally, it would be inappropriate to compare the record priced masterpiece tea table to a fine, yet somewhat pedestrian 18th century Philadelphia tea table which typically sells at the middle market retail level of trade. A solid middle market Philadelphia tea table might have issues and questions of stylistic quality, provenance, rarity, surface condition, restorations and an assortment of additional valuation variables. It is left to the appraisers discretion to properly analyze and select appropriate market levels and sub-levels, and

Quality Condition Adjusted Mean Methodology

37

not compare pieces that are outside the same category of aesthetic quality, provenance, condition and desirability. Assigning market levels to cultural property is a subjective process with numerous philosophical and associated mentalities evolving while deciding upon the significance of value, quality, condition, rarity, utility and provenance. Relevant market level assessments are typically opinions and at times can be controversial, debated and divisive. Therefore, the appraiser must use the proper amount of due diligence in researching the subject property to relative comparative property. This is especially true if the subject property has the potential to be included in an upper market. Provenance is an important element in determining market level, authenticity and cultural significance. Provenance is typically the combination of place of origin or creation, proof of authenticity, along with a record of prior ownership, historical significance and public/private exhibitions. Museum curators are eager to establish provenance for works of fine and decorative arts within their collections. Museum collections are typically researched and studied in order to add significance, importance, and stature to the collection, as well as documenting the property for present and future generations. Appraisers are interested in past ownership, authenticity and historical significance as well in order to determine placement in correct market levels and to assist in establishing a credible value. The quality/condition adjusted mean methodology does not use factors for market level. The appraiser, based upon experience, education, and research is responsible for selecting the proper market, sub market and associated comparative samples within a statistical population for relative valuation analysis within the model. Quality Q-CAMM continues to embrace the subjective philosophical questions of quality, authenticity, rarity, condition, and desirability as relevant. In appraising, the subject property and comparative samples all must be viewed individually, analyzing all essential characteristics which might influence proper valuation. The debate of authenticity and quality characteristics resonates when

38

Todd W. Sigety

discussing value, and therefore is worth exploring. In The Expert versus the Object, Francis V. OConnor discusses authentication and three approaches used to determine authenticity. The three approaches include scientific analysis such as forensic examinations, historical documentation including provenance, and most importantly visual inspections in the form of connoisseurship. OConnor states since the ability of the connoisseur to perceive the rightness of a work usually precedes the need for the lab or archive, the ideas of connoisseurship is crucial to the whole matter of authenticity. OConnor elevates the importance of visual inspections over forensics and provenance, yet the subjectivity of the process to quantify quality attributes and assign associated values through connoisseurship to the decorative arts remains. Albert Sacks popular book The Fine Points of Furniture is written to specifically use 5 levels of categories and assignations to rate furniture. QCAMM borrows much from Sacks philosophy in ranking quality characteristics. According to Sack there are many more than five categories and that all categorization is rigid and subject of interpretation and debate. Sack continues This debate, however, is stimulating and is what the book is trying to accomplish. I do expect that some categories will be challenged; some represent very hard choices.6 Connoisseurship of the fine and decorative arts, like personal property appraising is not an exact science, and many opinions of value, authenticity and quality are open to debate, re-interpretation and advancing scholarship. Furniture historian Ronal Hurst writes the prudent researcher knows that additional information may in time come to light and either reinforce or refute his or her findings. On occasion such unexpected discoveries lead to a complete departure from long-accepted conclusions. 7 When examining qualitative rankings within a particular market level, consideration must be given to decorative quality, provenance, rarity, stylistic impact, age, construction characteristics and importance of the property. The American Society of Appraisers personal property appraisal manual includes the principle of qualitative rankings. The ASA defines the principle of qualitative rankings as a sound opinion of relative quality, or relative value, which can be derived from comparison of characteristics and features of the subject property with the corresponding characteristics and features of another property selected

