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Appraising Question


#1

Greetings all, I have a question on appraising jewelry. What would be
the proper amount to list for a diamond? I ask this , as I just
received a diamond dealers catalog with triple key pricing. I’ve
always thought that figure, today, is completely unrealistic. BUT,
should that high retail price be the figure used to list on the
insurance replacement appraisal? For instance, in the catalog a 1.01
ct round I vs2 diamonds price is $12,750.00!!! Cost would be
$3,825.00! If I were to sell that diamond, I would sell for about
$4,800 to $5000 max. and appraise it at about $5,500 to $6,500. Is
this proper? What are your suggestions? Thanks in advance…this may
help a great deal of folks that appraise.

Thomas Blair -( Boozer)
843 686 600120
843 686 6407 fax
Island Gold Works


#2
    Greetings all, I have a question on appraising jewelry. What
would be the proper amount to list for a diamond? 

Hello Thomas;

In the cases of insurance replacements we have done, the insurer
will only pay to replace the stone as per the description of the
stone. And these guys call around and check. We’ve had insurers
call guys with zero overhead working out of a little office with no
more than a phone and get a low-ball price, then give us the choice
of matching that or they’ll call their ringer and get it from him.
Usually we’ve gotten fair market value to replace an item, but when a
diamond is over appraised, it only means that the client is paying
too much for their premiums. We explain to our customers that we
never over appraise, feeling that we are doing the best service for
our customers when we help them keep their premiums down while
insuring that they’ll be able to replace the item with one of equal
value and quality.

David L. Huffman


#3

Thomas, Proper appraisal of a diamond value has to be conducted by
researching what the diamond would sell for in your general area, not
what you would charge for the stone. If, on average, the stone would
sell for $4000 in your area, that is the price you should appraise it
at, regardless of how much you sell the stone for or how much a
wholesale catalog might list it for. It is actually unethical to
appraise a stone for more than you sold it for as the customer could
replace the stone the next day for the same price. The only people
who benefit from that practice are the insurance companies, as they
get higher premiums from the customer. The insurance companies don’t
even pay full retail (and it is exceedingly rare for them to pay out
actual cash) as they have deals cut with companies to purchase
replacement pieces at a discount. Unfortunately most jewelers who
do appraisals feel that they can list a replacement price based on
what they sell a piece for. This is absolutely not doing a proper
appraisal. If you sell a stone for $5000 that the majority of
jewelers in your area sell for $3500 you have to appraise it at a
price lower than what you are selling it for. If you aren’t doing
this on your appraisals than you are not truly appraising the piece
and you could leave yourself subject to lawsuits from the consumer
once they find out. You might be able to get away with some form of
disclaimer stating that the price reflected is what you sell the
piece for, but you would have to make it clear that this is not an
actual appraised value. This is one good reason to sell stones that
are either branded or have some unusual quality about them that will
justify whatever price you are selling them for.

Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com


#4

Most insurance policies give the insurance company the option of
replacing the stone if it is lost or damaged. If your client is
paying premiums based on full retail or triple key, they are
overpaying in most cases because the insurance company is unlikely to
hand them a check for full retail if they can replace the stone for
wholesale cost.They should read the fine print in their policy. Most
of my clients opt for an appraisal based on the replacement cost to
the insurance company if that is their company’s policy.

Joel Schwalb
@Joel_Schwalb
www.schwalbstudio.com


#5

My own personal practice is to appraise for the selling price on
items which I have sold. There are many jewelers who appraise for
false very high prices, to give the customer the impression that they
got a ‘bargain.’ I feel that this isn’t in the customer’s best
interest, because they are going to pay insurance premiums based on
that high figure for years, and if they ever have to make a claim,
the insurance company, not being stupid, WILL NOT pay off on that
’figure,’ but will insist on replacing the item, and will pay much
less for it. Have your customers read their policy! David Barzilay,
Lord of the Rings


#6

Thanks to all that answered the ‘appraisal question’ Appraising items
with around what I would or have sold for is the way I have been
doing for many years. Have probably done a few thousand. And have
never had any problems or conflicts what so ever (thank you!) What
makes some diamond dealers send out the overpriced ‘retail’ price
catalogs? Certainly no honest jeweler (or any jeweler) would tell
customers that was the retail price of a diamond!(?) That was my
actual original question,and there may be no answer. Thomas


#7

Hi Gang,

As far as appraisals go, there are several types of appraisals & the
same item could have different values depending on what the appraisal
is for. There are appraisals for: replacement cost, inheritance tax
purposes, auction, & probably several others I’ve forgotten about.

