What is the difference between a car appraisal, insurance claim adjustments, and a pre-purchase inspection?
This comes up a lot, and overall, it’s fairly simple, but it definitely has some complexities when the back end and cost/value calculations are evaluated between any of the three. As far as pecking order goes, the Appraiser is the top of the food chain followed by the claims adjustor, and then the technician performing the inspections.
Let’s look at each one and see the differences in what they do, what they have to know, their responsibilities and contributions to the car market.
Appraisers:
An appraiser has a lot of responsibility because they affect the market directly. An appraiser must know cars inside and out, be able to identify parts, research prices for parts, labor, custom work including machine work, assess the condition of the vehicle and grade it accordingly.
Additionally, they need to know different make, models, equipment options, common problems from manufacturers and individual models in many cases and also know where to find and price parts. This is especially important with Classic car appraisers. Even the most experienced appraisers may have difficulty knowing where to find and price parts. By the time they get the pricing, (i.e., parts) items may have changed hands three or four times, and the cost of replacement parts can be bewildering. Prior industry experience really pays off here.
Appraisers also have to be capable of calculating values based on sales history, book value, market fluctuations, their causes, and trends. The appraiser must understand their effect on the market because they can have a very direct effect on the current market, particularly antiques and classics. The clients are appraising these cars for a reason; the cars are assets and should be treated as such.
When the appraisal involves a very rare or expensive vehicle, it can go either way. The problem here is with investment vehicles, they have most assuredly been appraised with every detail included multiple times. They haven’t been driven, and depending on how rare the car is, the only comp may be the last sale of the actual car that is being appraised. Not a lot of wiggle room, and people are going to have very specific expectations based on previous appraisals. Again though, it all depends on the intended use.
This is where an appraiser can use a stand-alone (Self-contained) appraisal, meaning the value is entirely based on the appraisers’ independent conclusions. The appraiser does not need to provide background documentation or comps. They may be asked to provide their own documentation and estimations, but it is not required that it be included in the appraisal. The appraiser is required to maintain the documents for several years, and that varies by state.
The first order of business in these situations where there is just nothing for information is determining what the intended use is. Is this simply a purchase to hold for investment or is the buyer looking to purchase every existing specimen and corner the market? Is it stolen or perhaps a prototype? This occurs and is a situation that doesn’t involve adjustors or inspections, if it’s already been determined, it’s a matter of calculating value.
Once an appraiser assigns a value, it may be scrutinized and there may be some negotiation with other appraisers. Once there is an agreed value established, a claims adjustor or inspection service can feasibly use that value as a base to manage future claims. There is no conflict because the adjuster is working from third party values and both adjusters and inspectors are employees a majority of the time, not independent consultants. Discrepancies are passed from the individual to the company. So, the company handles the matter. Independent appraisers handle any discrepancies directly. This is why some appraisers deliver 60-to-100-page appraisals. It’s evidentiary and the more evidence, the more difficult it’s to contest.
Estate sales and auctions make up a significant percentage of appraisals called for. Many people call for appraisal on auction cars or cars being sold by dealers. Once sold and documented through those channels, they have an immediate effect on values. Divorce and bankruptcy are also very common reasons. Many of the estate sales are simply “I don’t care what it is, I just want to sell it. How much is it worth and where can I sell it?” It always sells on the first offer, having a negative effect on the market, So, fair market value is at the appraiser’s discretion as they are the one choosing comparables.
The insurance appraisals for replacement have the strongest effect on the market because they are agreed values, are typically uncontested and don’t rely on direct sales. They always exceed book values and usually auction values. So, there is the power of the pen involved, and values can be manipulated higher or lower according to what the market burden is.
What is market burden? When used as a general term, it’s exactly what it sounds like; The maximum dollar amount that any individual would be willing to pay for a specific item, or what the market will bear. The burden increases as availability drops and decreases as inventories go up. What this means is that a decrease is equal to an increase in inventory and vice versa. Supply and demand, but a higher burden is better for the market because it indicates movement. It’s just another way of looking at the market and defining values.
