Comparative Market Data Aproach
The comparative market data approach, the third approach to valuation, is the one most commonly used by the appraiser of personal property when preparing an appraisal. At first glance this may seem to be easier to calculate than the other two approaches, the cost approach and the income approach. But, upon closer examination, one sees that it is, perhaps, the most complicated, when applied to art and antiques.
The definition of the comparative market data approach is relative simple. It means that and object is valued by comparing it to similar and like objects which have been sold previously.
Finding the appropriate “similar and like objects,” can however, prove extremely complicated since works of art are not widgets; and no two pieces are exactly alike. Even two pieces of furniture or ceramics, which were produced by the same factory, are not exactly the same when one takes into consideration their condition or state of conservation in preparing an appraisal. For example, two seemingly identical pieces of the American furniture, by the same maker, can have vastly different values if one has been heavily restored and the other is perceived as being in pristine condition.
Among the factors an appraiser must consider when selecting comparables to use in an appraisal, based on the comparative market data approach are: is the work by the same artist; was it produced at the same time; is it signed and dated; are the dimensions the same; is the medium the same; is the condition the same; was the piece sold at auction, through a gallery or by a private transaction; when was it old; is the data, which is being used to establish the comparison, reliable?
Painting by the same artists may only appear for sale once in a lifetime. For example, a portrait by he 16th century Florentine painter, Potorno, was sold at auction in the 1980s to the Getty Museum of over $35 million. Does this mean that every portrait of the same sitter, Cosimo de Medici, created at the same, is worth a similar amount?
Another factor to consider is how close to a valuation date should a comparable be? Is it appropriate to chose as a comparable an object which may closely resemble the one being appraised but which was sold four years before the appraisal was written?
The are just two of the many questions an appraiser must bear in mind when deciding how much weigh to give to a specific comparable and how to compensate for factors which make the comparable less than a direct match to the object being appraised.
The question of reliability of data is also important. For example, some auction house are more diligent than others in listing the condition of objects in their catalogue entries. An appraiser can’t be expected to attend every sale or viewing; but if one can’t, how is one to know that the condition of the comparable item is as stated from reading the auction catalogue and scrutinizing the photograph (assuming that a photo has been provided)?
This article is from All About Appraising: The Definitive Appraisal Handbook, and was written by Victor Wiener.