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What's Your Stuff Worth?

I recently looked at photos of the New Orleans family home of the sister of a friend of mine. The destruction was unimaginable.

When the standing waist-high water finally drained out of the single-story dwelling, an entire household built from hard-earned paychecks was washed away with it. The family had more than a month to itemize a lifetime of handpicked treasures before they could get back and see whether anything was salvageable. Not much was.

Mold climbed the walls, engulfing every porous surface. Large pieces of furniture had been swept across the rooms. Once-cherished toys pooled in the corners like heaps of trash. Much of what remained was unrecognizable, yet some undisturbed items -- like the hot dog buns and dishes on the counter -- remained, a reminder of the day the family had left them in late August.

The husband grabbed the few things that weren't completely ruined -- a few special outfits that could be dry cleaned, some pictures, CDs, and DVDs -- and took snapshots of every angle of each room to bring back to show his wife.

Those pictures will no doubt be shown for years to come as the family recalls how the course of their lives changed forever. But like the thousands of other families whose homes have been wiped out by this disaster, the pictures will also help piece together what was theirs before the flood and provide a basis for monetary compensation so they can start family life anew.

What's it worth?
Value isn't always subjective. Insurance-claims adjusters have by-the-book methods for determining what it costs to replace things like CDs, electronics, vehicles, and furnishings.

But how exactly do you put a dollar value on your great-grandmother's engagement ring or a dresser with no provenance except for the fact that it was your dad's when he was a boy? When it's hard to establish an item's worth -- say, a piece of jewelry that was a gift or an heirloom quilt or other special item -- consider having it appraised by someone who specializes in that field.

The American Society of Appraisers (ASA) certifies appraisers in the fields of gems and jewelry, business valuation, real property, personal property, and machinery and technical specialties. The International Society of Appraisers recognizes more than 100 areas of specialty knowledge. Many appraisers choose a more streamlined focus to their practice and get further accreditation in a particular field, such as gemstones or antique cars. It's important to find the appraiser whose expertise matches your purposes. You want that document to be air-tight.

An appraisal can serve as a legal document with the IRS and your insurance company. Besides your will, power of attorney, and medical directive, the appraisal documents may be the most important papers in your filing cabinet. (Here are 10 other documents you shouldn't live without.)

In the case of substantial losses caused by disaster, these papers become even more critical, as they are sometimes the only surviving proof that you are due compensation. Those affected by Hurricanes Katrina and Rita, for example, can itemize their personal property losses to deduct from their taxes. (Here's more about special provisions offered by Uncle Sam.) These taxpayers will be required to prove the losses were caused by the hurricane, so things like the pictures I saw will be critical for that family when April rolls around.

When possible, bring the actual item (and any related documents, such as receipts) to the appraiser to examine. Provenance -- where the item was made, who owned it -- are critical in determining the value of some items. Be sure to share everything you know about the origin of items and where they were purchased.

An appraiser will likely need to do some research to get a better sense of your item's history and determine its worth in today's marketplace. A good appraiser will consult databases and books and look up comparable sales. This can take days or weeks or, in the case of valuing business equipment or large lots, maybe even months.

An appraiser will then provide (1) a written report describing the item in detail so it can be identified without a photo, (2) the date of the inspection and effective date of value, (3) a reason why the appraisal was sought (e.g., insurance or estate planning), (4) and an explanation of how the value was determined, as well as which type of valuation was done. There are three main kinds of valuation:

Replacement value: This is most often used for insurance purposes. It's the full retail price required to replace the item with something of like kind and quality. (There are some variants used, such as "replacement value-reproduction cost," which is what it would cost to make a new version with similar materials and craftsmanship of an item that is no longer readily attainable.)

Fair value: This is the price you would get for an item if it were sold in a competitive, open market under good conditions. You'll sometimes see "market value," which refers to what you'd get for an item if you were in a hurry to sell and the conditions weren't entirely favorable (e.g., an estate sale or even a pawn shop).

Cash value: This value factors in depreciation and the condition of an item. For example, a chipped Ming Dynasty vase is less desirable than one in pristine condition and would fetch less in a market where comparable ones of better quality existed.

The best way to make sure your items are covered is to document all critical details of your valuables before any damage. Keep receipts for any valuable items that you purchased. Take photographs or video of each item. (This is particularly important if you do not have a bill of sale or receipt.) Make copies, and put them in a safe place -- such as a safety deposit box or with a trusted relative.

If you have a house full of items and you are unsure about which ones should be appraised, you can hire an appraiser to do a verbal consultation. This involves a walk-through, when the appraiser can eyeball items and give rough guidelines as to what might be worth further inspection. This particular kind of overview is not for any insurance purposes and cannot be used for any legal reason, but it can offer guidance to a family overwhelmed by an inherited household or collection.

According to the ASA, appraisals for insurance purposes can be done even after items are damaged, destroyed, or lost. A retrospective appraisal is easiest when the item can be produced (even if broken), but proof of an item's existence (such as a receipt or picture) can suffice. An appraiser will then establish the value of your property before it was ruined.

Whom to ask
Ethics and accuracy are the two magic ingredients to getting an appraisal that will stand up to IRS and insurance company scrutiny. You want to make sure your appraiser is competent if he or she is asked to provide expert testimony. The ASA makes the following recommendations for finding an appraiser:

1. Look for an accredited appraiser. In many states, anyone can claim to be a personal property appraiser, even if that person has no formal training. Consumers must do a certain amount of their own evaluation before hiring an appraiser. There are organizations that offer formal credentials to those who complete specified training, pass tests, do follow-up education, and adhere to the standards set by the field.

2. Ask for a resume and references. Don't be shy about checking up on them. Appraisal association membership shows that at least the person is involved with the profession and can access information.

3. Hire someone who specializes in what you need. Make sure your appraiser has experience valuing the kinds of articles you are having appraised. You can look up qualified specialists who are members of the ASA at www.appraisers.org and ISA at www.isa-appraisers.org.

4. Ask how they get paid. Most charge a flat, hourly, or per-item fee. Some have a minimum job size. Avoid any appraiser who offers to buy the item or one who charges a percentage of the item's value or a fee based on the sale of the item. Also do not use an appraiser who also sells similar items for a living. Jewelry stores often bring in independent appraisers as a service to their clients. Make sure the appraiser is indeed independent of the store and is not a jewelry seller.

Unlike comprehensive car insurance, you are not required to have most items re-appraised each time you renew coverage. Still, the appraisal industry suggests having items looked at once every three years, but the frequency depends solely on what your insurer requires. The first appraisal is probably the most important since it establishes the item's value at one point in time.

Even if your valuables aren't in foreseeable harm's way, consider documenting the important items in your life that you would want to try to replace if they were to be destroyed. Consider what it would be like to be the family that I met -- forced to re-create on paper a life now gone to facilitate building a new one.

More on hurricanes, insurance, and avoiding and dealing with disaster:

Dayana Yochim owns none of the companies mentioned in this article. The most important document in the Fool's filing cabinet is the disclosure policy.


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