The Green Mission Inc. works closely with clients who choose to donate personal property from their estate to charities. Not only does this give the property a second life, it directly impacts the lives of those for whom charities offer aid and support. Charitable purposes and missions range from providing furnishings for those moving into stable housing, support for those in drug treatment programs, to providing furnishings, fixtures, and appliances to underserved populations for free or reduced prices, and myriad missions that help those across the country—from inner cities to rural communities.
Our clients often weigh the benefits of donating their estate property to charity versus selling the property either at auction, on consignment, or through online retailers. Obviously, we promote the donation route and hope that a close examination of the costs involved with both courses, when examined, could move the needle towards donation over sale
SELLING PROPERTY
Clients most often sell property either at auction, on consignment, or through online retail sales venues. There are costs involved with each type of sale. We will walk through an example of a property example that includes the following potential donations:
French Regence-style chest
Louis XV-style pair of bergère chairs
Mahogany carved Chippendale-style chest
Queen Anne-style walnut chairs—set of six
Auction
Most auction houses want to sell the most valuable lots in order to maximize their revenue, which includes their commission (paid by the client/seller), and a buyer’s premium (paid by the buyer). Clients typically need to transport the property to the auction house at their own expense. The client sometimes determines a “reserve,” which is a price under which they will not accept a sale. This reserve is not known to the general public but a pre-auction estimate is often given, mostly as a sales technique and not always representative of market prices. If an item does not sell, it is considered “bought in,” and there is a record of that negative mark attached to the property should it go up to auction again. Auctions can certainly generate considerable revenue for specific types of property in high demand, in good condition, and with properties such as strong provenance, antiquity, artist attribution, and materials and techniques used in construction. We all read about the Jackson Pollack painting that broke records when purchased by David Geffen for $140 million, or the 900 year old Chinese porcelain bowl that sold for $38 million at Sotheby’s in Hong Kong. However, in most cases, auction prices are modest, especially when in a buyer’s market like we are in now due to the Covid pandemic.
Using the property listed above, here is an estimate of the auction transaction:
- 1Sales price of the lot: $12,000
- 2Transportation costs to auction including insurance: $1,000
- 3Commission to auction house: $3,000 (25%)
- 4Net gain on sale: $8,000
We will assume the property’s basis (original purchase or acquisition cost or basis of gift or inheritance) is less than $8,000 and no taxable gain on the sale occurs. However, for appreciating personal property, the seller must pay income tax on the sale of the property most likely at the long-term capital gain rate. Let us say the French Regence chest was an original and not “in the style of”. The chest was purchased for $6,000 and it sells at auction for $19,750. The client will pay taxes at long-term capital gains rate on the $13,750, assuming the property was held for over a year. If held under a year, it is taxed at the client’s ordinary income tax rate. This taxable gain on the sale is avoided through charitable contribution and client’s often find charitable contribution of appreciating property to be the most financially beneficial. Finally, we assumed the entire lot sold. Perhaps instead, the bergère chairs were bought-in. The client then needs to pay for the chair’s trip back home.
If everything sells on the sale date, this is a relatively quick way to sell groupings of property. However, this does not consider different types of property that would require a different sale venue like an estate tag sale or online sales platform, like a refrigerator or a set of every-day dishes.
Consignment
In the case of consignment, most high end furnishings and art can be placed on specialized websites which return approximately 70% of the revenue to the seller or 80% for those who are professional sellers. The seller has the option of setting the shipping fees and collecting them at the close of the sale.
Considering the property listed above, let us assume the following sales took place:
Regence Chest: Sold for $3,500 on January 15th of the year. Net realized revenue is $2,450 and seller pays for shipping. Seller packs up the chest and hires a shipping company to ship the chest on January 20th.
Bergère Chairs: These take much longer to sell and the seller drops the price in March. The chairs sell on March 20th for $2,200 with net realized revenue of $1,540. The seller calls the shipping company again, packs them up and ships them out on the 25th.
Chippendale Chest: The chest has a buyer in January but they cancel the sale. Another buyer claims it on February 1st for $3,000 with net realized revenue of $2,100. The seller again needs to get the chest packed and ready to ship out on February 5th.
