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.
1933 Ford 3 window replica. All fibergalss one piece body, 560hp Ford Vr, Richmond 5-Speed Transmission, 4 wheel disc brakes, and a 9 in Limited slip curry rear differential. This thing gets on more than most drivers can probab;y handle. 'If you wanna git some scratch', This is your boy.
2007 Fiberglass kit/replica of the 1933 Ford 3 Window Coupe. Custom built kit car. 408c.i.d. V8. (The average horsepower for a dyno test is 500 to 565 at the wheels.) The engine is coupled to a 5-Speed Richmond gearbox and a Ford 9" positive traction rear differential. This car is titled (WSP Certified) as a kit which typically consists of the complete body in parts or whole. The frame is usually optional and is probably best to purchase with the kit. This provides room for many options when the car is assembled. (Custom race frames are also an option.) This car is fitted with a straight box frame that incorporates the rear upper and lower stamped trailing arms which support the rear differential through air shocks and gas charged shocks, making it a semi-independent rear suspension with a narrowed solid axle differential housing. The front crossmember, suspension, and rack and pinion steering are from a Mustang II, which is a popular choice for Street Rods. Stabilizer rods are mounted longitudinally facing the rear. Heavy duty anti-sway bars are located both front and rear. There are rear trailing arms with adjustable control arms incorporated below the leaf.
The engine is a modified Windsor class V8 with a 408 cubic inch displacement. A conservative estimate of 450 horsepower would be a reasonable estimate. With a vehicle weight certainly less than 2500 lbs., this car has impressive acceleration both on the start and rolling at speed. This is important to note as it is often the high point of these types of vehicles.. `
The paint is metallic silver with metal flake. There is one chip that was found on the entire car. (See Photos) No other paint damage was noted. The fiberglass is very rigid and solid with no signs of fractures or spiderweb cracking. The suicide doors open and close without contact except for the rubber seal and striker plate. The door electrics are via contacts rather than wires. The trunk and hood are the same and fit perfectly. The interior is silver grey with painted dash and a full complement of TPI-Tech gauges. Ford mustang pedals and mid 70's to mid-80's Ford seats with power lumbar support only, which fit the car appropriately. The carpet is darker grey, aftermarket Air conditioning is installed, power windows are equipped, and the doors are remote open with back up switches in the trunk that area accessible with a manual release. Interior lighting is blue L.E.D. There is a basic audio/CD system with recessed speakers and a storage compartment below the radio. The steering column is an aftermarket (Ididit) tilt column commonly used in street rods and customs. 3 point seatbelts are installed, grey in color. The interior is trimmed in leather throughout. The trunk is trimmed in the same fashion with carpet and leather trim with lighting. The trunk supports are gas dual strut and in good condition. Underneath the rear of the trunk inner compartment is the battery w/shutoff and the components of the rear air ride suspension system.
The engine is mated to a Richmond 5 Speed Transmission and a narrowed Ford 9" Positive traction 35 spline differential (Ratio unknown). The rear suspension is semi independent with trailing arms and link rods supporting the solid axle housing along with a heavy duty anti-sway bar and appears to be suitable for the drivetrain.
`The steering is front steer rack and pinion (Mustang II) with reverse longitudinally mounted stabilizers and heavy duty anti-sway bar. Overall, the undercarriage is relatively clean, but requires some attention to detail, such as having excessive connections and clamps. The electrical wiring underneath also should be tended with cloth automotive electrical tape, securing clips and routed correctly. This is an extremely common issue and typically poses no safety risk.
These types of replicas are quite popular and sell well when built correctly. In particular, the 1933 Ford 3 Window Coupe is a well-liked and desirable body style that became iconic with the ZZ Top album Eliminator which featured the 1933 'Eliminator' Ford 3 Window Coupe on the cover and in the music video. This increased the desirability greatly, but the mechanical features, especially the high output engine and light weight are still important in assessing value. This car certainly fits the standard, but a strong recommendation would be upgrading the suspension to accommodate the horsepower and very light weight of this car because it is known to easily break traction
Well, unfortunately the market is flooded with these things. From Deuce Coupes to Jaguars to old Broncos and pick-ups, they're everywhere. There's much more to building a car properly than a wire feed, measuring tape, a little paint and some custom rod parts. So, after you bought it and drove it home just in time to run b ack and pick up your kidney and make a call the chiroropractor after being beaten to death from those 'performance coil-overs'.
