A Question from my neighbor

Jewelry Discussion
1

My neighbor has a platinum ring with several small diamonds
appraised at $2700 which she would like to part with and not get
hurt too bad. Here is what she says, in part:

“Do you know any places that will trade jewelry or a fairly easy way
to sell it without losing any more money at this point? Any advice
is appreciated. It is a nice ring with fancy engraving on the
sides.”

Apparently she has already lost money making a trade and wound up
with this ring which she doesn’t like. I could only suggest she try
eBay or Craigs List.

I know she will appreciate any advice from the experts.

John
Indiana

2

Did she pay $2700 and she’s trying to get that out of it? Or did she
pay less and is trying to get $2700 worth of merchandise because
someone appraised her piece for that amount?

I’d suggest offering her an amount of credit for the metal and the
stones at a higher rate than scrap.

3 
My neighbor has a platinum ring with several small diamonds
appraised at $2700 which she would like to part with and not get
hurt too bad.

I am afraid, but It does not sound good. Appraised value is
meaningless. The market price is so different, that I am not even
going to mention it.

The value of jewellery is in craftsmanship. Without craftsmanship
jewellery is simply scrap metal with stones attached to it, and
valued accordingly.

The best advice I can give is to refresh engraving, make it more
refined; recut around diamonds to make them stand up; invest some
handwork to make it somewhat unique; and after that try to sell it.
The problem is that she may have to spend more on rework, than she
could recover and may be much more, but that is the reality.

The advantage of the plan is that after the ring is reworked, she may
want to keep it, and that will be a good thing.

Leonid Surpin

4

Two things strike me in this message:

appraised at $2700

First off, many appraisals on items are blown way out of proportion
just to make the customer feel better. A very shady practice, but it
does happen. While $2700 sounds about right for a platinum ring, it
may be overdone if the ring is thin. She may be surprised when she
goes to sell it.

fairly easy way to sell it

#1. Easiest way to sell it would be to take it to a well-known
jeweler in the area. A local jeweler and one that has been around for
a long time is more likely to give you the best price for the metal.
Many pawn shops buy platinum as well. Do not go to a cash for gold
store. Medium return / low risk / quick payment #2. Next easiest way
would be to contact the local jewelers and see if they with take the
piece on consignment. Give the jeweler the ring to put in his case
and when (if) he sells it, he keeps a percentage. Better return but
much slower and more legwork for her to find someone to do that. High
return / medium risk / slow payment #3. Selling on eBay and the like
can produce a good sale but chances are, you will not get more than a
third of what the metal is worth in the ring. Low-Medium return /
High risk

John “Just my 2dwts worth” Vandergriff II
Stuller, Inc.

5

Hi John,

First off, many appraisals on items are blown way out of
proportion just to make the customer feel better. A very shady
practice, but it does happen. While $2700 sounds about right for a
platinum ring, it may be overdone if the ring is thin. She may be
surprised when she goes to sell it.

I got to dispute that it’s not a shady practice (well at least not
in Australia), raw material value is one thing, but replacement value
is another.

Here in Australia, valuations are done on replacement value for
insurance reasons.

Say for instance you had your tool box stolen, a wise insurance
practice would be to have a replacement value. Imagine if you went to
your insurance company with a claim, and they offered you $10 for the
materials cost of your stolen tools.

Regards Charles A.

6 
Here in Australia, valuations are done on replacement value for
insurance reasons.

So is everywhere, and that is precisely the point. Insurance
companies knows very little about jewellery. They are classical know
price of everything and value of nothing. Market price is very much
different.

I try, whenever I can, to attend Sotheby’s auctions. (Christies as
well) They are much better at appraising jewellery, but even they
make very notable mistakes, from time to time.

If one subscribes to their catalogues, one can identify lots that
contain large stones, a lot of metal, but nobody wants it because of
poor craftsmanship and/or design. On the other hand, some pieces made
from very pedestrian materials, but sells for much more than
appraised value, due to excellent execution of design.

I remember one fringe necklace made of hematite by Marina B. It was
appraised at 10,000 tops. It was sold for over 60,000. Appraiser
totally missed design and craftsmanship.

