There is a vast difference between a Certified Equine Appraisal and an opinion offered by an experienced trainer or breeder about the value of a horse. When I get a call to appraise a horse I try to determine what specific problem the client hopes to solve and offer the best option to meet their need.
In many cases a certified appraisal is overkill. When an appraisal is required, clients frequently misunderstand how the appraisal process works. Appraisals can be quite costly so it is beneficial to horse owners to understand when an appraisal is the right decision and when it is not.
Most appraisals are made of two types of property, real and personal. Houses and land are real property. Anyone who has purchased a home is familiar with real estate appraisals. Equines are considered personal property, but the method for appraisal is largely the same as that for real property.
There are a number of types of values that appraisers use, but the one most applicable to equines is Fair Market Value. You can't find a duplicate of a horse at the store and you can't build an exact replica from scratch. Each horse is as unique as is each piece of real estate.
Fair Market Value is not necessarily the same as the cost of a horse or the price of a horse. The easiest way to define Fair Market Value is the amount that an educated buyer would accept from an educated seller in the proper marketplace, with neither the buyer nor seller compelled to make a transaction. In other words, the deal is at arms length and the terms are acceptable to both sides with nothing hidden under the table.
When you need an appraisal
Certified Appraisals may be required for documenting the donation of a horse on your tax return. Appraisals are sometimes helpful when applying for insurance when the value of a horse changes over time or for establishing the value of a breeding stallion's career. Most frequently, appraisals are used when there is a legal dispute of some kind. When clients have to pay an attorney there is a good chance they may also need a Certified Equine Appraisal. One such instance is establishing the decline in value of a horse due to injury or illness.
The appraisal itself is prepared using the same methods and practices as a real estate appraisal. When done properly the document itself and the work file are prepared in a manner appropriate for being entered into evidence in court. This is usually news to owners calling for information about obtaining a value on their horse. The cost of an appraisal can also be eye-opening to an owner.
Depending on how difficult the case or unique the horse in question, the appraisal may cost anywhere from hundreds to thousands of dollars. All expenses are added to the basic fee. Should a court appearance or deposition be requested the bill will go even higher.
How the process works
The process begins with an exchange of information. Unless the subject horse is deceased the appraiser should personally inspect and photograph the animal. Value cannot be established without determining the condition of the horse on the date of the appraisal. Every appraisal is tied to a specific date. In the case of a dead horse the appraisal is done to establish the value of the animal immediately prior to death.
Appraisals are based upon documented transactions of comparable horses in the same way real estate is valued using 'comps.' If you have a three-year-old show horse with popular bloodlines it is usually easier to find completed sales to use in preparing the appraisal. The more rare or unique the case, the higher the cost will be to research the industry and find the best comps. Another complicating issue of date is that of deceased horses. If a horse died two years ago the value must be established using comparables from two years ago, not from current market information.
Understanding the use of comparables is where most owners need a little help. All sales used will be for horses that are as similar to the subject as possible but not exactly alike. The appraiser will take the sale price of a comp and adjust the value to reflect the facts specific to the horse being valued. If a comp is a six-year old and the subject a four-year old the value of the comp will be adjusted. If the comp has earned 120 show points and the subject 75 points the value must also be adjusted.
The price a trainer asks for a horse is not a comparable. The opinion of a successful breeder is not a comparable. Whenever possible comps are taken from sales at recent auctions of similar horses. Remember when I said that Fair Market Value and price are not the same. There has to be a completed sale to have a good comp. When sales are not available the appraiser has to get creative and must really know how to research to find information useful to determining value.
When you don't need an appraisal
When there is no legal action expected the horse owner may need only an opinion of value. In many cases I have provided a letter stating my opinion of the value of the subject based upon a set of facts. Each letter also includes the caveat that is only an opinion and not an appraisal.
If you have a horse for sale and just want to determine the most advantageous asking price you don't need an appraisal. If you want to get an idea of the value of a horse before initiating legal action an opinion may also serve your need.
Most of the cases I've worked on have been either divorces or involved the death of a horse. I've done way more opinion letters than certified appraisals, and rightly so.
If you need to have a certified appraisal prepared take care to retain an appraiser who is able to represent you well should the case go before a judge or jury. Keep in mind that the Fair Market Value of a horse should have nothing to do with who hires the appraiser; it's still the same horse. All horses are not the same and neither are appraisers. If you have questions I recommend you contact the American Society of Equine Appraisers in Twin Falls, ID.
0 comments:
Post a Comment