Be cautious and find an independent appraiser. Appraisal is more about ethics than anything. Appraisers should not be involved in brokering either. Occasionally it’s acceptable for a super exotic or historical car to put it in the right hands for preservation but there shouldn’t be a brokerage fee, and the appraiser should not be involved in the sale, it’s just a referral that the seller is aware of.
Replacement values are also discretionary. A lot of appraisers just throw a price at it as high as they can, and that doesn’t consider the fact that they’re fooling around with direct finance, taxes, and credit. The buyer can unwittingly get stuck with capital gains taxes, price guides can be affected etc. So, overpricing and underpricing can be a serious issue.
Appraisers are not inspectors per-se, even though they should be fully competent in doing full inspections on any car. Remember, it’s a valuation, not a brake job or tune up. Some appraisers provide a parts list and costs to upgrade or repair. This isn’t to help sell the car, it’s to demonstrate how the appraiser came to the conclusions on the value and grade. Appraisers are also called upon to consult with third party adjusters to reach an agreement on the fair market value of the car in the event of claims. They can be expert witnesses in court hearings and assist in arbitration.
Claims Adjusters
Adjusters are not appraisers; they serve a completely different function. Typically, an adjuster examines damage on a claim, prices the parts out of Copart (Junkyard parts tracking system.) and gives the lowest price or depending om their affiliation with the insurance company they may price them at full retail, based on the age of the car. Insurance companies cannot force you to declare a total loss without an appraisal if you are contesting it.
With Classic and Antique cars, the adjustor will often call for an independent appraiser, especially if it’s something unusual or rare. This rarely requires a third party. The adjuster will usually accept it if it’s reasonable. They will always accept it if it’s certified because the appraiser is certifying that it is accurate. If an adjustor looks at a collector car damage claim, they will often call for total loss, especially if it is in their possession, DO NOT surrender the vehicle to the insurance company. There are options that an appraiser can utilize to justify fixing a collector car without it being declared a total loss by the insurance company. One other important point; Do not agree to participate in arbitration. Read your contract and decline it.
Adjustors most often handle damage claims and repair on newer generation cars. When an adjustor calls an appraiser in, there is usually a conflict or arbitration. Sometimes there can be a third-party appraisal if the adjustor isn’t satisfied with the value. Then the appraisers can reach a settlement value that is acceptable. Claim adjustors are also quite responsive to appraisers because they can help them get the claim closed faster. The adjustor or Attorney deals with the claimant on the settlement offer. This is a primary area where adjusters and appraisers differ. The appraiser serves independently and provides value as their final product and the appraisal is the justification of the value.
Pre-Purchase Inspections
Pre-purchase inspections are important, but they are not usually conducted by appraisers or adjusters. An appraiser may fill out a report and submit it along with the appraisal and designate whether it is an actual PPI. Pre-purchase inspections don’t necessarily require cost estimates. It is not uncommon or a buyer to call for one, and the instant accident damage is conveyed to the buyer, they are gone, and it is no sale.
Pre-purchase means taking the wheels off, possibly draining the fluids, check filters, tires, and anything else mechanical. If the report goes to an appraiser, it does not require itemized pricing. The shop is free to provide the cost estimate for repairs directly to the client prior to completing the purchase; there is no conflict in that situation.
Appraisers and Adjustors (more so) are more focused on the parts required to repair a car or determine total loss. Sometimes appraisers will combine ACV and replacement. This allows the insurance company to process the initial loss immediately without capping out the policy, then process the agreed or replacement value which they will still try to renegotiate sometimes, possibly triggering the need for another appraisal if there is a significant market change. Once there is an agreed value, the insurance company is obliged to pay it. That includes when you took out the policy, that’s your prenuptial. agreement with them.
So, there is a basic assessment of appraisal, claims adjusting and pre purchase inspections. The appraiser obviously has a larger workload and broader responsibilities because they often work independently, and work with a wider array of vehicles, many of which require exceptional knowledge. In closing, an appraiser should never discuss pricing, offers or values prior to completing an appraisal, and only discuss it with the individual calling for the appraisal. The appraiser also should not reveal the location of any car without express permission of the owner.
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