Leonid Surpin

7

Hi John,

A single piece of jewelry can have several different values that are
expressed in three different types of appraisals. The three basic
types of appraisals are "Retail (or Insurance) Replacement Value"
which reflects the total out-of-pocket expenses for an exact
replacement at full retail, usually less sales tax. There is often a
bit more (10% or so) added to protect the insured against
fluctuations in the various metal and stone markets. An “Estate
Value” is used for establishing the value for an estate or for tax or
equitable distribution purposes (such as a divorce) and has no
additions for market fluctuations so it is only accurate for a
limited (usually stated) period of time. "Fair Market Value"
sometimes called “Liquidation Value” or “Cash Value”, which reflects
the actual amount of cash that the piece could be sold for from a
willing seller to a willing buyer in a reasonable amount of time,
usually a week or less, and is used primarily for banking purposes.
All three should have the same exact descriptive with the
only difference being the value assigned. The type of valuation and
any time period associated with the value should be clearly
indicated.

Leonid is exactly right if the appraisal is the most common
Insurance Replacement Value appraisal. The value assigned is
meaningless, especially for a piece being sold in a non-retail
environment. The replacement value is really only used by insurance
companies to determine insurance premiums the owner will pay. In most
cases however, it is NOT what the insurance company will PAY in the
event of a loss. Insurance companies are in the "taking money in"
business, not the “paying money out” business, contrary to the vast
majority of their marketing claims.

I liken the different types of appraisals to the different values
that can be assigned to a car. Retail Replacement is like showroom
"sticker price" for a brand new, loaded with options car. Of course
we know that very few people pay sticker price, but if you total a
brand new car, that’s likely what a replacement could cost, so that’s
what you would want to insure it for, plus a little extra to cover a
rental car, transportation, etc. The Estate Value appraisal is
similar to what the final, actual negotiated price of a specific car
might be, with only the options it has and with no additional
mark-ups for dealer prep or transportation costs. Fair Market Value,
as the name implies is what it might sell for today or tomorrow at
Carmax if immediate cash is needed. Scrap value is like what the car
would bring at a junk yard if it was totaled.

So which of those values is correct? All of them, depending on the
type of value we’re trying to determine, but they’re only right for
the one purpose for which they were intended. It’s when we use one
type of valuation (Retail Replacement) to determine a different value
(Fair Market) that we get confused, and even sometimes angry.

All of that said, if your neighbor has an Insurance Replacement
appraisal, she can’t expect to sell it for anywhere near its
appraised value. The description of the design, metal and stones,
etc, and the appraised value can be helpful in writing an ad, but in
no way indicate the real value in a sale, and shouldn’t be used or
viewed as such.

The speed with which the money is needed should be the determining
factor in the method of marketing the piece, as John suggested. I
would recommend going to an independent local jeweler for advice, as
opposed to a pawn shop or a chain jeweler, although they likely will
not offer a lot more, even on a consignment basis. EBay and/or
Craig’s list would also be good alternatives, the prices people are
getting now are a lot better than even a few months ago, but on-line
auctions are not without risk. There are many scammers out there
right now too, so seller beware. Best case would be to sell it to a
friend, that way the friend gets a better deal than they could from
a store, and your neighbor would be able to get more than selling it
for scrap or slightly above. They can get top dollar, but they have
to be able to find the right buyer. That’s the hard part.

Selling jewelry is a lot harder than it looks. There are a lot more
sellers than buyers right now, I have at least one person trying to
sell me something for every person buying. Everyone thinks appraisals
are way over-inflated, jewelers make super high profits, and the
whole thing is a rip off, based on what the appraisal is versus what
they can sell it for. The problem is that most people don’t know what
type of appraisal they have, and what it was intended for.

It’s really no different than someone trying to sell a six month old
car at a profit because the sticker price was higher than what they
paid for it, and then assuming the dealer ripped them off because
they can’t even get close to the purchase price, let alone sticker.

Why shouldn’t someone expect to be able to sell a piece of jewelry
for Insurance Replacement Value? It’s still shiny and sparkly. I
guess for the same reason someone would expect to get sticker price
for a six month old car. I mean, it’s still just like new, still
smells new too. Makes perfect sense to me. The logic seems to escape
quite a few people though. Sellers seem to get it, but buyers for
some reason can’t quite figure it out. I can’t seem to get sticker
price even for new jewelry, even if I offer a one year warrantee, a
free appraisal and lifetime sizing.