Anyone doing a jewelry appaisal needs to have the skill, knowledge,
equipment to do the appraisal. When he signs the apparaisal he’s
staking his reputation on the appraisal & may be called on to defend
the appraisal in a court of law.

It would seem that having an appraisal done by a third party, not
the sellerof the mechandise, would be prudent. A third party should
have no interest (as would the seller) in the piece being apprasised.
That’s not to say that the thrird party & the seller couldn’t be
accomplices.

Dave


#8

There are a number of reasons the wholesalers use a triple keystone
markup in their catalogs. The first is that if they want you to use
the catalog regularly in front of customers they don’t want the
customers to see the wholesale price. So then you might say why
don’t they just mark it up keystone? Well, not everyone only gets
keystone markups. Some people, particularly on cheaper items, will
get a much larger markup. This allows some latitude for those
people. Of course there is also the somewhat deceptive concept that
since the customer will see a much higher price than you would
actually sell the stone for they will think they are getting a
bargain. Daniel R. Spirer, GG Spirer Somes Jewelers 1794 Massachusetts
Ave Cambridge, MA 02140 617-491-6000 @spirersomes
www.spirersomes.com


#9

In THEORY, and I repeat, in THEORY, there is only one appraised
value, whether for inheritance, insurance, or any other purpose. I
believe that is the I.R.S. official position. There is ONLY “fair
market value,” and it is not supposed to matter the purpose of the
appraisal.

Now that all the appraisers have finished laughing, just keep in
mind that one is signing a legal document, and can be hauled into
court to defend it.

Just last week, a friend and neighbor in the California Jewelry
Mart, where I hang out, asked me to appraise a diamond which he had
sold, because he wanted a G.G. signature on it. BUT, he wanted it
appraised for three times the selling price (over $30,000) and I
refused. There was no way I could have defended that, if I had been
called to do so. Just my two cents. David Barzilay, Lord of the Rings


#10

I am sure that those catalogs are done so that one can show them to
customers and offer the customer a discount. It is the same reason
that finished jewelry catalogs are priced at ‘triple keystone,’ (even
major sources like Stuller.)

I actually find that useful. If catalogs were marked with cost
prices, then I would NEVER show it to my customer. My cost is none of
their business. David Barzilay, Lord of the Rings


#11
   In THEORY, and I repeat, in THEORY, there is only one appraised
value, whether for inheritance, insurance, or any other purpose. I
believe that is the I.R.S. official position.  There is ONLY "fair
market value," and it is not supposed to matter the purpose of the
appraisal. 

David, to be blunt, you’re wrong. Value is not one specific
inviolate number for an item in all cases. The valid estimated price
that an item would bring at auction is one often used method for
appraising a fair market value of a used item. But the owner of that
item, which is used, may have insurance that offers to replace the
item with new, if lost or damaged. This may well be the most
reasonable option for replacement, if another similar used one isn’t
likely to be found, for example. A more obvious example is that the
insurance replacement value for a home can be either based on the
current estimated sales price of the existing home, or in the case of
fire insurance, may cover the estimated cost of rebuilding the thing
if it burns down. Policies vary according to coverage, and different
types will require the determination of different levels of value.

In the case of I.R.S. appraisals, the required appraisal is
virtually always a fair market value, which is then the value of the
item, in it’s current state, being sold by a willing seller to a
willing buyer, with neither being under compulsion to complete the
transaction. For the IRS purposes, it’s quite possible that this may
be the only valid appraisal. But the IRS is not the only possible
consumer of an appraisal. A client can reasonably ask an appraiser
to determine any particular level of value that may be needed or
desired, and any such appraisal will be valid, so long as it clearly
spells out the level of value that has been determined, and for what
purpose.

Even within these specifications, appraisals for a given item can
reasonably vary, dependant on circumstances, such as the geographical
area in question. It’s reasonable and proper to determine the fair
market value in the most likely sales venue for that item. This can
vary depending on the type of item, and the circumstances of the
owner. For some items, nationally known auction houses may be the
most likely and reasonable sales venue, while for others, perhaps
even a local thrift store. It depends.

