It’s essential to determine an accurate value of a luxury item before getting a loan against it. This is the best way to protect your interests and to help you make informed decisions.
Appraising luxury items is complex. Understanding how to value a luxury item before seeking a loan in South Africa ensures you maximise your borrowing power, negotiate better repayment terms and minimise risk.
What counts as a luxury item
A luxury item is a high-value, high-demand, prestige asset – from a watch to a yacht, a designer handbag to fine art – that is distinguished by its quality, unique characteristics and its rarity.
All luxury items possess something in common – a distinctive appeal and allure. Over time, unlike other types of assets, they have the ability to retain their value and, often, appreciate.
Usually, luxury items are from brands known for their exclusivity and craftsmanship, including:
- high-end jewellery (Cartier, Tiffany, Van Cleef & Arpels)
- luxury watches (Rolex, Patek Philippe, Audemars Piguets, Vacheron Constantin)
- designer handbags (Chanel, Hermès, Gucci, Louis Vuitton, Dior)
- classic and luxury cars (Mercedes-Benz, Jaguar, BMW, Lamborghini, Porsche)
- rare collectibles (from Krugerrands and whisky to stamps and antique chairs)
- fine art (Irma Stern, Dumile Feni, William Kentridge, Gerard Sekoto).
Why it’s important to value an item before seeking a loan
If you’re seeking a loan using a luxury item as collateral, you must have the asset valued accurately beforehand for a number of reasons. Most significantly, the valuation determines the loan amount. An accurate valuation ensures you secure the highest possible loan.
Valuation also impacts the loan terms, such as the interest rate and repayment period. The higher the item’s value, the more power you have in negotiating these terms.
Factors that impact value
No two luxury items are the same and a number of factors are taken into account in the accurate appraisal of an asset.
Provenance is one of the key factors that influences valuation. For example, the Rolex Submariner owned and worn (on his right wrist) by the late actor Robert Redford would be valued considerably higher than the same watch owned by a non-celebrity.
The documented history and origin of an asset helps validate authenticity and establish its lineage. Original documents of receipts of sale, brand and serial numbers are vital to prove provenance.
The condition of a luxury item also influences its valuation. An item in new condition, in the original packaging, will be valued higher than the same item that has had restoration work carried out.
Other factors include rarity, craftsmanship, market demand and the artistic merits of an asset. The state of the economy, fluctuating consumer tastes and emerging trends also impact an item’s valuation on any particular day.
Different valuation methods
Appraisers doesn’t use guesswork to value luxury items. They use expert insight, technical knowledge, market acumen and a certain subjective understanding to determine an accurate valuation.
Three methods of valuation are used, depending on the asset. They can be used alone or together to determine a final valuation that’s accurate and fair.
Market comparison approach
An item is only worth what someone will pay for it. The market comparison approach values an asset by comparing recent market sales of similar items in the luxury market.
This method works particularly well for highly liquid, frequently traded items with active resale markets, like jewellery, watches and luxury handbags.
While it reflects real market demand, it may undervalue one-off pieces that can’t be directly compared.
Income approach
Some luxury items can generate income, so they’re valued based on projected income. For example, fine art can be loaned to museums, private homes and galleries for substantial fees. Classic cars can be rented by high-end events or production companies.
This method ensures the value of a luxury item includes its income-earning potential as well as its intrinsic value.
While the income method can achieve a higher valuation, it depends on ongoing demand and the ability to prove historical earnings with documented records.
Replacement cost approach
If an item is custom-made or customised, such as jewellery and watches, the cost of replacing or reproducing it is the most accurate way to value it.
The unique nature of bespoke items means there aren’t direct market comparisons, so that method of valuation can’t be used.
While this method means singular items receive a valuation that reflects the craftsmanship involved in their creation, it may also over-value an item where the market resale value is less than the replacement cost.
Using a luxury item as collateral in South Africa
Now you know how to value luxury items before seeking a loan in South Africa. If you need funds in a hurry, and own a luxury item, LoanAgainst can help.
We’re an online asset-based lending platform, and a division of a fully accredited and regulated finance provider in South Africa.
Our lending services and interest rates comply with NCA guidelines. Our fee structure and loan terms are completely transparent.
Call us on 079 726 4690, send us a WhatsApp or apply for an art collateral loan online now. We operate in Cape Town, Johannesburg, Durban and Gqeberha.