Quality Condition Adjusted Mean Methodology

39

as a standard for comparison. The definition continues ranking by quality is primarily a question of aesthetic judgment and connoisseurship and is independent of economics and fashion.8 The principle of qualitative ranking follows sound reasoning, yet in reality may be limited due to the evaluators connoisseurship experiences, property biases, and market knowledge. The appraiser must have the knowledge and connoisseurship to effectively compare and rank based upon qualitative attributes. According to the competency rule from the Uniform Standards of Professional Appraisal Practice (USPAP) 20082009 edition background and experience of appraisers varies widely, and a lack of knowledge or experience can lead to inaccurate or inappropriate appraisal practice. The competency rule requires an appraiser to have both the knowledge and the experience required to perform a specific appraisal service competently.9 For the purpose of model development, quality attributes will be divided into 5 levels. The quality attributes of sample comparables and subject property are rated and quantified within the mathematical model. It is the responsibility of the individual appraiser to properly assign and justify the quality levels of both the subject property and the sample comparables. Condition Current trends within the scholarship and connoisseurship of the decorative arts are to allow cultural property to remain in original condition as long as possible. Museum conservation departments have been partially responsible for this new age of enlightenment. Their highly qualified specialists are now far more communicative, and the conservators twin precepts of stabilizing past deterioration and protecting from future damage rather than undertaking major overhauls have filtered down to the general public. Restoration is as much about an attitude, or even a philosophy, as it is about manual activity.10 The more original the piece of property, typically the higher the value, especially if there has been little or no required restorations or conservation. The subjective nature of evaluation including quality and restoration levels opens many areas of debate, especially when considering the valuation of personal property.

40

Todd W. Sigety

The appraiser is required to be familiar with all aspects of the property being examined. This includes but is not limited to condition and restoration issues, market levels, provenance, market trends, fakes, forgeries, revival examples, period attributes, artisan techniques, and aesthetic qualities. Furniture conservator Robert F. McGiffin, Jr. states Scholars have long been aware that each artifact is unique. When an artifact, or any part of it, is destroyed, a part of history is lost and can never be recovered. An increasing general awareness of this fact may help to change a significant number of methods of caring for, interpreting, and protecting historical and artistic work.11 Personal property appraising requires the accurate identification of the subject property and related comparables to arrive at credible valuation conclusions. The International Society of Appraisers defines identification as the act of determining a propertys nature, its origin or its definitive characteristics. The ISA continues, Identification is quantitative and scientific it involves intrinsic characteristics such as dimensions, materials, form, construction techniques, weight, condition, damages, signs of aging, etc.12 Through identification, the appraiser should posses the knowledge to adequately identify property, determine market levels, assess quality attributes and determine condition levels. In order to arrive at proper value conclusions, the subject property and comparative samples must be properly examined for condition. The appraiser must establish the proper balance between connoisseurship and forensic examinations to determine the existing state of preservation. Many reference databases available to the personal property appraiser for research and comparable selection include images and basic sales information. Condition reports on these databases, if listed at all are typically incomplete and many times deficient and lacking significant detail. Knowledge of the subject property and selected comparable property condition is paramount when appraising personal property. The appraiser, using appropriate due diligence must take condition factors into account in determining value; otherwise value conclusions may not be credible, valid or defendable. It is difficult to properly characterize all of the objective and subjective variables that potentially impact the value of the decorative arts. Valuations are

Quality Condition Adjusted Mean Methodology

41

typically left to individual subjective observations, connoisseurship, and empirical knowledge of the appraiser. The appraiser is responsible for selecting acceptable comparables with related yet unique condition variables in order to make credible value conclusions. It should be noted that many decorative arts condition issues can be corrected with proper conservation techniques, while a poorly designed and constructed piece will not rise to a higher aesthetic level. Sub-standard restorations may cause a negative impact upon value and cost more to first remove and then correct and properly conserve In order to develop a quality/condition adjusted mean formula, 5 condition level factors are used. The quantified factors are used in adjusting the mean value of the sample set. Like quality rankings, it is the responsibility of the individual appraiser to properly assign and justify the condition level of both the subject property and the sample comparables. Q-CAMM Mathematical Model Now that market levels, quality attributes and condition levels have been discussed, a quality/condition adjusted mean methodology (Q-CAMM) appraisal model will be developed. The hypothetical example formulation of the quality/condition adjusted mean will include a subject property, 5 comparable items of property with values, 5 subjective quality attribute levels, 5 subjective condition levels and a few basic mathematical and statistical formulas to manipulate the data set. As noted in the quality and condition rankings, the 5 quality and 5 condition levels are each rated from 1-5, with 5 being the highest. The appraiser selects and subjectively ranks each comparable item with a quality and condition factor between 1 and 5, then totals the two factors and multiplies by 10 in order to later use percentages. The 5 hypothetical comparable items are assigned values and quality and condition data points as noted in the following table. When arriving at quality and condition levels for the model, the appraiser should assign factors comparatively and not hierarchically. The appraiser can also use critical assumptions in determining sample item condition factors should a full condition report not be readily available. Any critical assumption made which impacts value must be disclosed in the appraisal report.