You might be feeling like you've been cat-fished. Now it's time to dig a little deeper and see what's really going on. You can take it to a shop, start tearing things apart, or just cry alone. Your choice, but the reality is that it looked too good to be true and it was.
There's nothing wrong with the hot rod or resto mod scene, it's cool. At least 80% of the time you have the aftermarket wiring harness to nowhere, the rock hard adjustment does nothing suspension, the '450hp' motor won't get out of its own way but that manifold and headers are still the coolest thing you've ever seen, the hydraulic clutch conversion with a 'racing clutch' that'll launch you out the back window when you release it, the concrete steering etc.
Sound familiar? A lot of really cool cars get hacked and assembled poorly. You not only lose money and have a genuine piece of junk you hope you can dump at auction without ruining your reputation. You also bought a safety risk. You can buy these cars if you know what you're getting into. Get someone who knows beforehand.
Why does your restored classic appraise for less than book value?
This gets asked a lot, and there are some simple reasons along with some complicated ones. It has to do with historical sales data. That's the simple answer. Most value guides are based on reported sales and auction sales. It is an average of these reported sales.
For example, if you have a 1973 Pinto and there were two sales of #1 cars with one at $10,000 and one at $100,000, the average sale would be $55,000. Unfortunately, your precious Pinto probably isn't worth $55,000 but that's what the book value is going to show you. That's why they call it a "Guide".
Value guides give you a range for the average value, and rarely include private sales other than those provided by DMV. They don't consider the fact that in many reported private sales the buyer gives the seller a little more to put a lower sale price to reduce the sales tax and fees. This is quite common and skews the values.
Keep that in mind when you buy, because what you just did was lower the value of a car that you just bought. Save a penny.... So, there's a simple answer. A more complicated reason is when you assess the value by adding in the condition, even more so when you start inspecting the car. That brings up a flurry of questions and people have a tough time understanding the answers. One of the most common issues is understanding why` the car isn't worth the purchase price plus every red cent that you spent on it since you bought it.
It's maddening to the appraiser to try to explain this because when someone says 'Hey, I just spent $800 on a Carburetor, and you only added $350 to the value. Why wasn't it more, and there's my labor too.'
Well, here's the thing; First off, it came with one and won't run without it. Not a lot of choices there. Secondly, yes it WAS worth $800. That is, until you took it out of the box and installed it. Now it's NEWER, not NEW and maybe Joe car buyer had a SUPER NEW one and he was hoping that the one on the car needed work so he could negtoitate some and his wife wouldn't take away his birthday because he spent $1600 on his carburetor. So, he really wouldn't want to pay extra. Everyone has their reasons.
If you ever want to see something lose its value in 10 seconds, buy and sell auto parts. If you ever want to see something gain value in 10 seconds, buy auto parts new or used, put them on a shelf for 30 or 40 years, put them on the internet for sale and watch your e-mail. That is the way it works. When you get into valuable collector items, it gets more complicated and down to splitting hairs. Thank the forums for that. It's ok in some instances, but much of the time it's counter-productive and only confuses people more. That's where experts are needed to set the record straight.
There was a group on a Mercedes 190sl forum that went on aboutr the correct thread color on the fuel lines. It was a heated multi-week discussion with ton of owners weighing in. It was surprising it didn't make the news.
It eventually boiled down to the manufacturer choice. Blue happened to be for brake lines and red for fuel. There is no uniform color coating for antique cloth style hose. Nowadays, there is a DIN number with the rating and description on the entire length of the hose. Needless to say, this went on for days. No answer was good enough, and no one could let it go.
Really, the only people that are most likely to know are the technicians who worked on them in the day, and the workers at the factory in 1955. Does it really matter? Well, on a 10 million dollar Ferrari, yes it probably does. On a 1979 BMW, probably not, but now it's in question.
What happens is that people spend a lot of money trying to be factory correct and then get upset when it doesn't up the value for the full amount spent. On lower value cars, to be honest, it's playing horseshoes and hand grenades and close does in fact count. The first thing an appraiser does with new parts is figure out what they're NOT worth. A good rule of thumb that gets the value close is retail and labor, deduct 30 to 40% and you've got your number. Not in all cases, but in many.
