The Legal Angle
Court precedents and laws on the books create boundaries for appraisers
by Al Gilbertson
Last month, we talked about how most appraisers in the marketplace must
shoot at two moving targets: value and market. While we'll look at these
in more depth in the future, this month's moving target is legal precedents.
To better understand the implications of legal precedents, we need to
look at the impact of laws seemingly unrelated to appraisals. Most states
have laws related to "reference pricing." To illustrate how they
can be interpreted, let's look at Oregon. The attorney general's office
in Oregon bases reference pricing on the state's Unlawful Trade Practices
code (ORS chapter 646) and the Administrative Rules related to this code
The attorney general's office assumes that if a document states it's
an "appraisal," it reflects research in the market based on comparable
sales. If such a document is issued at the point of sale, it's viewed as
"reference pricing" just as an ad appearing in a newspaper
that says 20% off a normally higher price is viewed as "reference pricing."
It's assumed comparable sales have been researched and used to "reference"
the price represented in the "appraisal."
If a document is issued and describes the quality of an item and its
cost but doesn't call itself an appraisal, it no longer needs to reflect
the market and comparable sales. It can simply reflect the store's pricing.
In this case, it's critical the monetary figure be based on the normal selling
price of the item in that jeweler's store.
To summarize, an appraisal must represent market prices to be considered
true; documents such as the diamond bonds offered by some stores or any
representation not labeled an appraisal must represent the store's actual
Place a "Value"
When you place a value on something you sold, you assume some liability
if you call the document an appraisal. For example, imagine a jeweler who
has not based his monetary figure (appraised value) on market considerations
but on his actual pricing, though his pricing is above the market. He sells
items costing $10,000 at a typical keystone markup while everyone else sells
them at a 1.5- to 1.4-time markup. His "appraisal" reflects the
keystone price. This would be a violation of the code. If he would merely
call it "an estimate to replace for an insurance company" and
state that the monetary figure reflected his actual selling practices, there
would be no liability.
This is even true of "list price" situations, such those involving
Rolex watches. The jeweler might simply state in his document the monetary
figure on the document represents the list price (and not the 20%-off he
usually sells the watches for).
The Oregon attorney general's office released a guide book in 1991 that
specifically deals with list prices. It reads: "Comparisons to a list
price are permitted only if you can document the list price as having been
used in good-faith offers to sell similar goods within your market area
during the preceding 30 days." This is a tough standard to meet because
advertisers and their competitors do not commonly offer to sell goods at
list prices. "The burden is on you to substantiate good-faith offers
to sell at the list price in your market area during the preceding 30 days."
To meet these guidelines you must complete market research.
The guide book also says: "The best test of good-faith offers is
whether substantial sales of the merchandise have been made at the reference
price. If a retailer is using a manufacturer's suggested retail price and
not selling merchandise at that price, there is a good chance the offer
is not in good faith."
Think about this if you did the research, that makes it an appraisal
so call it an appraisal.
Most groups are teaching basic interpretations of the law as handed down
in court decisions. However, there are a number of codes or laws that touch
upon our profession the appraisal associations have not yet explored and
these associations are not peopled with attorneys. The associations get
their information from cases that affect appraisers after the fact. There
is now much being taught that comes from long looks into how the courts
have handled different scenarios.
Another fundamental problem: laws change and are modified every year.
The legal profession can't even keep up with all the changes each year,
so how can we?
Jewelry appraisers may not understand all the legal ramifications of
what they call an appraisal. But understanding the legal world in which
we operate is crucial. Past courses for the appraisal associations have
been compilations that various appraisers have researched. They're updated
every once in a while, but they're limited in scope of their legal perception.
There is hope, however. The Jewelers Education Foundation of the American
Gem Society has been working hard to create a more up-to-date appraisal
course, based on legal precedents, laws and codes. Its "Advanced Personal
Property Appraisal Course," written by William D. Hoefer Jr., is nearing
completion the first installment of the three-part course is already
done. Hoefer also has written other works regarding the legal aspects of
our profession. He plans to provide periodic updates as court decisions
and new laws impact our profession. The next column will discuss more legal
ramifications as we gain a better sense of how the law impacts our approach
Al Gilbertson is the owner of Gem Profiles, an independent appraisal
service in the Pacific Northwest. He is a member of the American Gem Society,
the International Society of Appraisers, the JVC task force on appraisals,
the AGS Appraisal Committee and the Gemological Advisory Committee to the
AGS Gemological Laboratory. He is also a Fellow of the Jewelers Education
Foundation and current lab director of Diamond Profile Laboratory.
Copyright © 1998 by Bond Communications.