If you’ve watched “Antiques Roadshow” you’ve noticed that every item ends with the expert assigning a “value” to the item being discussed. They use terms like “At auction, I’d value this…” or “in a shop, I’d put a price of…”
What do those terms actually mean?
Appraisers use several values to provide valuations for client's objects. These values are determined by the use of the appraisal, Insurance appraisals are valued at the Retail Replacement Value, and Estates are valued at Fair Market Value.
“In a shop” basically means retail. That’s the price if the item was in an antique store or gallery, and is typically being offered for the highest dollar amount in the marketplace. We call this Retail Replacement Value. This is the value that insurance companies use to make an insured whole in the event of a loss. It tends to be the higher value in comparison to the other values, but there are special instances where the RRV can be lower than the Fair Market Value.
“At auction” means they are estimating what someone is willing to pay at a reputable auction house that is well advertised and attended. The price realized at auction is typically referred to as the “Fair Market Value”. This value tends to be lower than RRV mainly because, speaking in broad strokes, the auction market acts analogously to the “wholesale market” in other industries.
Auctions differ from Estate sales that set prices and allow for negotiations between the buyer and the reseller of an item. At auction, the negotiated sale price is in the hands of many potential buyers at the same time. The market truly sets the sale price for that item at that time.
So let's revisit the instance where the RRV could be lower than the FMV...A great example is a collection belonging to someone with special attributes, namely celebrity. If you remember the Jackie Onassis sale a few years back or the Sale of the Property of the Duke and Duchess of Windsor. Items in those sales sold for multiples of what their retail value was based on the collection that they came out of. It does not happen often, but when it does, it generally produces results far above the Retail Value.