Queen Anne Chairs: For whatever reason, Queen Anne chairs appear to have flooded the second-hand market and the chairs languish on the site until May before the seller makes a sharp reduction in price and features free shipping as an incentive. The chairs finally sell on May 3rd for $2,000, shipping costs are $500 for net realized revenue of $900. Again, the seller must pack them up and get them ready to ship out on May 7th.
Total Gain on Sale: $6,990
It is important to keep in mind that it took six months to make these sales and included the allotment of time to prepare the property for shipping. Many clients do not want to sell the property piecemeal and wait for months to finally sell everything. Again, this is not considering the additional property items that are better sold at an estate tag sale or online auction.
Online Auction
Appraisers used to hear the word eBay and think “cheap”. This is no longer the case and eBay has proven to generate some substantial sales prices. There are various user fees paid either monthly or yearly with final value fees ranging from 3.5%-12% depending on the type of property being sold. Most property has a 10% fee. Just like consignment, selling on eBay or any other online auction requires the buyer to facilitate the shipping and be able to store the property if or until it sells.
An estimate of an eBay sale will assume the same dates of sales used in the consignment example but add the additional property donations of a Subzero refrigerator, a Wolf range, four floor lamps, three framed mirrors, a chandelier, and four pendant lights.
Regence Chest: Sold for $2,000, net realized revenue is $1,800
Bergère Chairs: Sold for $1,500, net realized revenue is $1,350
Chippendale Chest: Sold for $2,100, net realized revenue is $1,890
Queen Anne Chairs: Sold for $1,000, net realized revenue is $900
Additional Property: Sold for $7,000 after dropping prices to elicit a quick sale, net realized revenue is $6,300. It took approximately 6 months to make these additional sales and each required separate shipping logistics.
Total Gain on Sale: $12,240
Charitable Donations
And now, we examine an estate donation and how this works logistically and financially. A client typically contacts our company, The Green Mission Inc., and notifies us they would like to donate property from their estate to charity. At this point, they may have already chosen a charity. If they have not, we direct them to the IRS listing of charitable organizations: https://apps.irs.gov/app/eos/
We can help the client find a charity in need of their particular estate property or multiple charities to maximize what can be donated.
We then perform an inspection of the client’s estate taking special care to ensure we capture pertinent property information both by photography and in our notes. For example, we will ensure we have close-up photographs of silver hallmarks, photograph the verso of artwork, open drawers on furnishings, or check for pontil markings on art glass to ensure our appraisals are accurate. We also collect information provided by the client on their original procurement of the property as well as any oral histories of provenance they can provide.
We then return a detailed inventory listing of all property to the client to verify they would indeed like to donate everything on the list. The list is remitted to the nonprofits to ensure they will accept the property as a donation. Typically, all property can be moved and delivered to a charity or multiple charities within a day or two with minimal disruption to the client’s life. Once the nonprofit has provided their detailed inventory receipt of what they accepted, we begin the appraisal process.
When appraising personal property for IRS charitable contribution purposes, the predominant value approach used is the Sales Comparison Approach or market-based valuation method. The IRS provides the definition of Fair Market Value that appraisers must follow when appraising personal property for income tax purposes:
Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. If you put a restriction on the use of property you donate, the FMV must reflect that restriction. 1
In practice, this means that we research where the subject property is bought and sold most often in an open retail market. We do not look at forced sales or liquidations but rather, determine in what market the property matching the characteristics of value and elements of quality, would be purchased, and sold most often. We examine consummated sales as well as offers of sale to determine our value opinion.
Let us walk through an example using the same lot. We have determined that used furnishings in good condition are typically bought and sold in the following markets: auction, online sales auctions, antique stores, and furniture consignment galleries. We gathered the following example data:
Regence Chest:
- 1Comparable One: Sale of Regence chest with same construction, wood type, form, and ornament, at a local auction three months ago for $3,000 + 25% buyer’s premium=$3,750 (please note that buyer’s premiums are included in appraised valuations.)
- 2Comparable Two: Sale of Regence chest smaller in size with damage noted on one side. Sold at a local consignment gallery last week for $2,900.
- 3Comparable Three: Sale of Regence chest with slightly superior ormolu mounts and Carrara marble on top with additional parquetry inlays superior to the appraised sold at an online auction site four months ago for $4,200 with no buyer’s premium.