The owner of a piece of jewelery may wish an insurance appraisal.
Depending on the type of insurance policy carried, the value needed
may be the replacement retail price for another one from the same
original source, in case of loss, in some cases, where a new one may
not be available, some policies may even allow a value to estimate
the cost of duplicating a lost item, which might be more than the
original cost of the lost one. Other appraislas may determing the
fair market value, rather than the retail replacement value, while
still others may determine just the salvage value of an item, such as
might be the case where a client needs to know what to expect from a
"fire sale" situation, or estate sales. These may bring less than
the venues which would normally determine a fair market value, yet
may still, in some situations, be valid market levels needing to be
appraised.

While it’s true that these other market levels are unlikely to be
valid in the eyes of the I.R.S., that’s only because they serve a
different purpose than that for which the I.R.S. usually needs an
appraisal. This doesn’t mean they are invalid for the purposes they
are intended for.

Peter Rowe


#12

David, Respectfully, while the IRS does determine a tremendous amount
about our lives, all appraisal courses recognize different types of
appraisals. While the IRS may recognize only one form, that is for
tax and estate purposes only. Since there are other reasons to
appraise items (insurance) there are in reality more than one
appraisal value in our business.

Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com


#13

All, The only appraisal I would accept would be an appraisal based
upon the selling price of similar items at the retail level during a
specified period of time. That appraisal would only be valid for the
short term as prices fluctuate rapidly. For one of a kind pieces of
jewelry that contain custom stones the appraisal process becomes even
muddier. The appraiser must be proficient and trained to judge the
cost of manufacturing a custom jewelry piece and the custom stone.
Many times I have been asked to give my estimate for the cost to
replace a custom stone. My answer is it will vary according to if
the stone is available and if the cutting can be reproduced.
Appraisers do not want to hear this and that is why most custom
stone jewelry has bad appraisals.

Gerry Galarneau
www.galarneasugems.com


#14

All. This just a personal opinion. We all have them. I am afraid
that what I post here may offend some. I have a lot of respect for
most of the posters to this subject and I am sorry. So be it.

I refuse to do appraisals. I have several certificates from the GIA.
I do not yet have the GG. I have lost a substantial amount of
interest in the persuit of gemology and all interest in appraising.

In my personal opinion, the open market fixes the value of any given
object. Values can be no more and no less, and as long as one keeps
to a single set of verifiable standards, one should have no trouble
in defending one work. Any attempt to assign differing values to the
same object can only be attempts at hiding the true value whether by
undervaluing or overvaluing.

If I offer an object to you for a certain price, I must assume that
you have done the necessary research to validate that price. You
cannot assume that I would provide this object for any less than I
could sell it for elsewhere. What ever the bottom line arrives at,
that is the value.

This assumes that I am honest as to the nature of that object. I do
believe that appraisers are necessary for identifying an objects
nature, or qualities.

When we start using different values depending on whom we are
representng these objects to I begin the think of the CPAs that are
working for the publicly owned companies that are representing the
books of such companies with conflicting values. If you are running a
business, you had better know which set of books is the honest one.

I apologise to those that might find my musing confusing. I find the
idea of multiple values not only confusing but outright dishonest.


#15
       When we start using different values depending on whom we
are representng these objects to I begin the think of the CPAs that
are working for the publicly owned companies that are representing
the books of such companies with conflicting values. If you are
running a business, you had better know which set of books is the
honest one. 

Bruce, I think you’re missing part of the point. You’re quite
correct that an object has really on one appraised value, IF WE ARE
TALKING ABOUT ONLY ONE MARKET, AND THE SAME ACTUAL OBJECT. But
neither of the above cases is always true. Part of the problem is
that appraisals are quite frequently not intended to represent the
actual current real value (fair market value) of an item. For
example, If I give you to appraise, my mother’s engagement ring
which she’s worn for 51 years…

there are a number of possible reasons for the appraisal.

