Are Your Household Items Appreciating?

ARE YOUR HOUSEHOLD ITEMS APPRECIATING OR DEPRECIATING?

Residential contents comprise two distinct categories, appreciable and depreciable. The first category includes items such as antiques, fine art, gems, jewelry, furs, coins, and collectibles. These types of objects should be listed and insured by special policies separate from your regular household items. Why? Because they usually become more valuable over time, and in order to be able to replace them in the event of an insurance claim for theft, natural disaster, or damage (do the words “Steve Wynn, “elbow,” and “Picasso” ring a bell?), a homeowner must have them scheduled and pay a separate premium in addition to the regular homeowner’s policy.

The second category, depreciable contents, encompasses furniture, appliances, electronics, clothing, books, tableware, and other ordinary household contents. These items, which lose value over time with use and wear, are covered in a regular homeowner’s policy. Depending on the terms of the individual policy, one is either entitled to “replacement cost new” or “replacement cost used.” With the former, if your ten year old 42” Sony television is stolen, you will be able to replace it with a new current model 42” Sony. With the latter, you are entitled to replacement with a ten year old 42” Sony in similar condition, or the cash equivalent. To prevent a potential misunderstanding, it is important to discuss the exact terms of your insurance coverage with your insurance agent.

This concept of original cost versus current value is a factor for both appreciating and depreciating household items. Consideration of the appropriate market level for the property involved is of key relevance. For appreciable valuables, the appropriate market can be the retail “primary” market or alternatively the “secondary” resale market, depending on the quality and condition of the item along with other factors. Depreciable contents follows a different set of rules. Most people are aware that when they purchase a new car and drive it off the dealer’s lot, it automatically becomes a used car and loses value. This is true for a lot of consumer items like furniture, clothing, appliances and electronics. Bought at the retail “primary” market level, they then become valued at the resale “secondary” market level, even if brand new. If you are insuring these items, you need an insurance replacement or retail value. But if you owe estate tax or are thinking of donating them, you need a fair market or secondary market value (Note: The Pension Protection Act of 2006 has eliminated tax deductions for most donations of ordinary household items and clothing). For an accurate assessment of current worth, one must look to the correct market for comparables no matter what type of object is being researched.

Market forces are yet another variable when estimating value of consumer items. The market for valuables fluctuates regularly. All manner of national and international social, political, economic and natural events can have an impact on the current value of your objects. If plasma televisions become the standard, then the formerly expensive rear screen projection system has become obsolete. If Russia embraces capitalism and Imperial heritage, rejecting the Soviet communism of decades, then the value of Imperial Russian objects might soar. If current U.S. tax regulations discourage charitable gifts to museums, then more top quality paintings might appear on the auction block, potentially increasing their market values. If an exotic wood such as Hawaiian Koa has been deforested too rapidly, furniture made with Koa might become more rare and thus expensive. Perhaps elephants and peacocks have become endangered and protected, now ivory and plumage are illegal to sell, derailing the market for items containing them. Political unrest has closed China. Opened China. The market for Chinese items fluctuates accordingly. Different countries are constructing various patrimony laws in place to protect their heritage. Current and future transactions with these countries will be affected. All of these forces are continually affecting the value of personal property. For these reasons and many others, the original cost of an item does not necessarily correlate with current value, whether the piece is appreciable or depreciating. It is therefore important to have regularly updated records on your valuables.

Rebecca Markman, ISA CAPP, AM is a certified personal property appraiser specializing in 18th, 19th and 20th century American, British and European antique furniture, tableware, silver, glass, porcelain, pottery and paintings.