8.2 Valuation Approaches, Comparable Sales Research & Reserve Setting
Key Takeaways
- The three classical approaches are sales comparison, cost, and income; personal property at auction is valued overwhelmingly by sales comparison.
- A usable comparable requires a matched venue type, because a dealer-retail price and an absolute-auction hammer price are not interchangeable data points.
- Auction comparables must be recorded as the hammer price plus or minus the buyer's premium consistently, since a 20% premium shifts an apparent 'price' by a fifth.
- The cost approach values an item as replacement cost new less depreciation, and is the fallback where no comparable sales exist.
- A reserve is a contract term under F.S. 468.388(1)(c) and an announcement duty under F.S. 468.388(7), not a valuation conclusion.
8.2 Valuation Approaches, Comparable Sales Research & Reserve Setting
An appraisal question on the Florida exam rarely asks you to compute a number. It asks whether you selected the right approach, whether your comparables were actually comparable, and whether you kept the valuation separate from the reserve. This section works through all three.
The Three Classical Approaches
| Approach | Core Question | Best For | Weakness at Auction |
|---|---|---|---|
| Sales Comparison | What have similar items actually sold for? | Almost all auction personal property | Requires a genuine comparable set |
| Cost | What would it cost to replace, less depreciation? | New or near-new equipment; unique items with no market | Ignores demand; overstates obsolete goods |
| Income | What income stream does it produce, capitalized? | Income-producing equipment, rental fleets, businesses | Rarely applicable to consumer goods |
For the overwhelming majority of Florida auction consignments — estate contents, farm equipment, restaurant liquidations, vehicles, collectibles — sales comparison is the primary approach, and the other two serve as sanity checks.
When the Cost Approach Takes Over
Use cost when sales comparison has nothing to work with:
Replacement Cost New $ 18,000
Less: Physical Deterioration (-35%) $ (6,300)
Less: Functional Obsolescence (-10%) $ (1,800)
Less: Economic Obsolescence (-5%) $ (900)
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Indicated Value (Cost Approach) $ 9,000
- Physical deterioration is wear: hours, mileage, corrosion, worn tooling.
- Functional obsolescence is design: a machine that still runs but needs three operators where a current model needs one.
- Economic (external) obsolescence is the market: a citrus grading line in a county whose groves have been converted to housing.
Building a Comparable Set That Survives Scrutiny
A comparable is only comparable if the venue type matches. This is the discipline candidates most often skip, and it is where exam questions are set.
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| VENUE HIERARCHY -- SAME ITEM, DIFFERENT PRICE LEVELS |
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| Specialist dealer, retail storefront, warranty ............. HIGHEST |
| Curated online marketplace, buy-it-now .................... | |
| Reserve auction, specialist house, catalogued ............. | |
| General consignment auction, absolute ..................... v |
| On-site liquidation, one-day removal required ............. LOWEST |
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Pulling a dealer's retail asking price into a set of auction comparables inflates the opinion. Pulling a distressed on-site liquidation result into a set of specialist-auction comparables deflates it. Neither is defensible.
The Buyer's Premium Adjustment
This is a mechanical trap worth its own paragraph. If you research a result reported as "$1,200" you must know whether that figure is the hammer price or the total the buyer paid. At a 20% buyer's premium the two differ by a fifth:
| Reported As | Hammer | Premium (20%) | Buyer Paid | Seller's Gross |
|---|---|---|---|---|
| Hammer $1,200 | $1,200 | $240 | $1,440 | $1,200 |
| "Sold for $1,200" incl. premium | $1,000 | $200 | $1,200 | $1,000 |
Mixing the two conventions inside one comparable set introduces a systematic 17-20% error. Pick one convention — hammer price is the cleaner choice for estimating what a consignor will realize — and apply it to every comparable in the set.
Adjustment Grid
Once the venue and premium conventions are consistent, adjust each comparable to the subject:
| Element | Direction of Adjustment |
|---|---|
| Date of sale | Adjust for market movement between the comp date and the effective date |
| Condition | Upward if the comp was in worse condition than the subject |
| Completeness | Missing original box, key, attachment, or documentation |
| Provenance / marks | Signature, maker's mark, documented ownership history |
| Location | Coastal Florida humidity and salt exposure on ferrous goods and electronics |
| Terms | Removal deadline, loading availability, payment methods accepted |
[!TIP] Florida-specific adjustments the exam likes. Hurricane and flood exposure history on titled goods; salt-air corrosion on trailers, tools, and outboard motors; seasonality in a snowbird market where January-March estate sales draw materially deeper bidding than August; and agricultural equipment values keyed to the citrus, cattle, and sugar cycles.
Sample Size and Recency
Two comparables are an anecdote. A defensible personal-property opinion generally rests on three to five matched sales within the last twelve months, and closer to six months in a fast-moving category. When the set is thin, say so in the report and widen the stated value range rather than quoting a false precision. "$3,000-$4,200" honestly stated beats "$3,650" invented.
Reserve Setting Is Not Valuation
A reserve is the minimum the seller will accept. It is a commercial decision by the seller, informed by the auctioneer's opinion but never identical to it. Florida law treats it as two things at once:
- A contract term. Under F.S. 468.388(1)(c), the written agreement must state the terms or conditions on which the licensee receives the property and remits proceeds — which is where the reserve, if any, belongs.
- An announcement duty. Under F.S. 468.388(7), the terms of bidding and sale, and whether the sale is with reserve, without reserve, or absolute, or whether a minimum bid is required, must be announced at the beginning of the auction.
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| APPRAISAL -> a supported opinion of a defined value standard |
| ESTIMATE -> a marketing range for THIS sale under THESE terms |
| RESERVE -> the seller's minimum: a contract term + an announcement |
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[!WARNING] The reserve-above-market trap. A seller who insists on a reserve above the auctioneer's supported opinion is entitled to do so — it is the seller's property. What the auctioneer may not do is advertise that sale as absolute. Under F.S. 468.388(11)(b)7, advertising an auction as absolute without specifying any and all items to be sold with reserve or with minimum bids is deemed false, deceptive, misleading, or untruthful advertising, and under F.S. 468.388(7) an item in a sale announced and advertised as absolute may not be withdrawn once a bid has been accepted.
An auctioneer is valuing a consigned commercial dough mixer. Researching comparables, she finds three auction results and one restaurant-supply dealer's retail asking price. How should the dealer asking price be treated?
A price guide reports a result as 'sold for $1,200' at a house charging a 20% buyer's premium, and the auctioneer records it as a $1,200 hammer price. What is the effect on the comparable set?
A seller insists on a $50,000 reserve on equipment the auctioneer's comparables support at $28,000 to $34,000. What may the auctioneer lawfully do?