Retail Replacement Value

Photo by Tim Mossholder on Unsplash

How it is used and what elements it consists of.

Just as there are wholesale and retail prices (and countless pricing strategies), appraisers must use the right value for a specific appraisal report — the purpose of appraisal. Think of purpose-of-appraisal as a particular life situation. In this case, insuring your personal property like a painting or über-expensive sneakers or a historical piece of furniture. If you have a home-owner insurance policy, most of the household items may already be included in the policy. But every time you purchase a valuable object, you should contact your agent and add that object to the policy using Retail Replacement Value (RRV).

RETAIL REPLACEMENT VALUE
Let’s decipher what Retail and Replacement stand for.

Retail:

Within a plethora of values, the Retail Replacement Value is the highest value because it resides in retail markets. If you purchased an artwork at an art fair (where prices are very high) or a gallery, your retail replacement value may be found on a gallery market.

Why the retail prices are so high?

Because the dealer who owns the gallery and who carries the artwork that you purchased, had just paid import tax on it; and, restoration, conservation, and framing costs; and, the costs of running and maintaining bricks-and-mortar; and, the costs of marketing, advertising, and public relations; and, the costs of insuring inventory while the piece is in the gallery (or during its transport); and, the costs of participating at art fairs, which is how you found your unique, signed photographic print in the first place . . . You get the idea. All these costs and expenses that a dealer has to cover are included inside that value.

Replacement:

When you lose a unique, personal object (in your case, a signed photographic print) that has also a sentimental value, and, perhaps even a historical value, it is nearly impossible to find its replacement. Although, you may be successful at finding a replacement for your photographic print, or an etching, or a stone lithograph, or a woodcut print, to name a few replicate types of media, if its negative or an etched plate or a stone or even a digital file still exists. But what if the print you own was printed and signed by the photographer who is now deceased, and none of his signed prints exist on the market? Yours was the only one.

That’s when you replace your lost art with a similar and not exact piece.

In other words, an appraiser would research the galleries who deal the type of art you own or used to own.

The official definition of RRV reads: Retail Replacement Value as the highest amount in terms of US dollars that would be required to replace a property with another of similar age, quality, origin, appearance, provenance, and condition within a reasonable length of time in an appropriate and relevant market.

Here you have it.

But you may be interested in answering this question: Since RRV is the highest on the market, can I sell my artwork using Retail Replacement Value?

No. You may not, because RRV is not a resale value.
Think of this concept in a context of purchasing a new car. As soon as your new wheels leave the dealership’s lot, your not-so-new car drops in value by at least 15% (various sources offer different opinions on that) and is now worth closer to a wholesale value.

Why? Because dealer has to re-market that car and pay insurance on it, to name some expenses, not to mention that the car now comes with some milage.

Also, let’s recall the concept of Value ≠ Price.

A value becomes price when a value offered by a seller is accepted by a buyer. When you purchased the car, you agreed with the seller and paid the price. When you return the car, you become a seller, and the dealer, who is now a buyer, would not appreciate (pun intended) the value at which you’re selling your car back to the dealership.

What does it have to do with selling a painting at RRV?

It is a similar concept. At the time of appraising your painting for insurance purposes, my research indicated that to obtain a similar item to yours on today’s market would require $20,000. That is, I valued your painting at $20,000 RRV. That is, to buy a new car, you’d have to spend $20,000.

Instead of keeping it insured, you decide to sell it at $20,000. You contact an auction house to consign your painting, but the auction refuses to use your estimate. Instead, the auction offers you the highest fair market value estimate (the type of value used at auctions) of only $12,000.

You take your painting to a dealer, who carries similar items in their inventory. When hearing your offer of $20,000, the dealer’s eyebrows fly up so high, you feel your livelihood may be at stake. Because, the dealers have to make money on your painting to be compensated for all the costs they’re accruing while running their business (refer to the retail part of RRV definition above). And, the gallery (just like the auction house) is now a buyer of your painting, and they disagree with $20,000 value you’re proposing. Instead, the gallery gives you a counter-offer of $10,000.

Are there any cases where RRV could be used as a selling price?

Only when an appraiser didn’t do his/her due-diligent research, grossly underestimating your property.

Yours truly,
Aida