Dave Phelps

8

My neighbor wishes me to thank you for your kind suggestions! She
appreciates very much the advice you have given!

John
Indiana

9 
The replacement value is really only used by insurance companies to
determine insurance premiums the owner will pay. In most cases
however, it is NOT what the insurance company will PAY in the event
of a loss. Insurance companies are in the "taking money in"
business, not the "paying money out" business, contrary to the
vast majority of their marketing claims.

You need a better insurance company :wink:

All my dealings have been excellent. I flooded my kitchen due to
being distracted by my daughter (there was a to more to being simply
distracted), I was up front and honest about it, the company
replaced my kitchen.

I’m sure there are shonky insurance companies out there, but I’m yet
to meet one.

Regards Charles A.

10

Mr. Phelps,

Thank you for stepping up to the plate and defining the various
types of appraisals. I have witnessed a few retailers who used
inflated appraisals to justify their selling price, but generally
most individuals who engage in this service do so in a manner that
benefits all parties, insurance carriers and customers alike. Most
critics of appraisal values do so as a result of improper use of
those values, and seldom seem to realize that the error is on their
part.

Jon Michael Fuja

11 
All of that said, if your neighbor has an Insurance Replacement
appraisal, she can't expect to sell it for anywhere near its
appraised value. The description of the design, metal and stones,
etc, and the appraised value can be helpful in writing an ad, but
in no way indicate the real value in a sale, and shouldn't be used
or viewed as such.

To further clarify David’s very clear posting - a great many people
do not understand what an Insurance Replacement Appraisal is. What
it’s not is a real value, as David points out. It’s a budget and no
more than that. If your ring is insured for $10k and you lose it,
the insurance company will NOT write you a check for $10k. What they
will do is replace your ring, up to the amount of $10k. If it can be
replaced for half that, then that’s what they’ll do. It’s just a
budget… And almost always inflation is built in - most appraisals
are written for a 5 or even 10 year period so people don’t have to
re-do them all the time. So, the $10k ring you buy today might
appraise at $15k, because in 5 years it WILL be valued at that. You
need to be very careful of which valuation you’re talking about.

One nationwide buyer who has at least a decent reputation is Circa,
BTW:

12

I respectfully (imagine that!) disagree that appraisals should be
projected into the future. There’s no way of knowing how much the
price might rise in five years, let alone whether it WILL rise at
all. If values rise or fall…that’s the insured’s responsibility to
manage their financial affairs which includes updating appraisals. My
experience is that most insurers like apps to be no more than two
years old.

Some insurance companies DO write checks for the face amount of the
loss. They are not in the jewelry shopping business. Their clients
pay a good dollar for the hassle free coverage. These are usually
clients who have substantial means anyway, so are accustomed to good
management and will review all their policies from time to time.

Let’s take a hypothetical case. An item’s ‘actual’ replacement value
on Dec 1, 2010 is $45,000. By actual I mean that’s the reasonable
expectation for what it costs to replace the item with like kind in
the local market as it exists on that day. So maybe the appraiser
writes it up at $67,500 as suggested elsewhere. Since the premium is
based on value, the client now has a 50% higher premium than
necessary to protect his interest. Later the item is lost and a
claim submitted. The insured, because he’s no dummy has previously
gotten a second opinion that is more in keeping with actual market
conditions and the insurer settles based on that ‘other’ appraisal.
Now, how does appraiser A look to the client? Does the discrepancy
cast doubt in his mind about the accuracy or worse yet, ethics of
appraiser A? The longer he’s been paying inflated premiums the madder
he might get. How does it affect the client’s choice of who to buy
from on other purchases?(as in "does joe jeweler have 50% higher
prices on his goods for sale too, or is he inflating to make his own
goods look more competitive?) I would submit that projecting future
values is not only a major disservice to the client but also to the
appraiser himself.

13 
I was up front and honest about it, the company replaced my
kitchen.

The way insurance companies deal with losses such as your kitchen
Charles, is quite often far different from how they deal with a
jewelry loss. I know this from many dealings with many different
companies, the most recent is still unfolding as I write this.