Based on each comparable, the appraised is most similar to Comparable One and does not require an adjustment up or down for property characteristics. Appraised value: $3,750
Bergère Chairs:
- 1Comparable One: Sale of similar set of chairs from an antique furnishing shop in the same city as the client that sold three weeks ago. The final sale’s price was $2,800. ➢ Comparable Two: Sale of a set of bergère chairs, which do not have as much carving on the wood and one has a noticeable stain on the seat. Sold at online auction six months ago for $2,100.
- 2Comparable Three: Sale of a single bergère chair at online auction last month. It has the same measurements, style of carvings and the upholstery is in good condition. The final sales price for one chair was $1,600 with no buyer’s premium. (Two chairs would have been $3,200)
Based upon our analysis, the chair is most similar to Comparable One and Comparable Three. Because the property characteristics are equal to each, we use the appraisal bracketing valuation technique and calculate the median value between One and Three. Appraised value: $3,000
Chippendale Chest:
- 1Comparable One: Sale of a similar chest but with noted wear at a local auction five months ago for $2,400+ 25% buyer’s premium=$3,000
- 2Comparable Two: Sale at an online auction site nine months ago of a smaller chest with a serpentine shape rather than the straight-front of the appraised for $3,900 with no buyer’s premium.
- 3Comparable Three: Sale of a similar chest at a local consignment shop last month in the same city as the client, with the same property characteristics as the appraised but in larger size with five stacked drawers instead of four for $2,500
Based upon our analysis, the chair is most similar to Comparable One. Note that Comparable Two sale took place pre-Covid, which might account for the higher sales price. Appraised value: $3,000
Queen Anne Chairs:
- 1Comparable One: Sale of four chairs of similar construction in good condition from an online auction site three months ago without a buyer’s premium=$1,100 for four ($1,650 for six)
- 2Comparable Two: Sale of twelve chairs also of similar construction and in good condition from a local furniture consignment store one month ago=$3,000 ($1,500 for six)
- 3Comparable Three: Sale of six chairs sharing almost all property characteristics at a local antique furniture store four months ago=$1,800
In this case, each comparable is equally similar to the appraised furnishing so the median value is used. Appraised value: $1,500
Total appraised value of the lot: $11,250
The client is also able to donate many other smaller properties to the two nonprofits to whom they chose to donate. This included three sets of dinnerware, a Subzero refrigerator, a Wolf range, four floor lamps, three framed mirrors, a chandelier, and four pendant lights. The appraised value of the additional property was: $8,800
Total charitable donation value: $20,050
In one day, the client was able to donate their estate property for a total donation value of $20,050. This tax deduction will be taken on their income tax form 1040 Schedule A, Itemized Deductions and is permitted in an amount up to 50% of their Adjusted Gross Income with a 5-year carryforward for any amount that cannot be used within that tax year. If the client has a federal effective tax rate of 35% and a state tax rate of 5% (assuming they live in a state where there is a state income tax and the allowed inclusion of charitable contributions), their net tax benefit to them will be 37% of $20,050, or $8,020. The IRS requires a “Qualified Appraisal” by a “Qualified Appraiser” when the property value is in excess of $5,000.
The Green Mission Inc. appraisal will include a detailed description of each donated property along with a presentation of comparable sales chosen for analysis and a narrative demonstrating our reconciliation of appraised value of the property based upon our comparable research. We produce this appraisal approximately 4-8 weeks after receiving the donation receipt from the nonprofit. Our appraisal fees are based on an estimate of the amount of time it will take our staff to research and produce the appraisal. Our fees also cover the costs of collaborating with outside appraisers with specific specialty areas like early 19th century oil paintings or 18th century ceramics.
The client has realized significant tax benefits and avoided the time-consuming process of selling the property. Additionally, they found charities that were able to take more property donations like their appliances and floor lamps that would not typically sell at an auction and would require even more time to sell online as well as securing logistics for shipping.
Most importantly, the client has provided critical support for charities providing life supporting services to their communities. The intangible benefits accruing to our clients, when we report back to them on how their donation helped to better the life of a community member, makes their decision to donate that much more enriching.
Please call or email our offices to discuss your potential donation and visit our website for more information on the donation and appraisal process.
Reference Links:
1IRS Publication 561: Determining the Value of Donated Property