Another point is that many manufacturers use different suppliers for the same exact part, so it may be that the same car could have two different manufacturers for the same part, and both are correct.
British cars on the other hand are different. Parts are bought by the date of manufacture on many models because their system was to buy from the same manufacturer and make it fit the car. So, a sprite may have the same alternator pulley as Jaguar. It just depends on the day you bought it.
Italian cars kind of the same thing. You will find the same door handles, lights, gauges etc. on Ferrari as you find on Fiat and Alfa. This is learned mostly from experience. Appraisers will know the difference. Porsche and VW are different. VW parts may fit Porsche, but the Porsche part is much higher quality.
Ford Chevrolet and Chrysler? We shouldn't go there, but briefly. Intake manifolds with different casting numbers may be quite different, that's possible. Exhaust manifolds, not so much. Identical bell housings with the casting number facing inward against the transmission? Yeah, well don't expect that one to get checked. It's of relative importance, it's not a deal breaker. Hunt one down later if it's keeping you awake at night. Enough said.
Why devalue parts and labor aside from parts no longer being new? There are a couple of reasons here also. One is the markup on parts. You don't even want to know how much it is. Suffice to say, 40% isn't even close. That would be so called wholesale.
When you buy in quantity from a manufacturer it is much less. Getting rid of some of the markup brings the value into a more realistic range. The same goes for labor, it is ridiculously marked up. Making these value corrections correlates very closely to actual fair market value if it is done correctly.
Actual cash value is a different story and is used to calculate replacement cost, typically for insurance. It is rare for any car to sell for ACV, unless it's a very special car, and there are quite a few out there. These cars can suffer the same fate when the market goes down as it did during COVID. Many Ferrari's, Mercedes and the like lost nearly 50% of their value and still haven't recovered. Muscle cars and hot rods have also taken big hits.
Something to remember is that collector cars are allowed as investments, so you can claim them on your taxes. If you are an investor. So, when the stock market is up, buy cars, and when it is down, sell. They are inversely related. Many of the high dollar auction cars are bought on long term loans and sold long before the loan matures. The buyer is simply paying interest for a while and collecting off the dividend of the sale.This greatly affects your value because it goes on so frequently. It makes the car much more affordable for the seller.
Some are leases or specialty loans, and the seller just had the car for a few years making nothing. These have a hard reserve at auction, and you will see the same car every few years. Many of these are corporate owned or bank owned.
We're not talking about loans though. We're talking about what affects your value. As long as they aren't losing money, they're fine with it, but when they decide to dump it for a cash grab, lookout because if they have made enough money they can get rid of it fast and cheap. That's going to drop the value of your car in a hurry which shows up as a sudden drop in the overall market affecting future values. You may have been fine on your investment, or you just got the rug pulled out from under you.
So, you can wait, sell it at a loss, or you can wait. If it's even somewhat rare, it could be several years for a sale or multiple sales to bring the average up. That should provide some clarity to understanding what affects the book value on your car. Remember, the book value is all averages.
You should always have a solid appraisal that is current when you put your car up for sale. Beware of online appraisals for cars less than about 15 years old, there are not going to be enough sales to assess a value without seeing the car. Independent mechanical inspections also will not fly. Look for the disclaimers that often say "Not valid for pre-purchases, financing, insurance or legal purposes. What are they good for? Do you still have a pet rock?
That's not the only damage an online appraisal can do. When an online appraisal slips through the cracks and the grade of the car is affected, it again causes complications that take time to correct.
There was a recent appraisal done online by an insurer halfway across the country that listed the vehicle at $38,000 appraised value which coincided with Hagerty for a #2 car. The car went for sale at auction and did not sell. The price was reduced, and a prospective buyer called for an independent appraisal from Seattle Antique and Classic Car Appraisal which included a complete mechanical inspection. It was appraised at $39,000 on visual inspection. The mechanical inspection revealed that there was nearly $13,000 worth of repairs to meet the standard of a #2 car.
The buyer received an itemized list, including costs, calculations, and pictures of every item with markup to identify each problem, making it uncontestable. Then the buyer went back to the negotiating table with a solid, reasonably backed offer. As always, get someone who knows.
`The steering is front steer rack and pinion (Mustang II) with reverse longitudinally mounted stabilizers and heavy duty anti-sway bar.