A long-time customer of mine squashed her platinum ring and lost a
1.76ct diamond about two weeks ago. The whole ring was appraised by
my wife just last May for $13,950, with $11,500 for the diamond,
which is still what the actual retail for this stone is from most
retailers including Blue Nile, and other on-line sites. She decided
that she wanted to do something different; a smaller, nicer stone in
a much more costly custom mounting, keeping the cost at $13,950. I
told her that she was not going to get a full reimbursement, only a
replacement stone or the company’s cost for it.

She told me that Hurricane Fran had blown a tree down onto her roof,
they let her use whomever she wanted for the repair, and just wrote a
check made out directly to her for the full amount. She also had been
in a car wreck about two years ago, they let her use whatever shop
she wanted, no “three estimates” or anything and paid the whole
enchilada, including her choice of rental car, no questions asked,
again, with a check made out directly to her. She has been with this
well known, very established, top rated company for over forty years,
and these were the only claims she ever made and both of these claims
were well above the claim on her ring. Her husband who passed away a
few years ago had been pals with their former agent, who had retired
a few years ago, so she just knew there would be no problems, so I
should just use the stone she likes from my inventory and get
started on the new ring.

Last Tuesday, the insurance company found a stone for her, and told
her they would either replace the stone or write a check for $9011,
their cost. She was shocked, even though I told her before she made
her claim that this would be the case. She called her husband’s
buddy, and he told her basically, that’s the way it works, that’s
company policy for jewelry claims, it’s in her policy, there was
nothing he could do. We’re still negotiating, we’ve gotten them to
add in some of the sales tax (which was specifically noted to not be
included in the appraised value and is $1081 on $13,950, for a total
loss of $15,031), and some for the flattened 9.5 dwt platinum
mounting (if they get the old one), but I don’t think she’s going to
get another dime. $10,000 for the whole ring, including sales tax.
That’s all they’re going to pay, period. A quick call to her
attorney has verified that the insurance company is doing what they
do, and there is little else that can be done, short of filing a law
suit that he is certain will fail and highly recommends against
pursuing.

If this was my first such experience, I would agree with you
Charles, she needs to find a different company. But this is not my
first experience, it’s not even in the first couple of dozen or so,
and with the exception of small claims, less than $500 or so, not one
has ever gone differently. Not one. In fact, this is one of the best
settlements I have seen.

Things may be different south of the equator, but in the US, this is
how it’s done. It’s not right, it’s not fair, it should be against
the law (imho), but it is what it is. I encourage you to read the
fine print in your policy concerning jewelry replacement claims and
see if you can find where it says you get full reimbursement for the
appraised value, or if the company reserves the right to replace or
reimburse as exclusively their option. If you find it, please let me
know, so that I can recommend your company to my customers that
really need better insurance.

When I do an appraisal for insurance purposes, I usually use current
retail for the stones, and figure what it would cost at full retail
(Geller Blue Book) for me to reproduce or buy the mounting and add a
bit for market fluctuations. I very rarely add anything for “Wow
Factor” or subtract anything for poor craftsmanship as the insurance
company isn’t going to honor or recognize either one. The only time I
use different figures is for something made by a major designer or
retailer that gets far more for their jewelry than anyone else can
get (Tiffany, Van Cleef and Arpels, etc.) In those cases, I call them
and find out what a replacement would cost, and use their figures. I
also add a notation stating that is where the replacement value came
from. Most are very willing to provide this info. I also make a
statement about the condition of the piece such as “new” or “well
worn” etc, mention any repairs that may be needed (after telling the
customer) and provide photos of at least two different perspectives.
I also refinish the piece for the customer.

FWIW, it’s not just bad business to use an inflated appraisal as a
sales tool, it is illegal. This practice is called fraud, and it is a
prosecutable offense. It’s often hard for a prosecutor to prove
willful fraud in court, but it can be done. So if you see such a
thing, report it to your local prosecutor. They may be interested or
they may not, but such practices should be exposed and fought any
time they are found out. This is not only something we can do, it is
something we must do. It is our responsibility as jewelry
professionals to police our own.

Dave Phelps

14 
I respectfully (imagine that!) disagree that appraisals should be
projected into the future. There's no way of knowing how much the
price might rise in five years, let alone whether it WILL rise at
all.

When we do insurance appraisals, it is absolutely necessary to look
to the future. After all, insurance is designed to protect the
insured against a loss in the future, not only for today or tomorrow.
That’s the whole reason we do an Insurance Replacement Appraisal
rather than an Estate Appraisal.

