It never fails. When a new business model is developed based on an older, established model, two things happen. First, older, entrenched businesses attempt to discredit, and in some cases demonize, the new model. Second, unscrupulous faux organizations spring up to make a quick buck off unsuspecting customers, even if it means flaunting the law.
When deconstruction companies first began to promote a softer approach to building removal so that valuable materials could be salvaged and landfills preserved, they were routinely discredited, often by the demolition industry itself. Fortunately, that picture has changed. While deconstruction still gets pooh-poohed occasionally, now the folks who do the bad-mouthing only end up discrediting themselves, not us.
Sadly, we haven’t been so fortunate when it comes to faux-organizations. In fact, the more popular deconstruction becomes, the more alert we need to be for the sharks and charlatans whose presence threatens the entire industry.
I’ve become particularly concerned of late about the burgeoning ranks of building-materials appraisers, some of whom are 1) unqualified, and/or 2) quote ridiculously high valuation rates in order to win appraisal jobs, regardless of the long-term consequences to the donor.
As you probably know, an independent, third-party appraiser enters the picture when an in-kind donation reaches $5,000 or more (most donations to TRP exceed this threshold). IRS regulations require a professional appraisal in order to assure a realistic, fair valuation of the donated materials.
Now, mind you, a fair valuation is not simply one that is low enough to avoid IRS scrutiny. It is one that meets or exceeds IRS requirements. IRS regulations on appraiser qualifications have become more stringent in the last few years, and TRP sets its own standards even higher.
The following paragraphs are excerpted from IRS Bulletin 561″Determining the Value of Donated Property” (revised April, 2007). I added the underlines for emphasis.
“A qualified appraiser is an individual who meets all the following requirements.
- 1. The individual either:
- Has earned an appraisal designation from a recognized professional appraiser organization for demonstrated competency in valuing the type of property being appraised, or
- Has met certain minimum education and experience requirements. For real property, the appraiser must be licensed or certified for the type of property being appraised in the state which the property is located. For property other than real property, the appraiser must have successfully completed college or professional-level coursework relevant to the property being valued, must have at least 2 years of experience in the trade or business of buying, selling, or valuing the type of property being valued, and must fully describe in the appraisal his or her qualifying education and experience.
- The individual regularly prepares appraisals for which he or she is paid.
- The individual demonstrates verifiable education and experience in valuing the type of property being appraised. To do this, the appraiser can make a declaration in the appraisal that, because of his or her background, experience, education, and membership in professional associations. He or she is qualified to make appraisals of the type of property being valued.
- The individual has not be prohibited from practicing before the IRS under section 330(c) of title 31 of the United States Code at any time during the 3-year period ending on the date of the appraisal.
- The individual is not an excluded individual.”
The same bulletin considers an appraiser “excluded” if he or she “… acted as an agent for the transferor or donor in the transaction” or is “… any person employed by any of the above persons.” In discussions with our IRS auditor and CPA, these definitions were further clarified to include employees of the appraiser who happen to be close relatives of the deconstruction contractor or any officer of the nonprofit organization.
When a donor winds up paying additional taxes because their donation was unfairly valued or the appraiser was unqualified, the donor is not the only one to suffer. The reputation of the recipient organization takes a heavy blow as well. Frankly, I’m afraid that the IRS may drastically tighten its rules because of the shoddy and, in some cases, illegal practices of a few bad appraisers.
Individuals and companies that make the TRP list of qualified appraisers must agree to follow certain guidelines. Among other things, our appraisers are expected to prepare reports in accordance with Uniform Standards of Professional Appraisal Practices (USPAP), and to visit the project site prior to deconstruction to confirm the type, condition and characteristics and the materials being donated.
TRP refuses to compromise it values at any time, but especially when it comes to the valuation of donor materials. We are committed to providing donors with enough solid documentation to sustain the value of their donations, and we support that documentation with:
- Laboriously detailed inventories
- Internal quality control of such critical variables as materials received, documentation and inventory
- Diligent, reputable managers who provide excellent customer service
- Enviable salvage rates, made possible in part by our knowledge of reuse/recycling markets
- Thoroughly vetted appraisers who can be trusted to produce fair-market appraisals
TRP has occasionally refused to accept donations from owners whose appraisers were either unqualified or “excluded” by the IRS. We did it for their protection as well as our own. In addition, we have refused to do business with appraisers who practice below-standard appraisal practices or evince insufficient qualifications. And we have de-certified a few deconstruction contractors because they continued to refer potential clients to questionable appraisers.
Whether you are a contractor, a nonprofit that accepts salvaged building materials, or a building owner considering deconstruction, I urge you to conduct your own due-diligence on any appraiser who gets involved in the donation process. If you need assistance, give TRP a call.