42

Todd W. Sigety

Hypothetical Data Points Selecting data points from the above table, the next operation is to average the 5 comparable values to determine the mean and then average the summation of the quality and condition factors which have already been multiplied by 10. The selected comparable mean value is $4,940.00, while the mean of the summed and multiplied quality/condition factors are 84. Next, convert the totaled and average quality/condition factor to a percent, (84%). The comparable value mean of $4,940.00 is representational of 84% of a total value based upon the 5 comparable values and the 10 quality/condition factors. The next step in the process is to calculate the relative comparable value at 100% which will represent the quality/condition adjusted mean and maximum value of this particular data set. Convert the 84% to a decimal, (.84) and divide into the comparable value mean of $4,940.00 to determine the quality condition adjusted mean value at 100%. The value at 100% is $5,880.95, and represents the quality/condition adjusted mean of the comparables. The next operation is to rank the subject property for quality and condition in relation to the comparable property. For this exercise the hypothetical quality level will be rated a 3 and the condition factor will be a 5. As with the comparables property the two factors are totaled, equaling 8, and multiplied by 10 and converted to a percentage, equaling 80%. Calculate 80% of the comparable quality/condition adjusted mean of $5,880.95 for a subject property valuation of $4,704.76. The $4,704.76 represents a relative value based upon the quality and condition of the subject property compared to the quality/condition adjusted mean of the comparable items of property.

Quality Condition Adjusted Mean Methodology

43

Sample Excel Spreadsheet The formulas are basic enough to easily compute by hand, or set up in a simple spreadsheet program to perform the proper functions necessary to determine the quality condition adjusted mean. Should five comparables not be necessary, the mathematical model may also be constructed to use only three by changing the division component from 5 to 3. Rankings, calculations and valuations can all be retained in the work file for future reference and may also be placed in the appraisal report documenting final value conclusions. The above model works well for similar items of comparative value, quality and condition. It must be noted that by straying too far from a small standard deviation of rankings within the data set, such as using random samples, multiple outliers or statistical anomalies such as all 1s and 2s as condition and quality factors for comparable samples will result in ineffective results. The comparable values and assigned rating factors must be relevant, viable, and be statistically appropriate. The methodology requires quality and condition factors to fall within the range of values that could reasonably be expected to occur from using appropriate appraiser generated samples. If the samples are not properly selected or relative to the subject property the quality/condition adjusted mean will not function effectively.

44

Todd W. Sigety

The quality and condition factors when totaled and averaged should typically fall above 50, and preferably above 60 for the methodology to function properly. If the quality and condition factors when totaled and averaged are below these thresholds then the selected comparables and assigned quality and condition factors may not be appropriate for a statistically significant comparison. A selection of different comparables and/or a reassessment of the assigned factors would then be necessary for a credible and statically appropriate value conclusion. The Q-CAMM mathematical model can be applied to hypothetical appraisals based upon potential changes in condition or for insurance damage claims which may include pre and post repair valuations. The appraiser can compare existing condition valuations to hypothetical condition valuation models using experiential factoring and derivative comparables within the spreadsheet model. The methodology is straightforward and can reveal credible results and points of comparison for restoration cost/value analysis. Incorporating sophisticated statistics and mathematical formulations, the Q-CAMM model can be expanded to include weighted averages and further adjustments for market changes such as inflation or depreciation. The factors can be weighted to reduce the impact of outliers and to incorporate a larger standard deviation, thus reducing the possibility of skewed or impractical results. The quality condition factors might also be weighted to strengthen the significance of the quality attributes since condition issues can usually be mitigated with proper conservation treatments. The appraiser might wish to weigh the quality factor to 60% and the condition factor at 40%. If the appraiser is familiar with an index such as the Antique Collector Club English Antique Furniture Price Index, dated comparable values found could be adjusted based upon the index. The index based results would impact comparable property valuation and adjust the final value conclusion of the subject property. Each new element added will further balance and refine the methodology, but also increase the sophistication of the valuation formula. Just as the case was built to support market assignations, quality levels and condition factors, should additional elements be added to the model, a credible analysis will be necessary to document and substantiate the expanded methodology.

