Salvage Value vs. Scrap Value Appraisal

Introduction

Gold and silver are at record highs, and copper saw a record this summer. With increased attention towards precious metals comes increased need to consider salvage and scrap value when dealing with items that contain metals. Salvage value considers an item that is damaged or has components that have individual value, while scrap value provides a floor value that considers raw materials that can be isolated and monetized.

What is Salvage Value?

Another Gemini AI created image of a damaged 18 karat gold wristwatch. It may have a salvage value of the individual components - especially if the mechanical elements can be salvaged and have a secondary market or if the watch can be restored to working condition. At the very least it will have a scrap value for the gold in the bezel, band and clasp.

Salvage Value is a type of market value that represents the amount that could likely be obtained by dividing the property into its components and selling them separately in an “as is” sale. The assumption is that the value of the various components is more than in its current form. Some examples would include a car dealer who buys a junker to sell off its components: lights, engine, fenders and other parts that have a market individually. Alternatively, if a painting is partially burned in a fire, the remaining part of the work might have a salvage value if it can still serve a decorative purpose in its damaged state, or perhaps if the damaged parts removed or if there is a potential that someone else can repair it. Salvage value is typically used for damaged items, and requires an appraiser to determine the extent of damage and the impact on the value in its damaged state.

What is Scrap Value?

A Gemini AI created image of a landscape painting that has been severely damaged in a fire. It may have a salvage value from someone who will take on the risk of restoration or perhaps someone who is willing to trim the damaged part of the painting. This value will always be less than the pre-damage value.

Compare Salvage Value with Scrap Value. This is a type of salvage value, but the components have no additional value other than the raw materials. Scrap value assumes that these raw materials can be isolated and reduced to their metal content. Some examples include a piece of gold jewelry that is broken beyond repair and has a melt value related to the gold content. Or, a more extreme example would be a large custom bronze sculpture of someone’s grandmother that has essentially no resale market but has a significant amount of copper in it that could be recovered. Scrap value provides a “floor” value that is a minimum. The Internal Revenue Service (IRS) provides in its regulations that scrap value provides a bare minimum value when considering the usability and condition of goods.

Examples of Scrap Value vs. Salvage Value

Let’s consider these terms with four examples:

• An Old, Broken Refrigerator. This is one that likely has a salvage value that is informed by the scrap value. Refrigerators have steel, aluminum and copper - which need to be separated to maximize value. The fridge’s compressor is the most valuable part, so just removing that could provide some salvage value. If there are parts that can be sold to the spare parts refrigerator repair market or the refrigerator can be fixed to working condition, that may also provide some salvage value. The scrap value would come from processing the separate metals within the compressors.
• A Broken 1970s 18 Karat Gold Wristwatch. For this type of watch, an appraiser is going to need to ask some questions. First, is it of a brand where people are sourcing parts, like a Rolex? If so, there would be salvage value in the components beyond the gold. Perhaps it has a value in “as is” condition with the thought that someone would be able to repair it? If not, there is the scrap value of the 18 karat gold and the precious metals within the watch, the clasp and the band.
• A Framed Painting that Partially Survived a Fire. Taking our initial example, let’s consider a modestly-valued 19th century landscape painting in an ornate gilt gesso frame that partially survived a fire. One quarter - 25 percent - was burned and suffered significant damage to the canvas and the frame. Salvage value would take into account that there may be a buyer for a damaged painting who can take on the project of restoration? Perhaps the buyer is a dealer who can trim the painting to remove the damage? In this case, there’s a salvage value that is a significant discount to the pre-damaged value, but little scrap value as the individual components are worth little as there is essentially no market for a normal burned picture frame.
• Crate and Barrel Glass with a Chip. Finally, consider a mass-market piece of glassware by a maker like Crate and Barrel. A glass that is part of a classic line that is currently sold at their stores with a chip in it has no salvage value because the cost of purchasing a new one is modest and the demand for a common glass with a chip that could potentially injure the user is essentially zero. Since a replacement is available for under $10 presumably, the market for one that is damaged is non-existent, meaning that there is no salvage value.

For Salvage Value, an appraiser assumes that items can be repaired and that there is a market for the repaired item. Scrap Value assumes that there is value in the raw materials like the metal content, providing a floor value even when an item is beyond repair.