Let's take a hypothetical case. An item's 'actual' replacement
value on Dec 1, 2010 is $45,000. By actual I mean that's the
reasonable expectation for what it costs to replace the item with
like kind in the local market as it exists on that day. So maybe
the appraiser writes it up at $67,500 as suggested elsewhere.

Yup. That would be way over-appraised, and an appraiser doing so is
being more than irresponsible. Such an appraisal might actually
constitute prosecutable fraud, depending on the circumstances. I’d
call my local prosecutor and turn his butt in.

Adding a 10% cushion on the other hand would make it more like
$49,500. Not an unrealistic number given today’s markets and a 3%
average rate of inflation. Adding 10% to a $2500 platinum ring making
it $2750 may very well be eaten up with less than a two hundred
dollar movement of the market. That’s hardly an out-of-the-question
possibility these days, especially given the usually recommended two
year life of an insurance appraisal. A heavy gold bracelet appraised
at it’s purchase price in Jan 2008 might not even be insured for it’s
scrap value today. Most folks pay less attention to their appraisals
than they do their oil changes, so that’s not an unlikely time period
either.

We should at least make sure that if markets change significantly
and the insured blows it off, they won’t get burned too badly.
Otherwise, the insured must get a new appraisal every time the market
goes up, even a little bit. A 10% buffer eliminates much of the need
to do that, but doesn’t bump up the value or the premiums too, too
much. In the case of a $90,000 piece, 10% may be a tad too much, but
for a $1500 piece it may not be enough. A little common sense goes
far here.

If a more accurate appraisal is needed reflecting actual current
market conditions, the appraiser should recommend an Estate or Fair
Market Appraisal, and include an expiration date. In any case, the
customer should be informed about how the value was determined, so
they understand the need to take action if the markets change
significantly, in either direction.

The appraised value on an insurance appraisal sets the top amount
the insurance company will pay as well as the premium that the
insured will pay. It is our responsibility to make sure that the
customer will not be seriously under-insured for about two years.
Adding 50% is not a responsible action, but failing to add a little
additional coverage in a constantly changing market isn’t either.

Respectfully (and I certainly can imagine that),
Dave Phelps

15 
I would submit that projecting future values is not only a major
disservice to the client but also to the appraiser himself.

Well, yes, Neil - that was a very useful and insightful posting about
the nature of appraisals (I mean that), but the fact is that it’s
commonly done, to a greater or lesser degree. Whether it’s right or
wrong I don’t care to comment - as long as it’s lawful, that is. I
tend to believe Neil when he says that some insurance will simply
pay, just because he has credibility. But I’ve personally never seen
or heard of it in jewelry, cars or anything serious with a home.
Always estimates - we’ve done them ourselves, One was $750K, which we
didn’t turn…And that lady bought a new ring for 2/3 of the
appraisal because she liked it so much. It’s just a budget for
replacement…

16

David, your reply says it very well. At one time I was an independent
claims adjuster and as such handled claims for a number of companies.
Any policy I ever saw specified that the company would reimburse or
replace jewelry at the company’s discretion. If there are policy
riders out there somewhere which call for reimbursement at full
retail,be assured the insured will pay dearly for such coverage. It’s
in the policy and clearly stated. Most people never take the time to
read the policy they buy and then complain to all who will listen
when they don’t get what they think they have coming when a loss
occurs.

Jerry in Kodiak

17 
Adding a 10% cushion

Since that falls within the oft cited 20% range of value opinions it
seems OK. Those insurers who have suppliers on call make the actual
settlement at significantly less than the legit retail value. And
even if the insurance calls the appraising jeweler to replace the
item they will negotiate price.

There are insurance products out there that most of us do not
encounter frequently. There is one company, I feel I should not name
it, that simply cuts a check to the insured. Get this…there is a
thing called the pairs and sets clause. Some Insurers will pay to
replace a set or pair completely, even if only one item is lost or
damaged, no doubt there are parameters to that but still!

Yeah, this is high end insurance that costs according to the level
of coverage. Its a bit like health insurance that let’s you pick
providers. Some people want it.

Gold has just about doubled in a bit over two years. And it did the
reverse after the Hunt Bros. How to account for such volatility in
our apps is perhaps a subjective judgement to a degree.