Quality Condition Adjusted Mean Methodology

45

Conclusion In summary, using a quality/condition adjusted mean methodology (QCAMM) continues to integrate subjective techniques by obtaining sample comparative property from a statistical market population while analyzing and assigning quality and condition ratings. When using a quality/condition adjusted mean, no longer are mean calculations of singular items limited in significance since they have been quantified relative to value, quality, and condition. The final value conclusion is now determined by a mathematical model which incorporates a specific measured methodology not based upon random or arbitrary conclusions, but upon the combination of both factual and quantified, although subjective data points. The quality/condition adjusted mean methodology can be considered a hybrid formulation. The methodology relies upon both factual data points chosen by the appraiser in the form of comparable values, and subjective input in rating the comparables and subject property on quality and condition dynamics. When using Q-CAMM to determine value, it is recommended that a statement be inserted into the appraisal document defining the methodology. QCamm does consume more appraisal time, and therefore may not be practical for lower valued property. In the event of potential challenges, contentious clients and high value property the methodology is both defendable and repeatable. Although not completely scientific in its approach due to subjective input from the appraiser, when using appropriate comparable property the model develops reasoned and sound value conclusions. Q-CAMM was developed as a supplementary tool to be used by the personal property appraiser in developing and supporting value conclusions of singular items of decorative arts, and should be used with proper judgment and deliberation. (For a sample Microsoft Excel Spreadsheet of the Q-CAMM model, please contact the author at toddsig@attglobal.net)

46

Todd W. Sigety

Todd W. Sigety is a certified member of the International Society of Appraisers, specializing in appraising American and English antique furniture, decorative and fine arts. He operates two antique galleries in Old Town Alexandria, VA, and displays at select antiques shows. He is a partner in the Appraiser Workshops offering The Good, Better, Best Appraiser Workshop and is the Editor of the Journal of Advanced Appraisal Studies.

12008-2009 USPAP Plus. 2008-2009 USPAP plus Guidance from the Appraisal Standards Board. The Appraisal Foundation, 2007. p. U-58 22008-2009 USPAP Plus. 2008-2009 USPAP Plus Guidance from the Appraisal Standards Board. The Appraisal Foundation, 2007. p. U-57

Lita. Maine Antique Digest. http://www.maineantiquedigest.com/stories/index.html?id=266. Sotheby's - Auctions - Calendar - Important Americana. http://www.sothebys.com/app/live/lot/LotDetail.jsp?sale_number=N08400&live_lot_id= 168.
4

3Solis-Cohen,

D. Spencer. The Expert Versus the Object: Judging Fakes and False Attributions in the Visual Arts. Oxford University Press, USA, 2004. p. 6
6Sack,

5Ronald

Albert. Fine Points of Furniture. Crown Pub, 1979. p. 14 Luke. American Furniture 2006. Chipstone Foundation, 2007. p.29

7Beckerdite,

8The Appraisal of Personal Property: Principles, Theories, and Practice Methods for the Professional Appraiser. American Society of Appraisers, 1994. p. 15

USPAP Plus. 2008-2009 USPAP Plus Guidance from the Appraisal Standards Board. The Appraisal Foundation, 2007. p. U-11
10De

92008-2009

Bierre, Julia. Restoration Recipes. San Francisco: Chronicle Books, 1999. p. 7

11McGiffin,

Robert F. Furniture Care and Conservation. Nashville, Tenn: American Association for State and Local History, 1983. pp. 5-6 Couirse in Appraisal Studies. Renton, Washington: International Society of Appraisers, 2005. p. 144

12Core

Quality Condition Adjusted Mean Methodology

47