One very common one is insurance replacement. Here, there are two
possible appraised values. One is the actual value of the ring
itself, offered for sale by a knowlegeable seller to a knowleable
buyer, with neither being under pressure or compulsion to either
complete or reject the transaction. that’s the fair market value,
and is what you’ve correctly described. It’s best determined by an
average of recent auction sales of such items, or similar means of
determining such types of transactions.

Some policies, however, don’t just contract to reimburse the fair
market value of a lost item, but instead offer to replace it with
identical goods, rather than just goods of equivalent value. The
insured isn promised that in case of loss, they well be “made whole"
not just in terms of money value, but in terms of having a duplicate
or equivelent item. This is similar to homeowners fire insurance
which is based not on the property value, but the cost of rebuilding
the home if it burns down. That is an available, and more costly
insurance option. If this is the case for the ring, then the
appraiser must determine if such items can reasonably be found in the
"used” market, or whether the most likely course that would need to
be taken in case of loss would be either the purchase of a new stock
item (the most common route), or even the custom manufacture of a
new, identical item. In these cases, the value might be “fair market
value”, or it might be the usual retail for a similar item, or it
might even be the higher cost of custom making an item which
originally was an off the shelf commercial item, but which is not now
available in that way.

And that is just insurance appraisals. The IRS, of course, is
almost always interested in the true, fair market value of an item,
since it’s usually the actual item that’s being transferred in a
gift, estate, or was lost, or in some other way affects tax law.
Here, it’s relatively simple. It’s fair market value, as
approximately defined above. But even here, though the aim is that
one true value, keep in mind that even with this precise definition,
appraising is a subjective field, so different appraisers will
reasonably differ a bit on that valuation. Just look at how often
pre-sale estimates in a auction can vary from what actually happens.
Pretty much the same thing is at work here.

And there are other valid values too. It can be quite reasonable,
after an estate files it’s taxes with the fair market values of
items, to then need to know what to expect if items are converted to
cash. In some cases, the requirement of a willing seller, willing
buyer, with neither under any compulsion to act simply cannot be met.
The sellers, for example, may have financial pressures or time
limits within which to sell the item, and may be forced to liquidate
items quickly. In these cases, they may well not expect to recieve
the fair market value for the items. The so called liquidation
values are lower, but just as valid a market level that an appraiser
may be called upon to estimate. Examples might consist of jewelry
items that might be saleable but only with some effort, being broken
apart for metal and stones, and sold that way, simply to be done with
it. This too, is a valid valuation that may be required, can be
estimated, and is easily demonstrated every time a pawn dealer buys
an item, or a jeweler buys something from a customer for scrap value
because he/she cannot resell it, even if somewhere, someone might
pay fair market value for it.

The key to this is that each of these values or estimated prices
that can be assigned to a single ring has a distinct, well defined
market level and purpose for the appraisal. They are not just
random, varying choices that an appraiser can make when appraising an
item. Any time an appraiser writes an appraisal, if it’s at all
valid, it MUST state the purpose of the appraisal, which is to
describe the type of valuation that’s been determined, and for what
purpose. There is no such thing as a valid appraisal that says “this
is valued as x”, unless it also says where, why, and in what
situation. If it doesn’t qualify itself in that matter, then for all
practical purposes, it’s worthless.

Hope that helps.
Peter Rowe G.G.


#16

Dear Bruce and All,

    In my personal opinion, the open market fixes the value of any
given object. Values can be no more and no less, and as long as one
keeps to a single set of verifiable standards, one should have no
trouble in defending one work. Any attempt to assign differing
values to the same object can only be attempts at hiding the true
value whether by undervaluing or overvaluing. 

Here is one example of differing values; A gentleman buys a plain,
14K wedding band from my store, paying $100, which I marked up at a
keystone. His retail replacement document states it can be replaced
here, or probably at any retail jewelry store, for $100, at a $300
gold market. The gentleman dies five years later, and his widow
brings in all their jewelry, and requests an estate appraisal so his
belongings can be distributed among the children. He owned cash,
real estate, and jewelry, and the value on that used, worn wedding
band is now reduced to a scrap metal value, maybe $10 or $15. In
this manor, either child will be receiving a “like” value, regardless
if they choose the cash, or the used wedding band.

Another example slightly differing; A customer walks into my store
with a diamond ring, and wishes to sell the piece. They paid $5000
five years ago, and have all the documentation, including the
lifetime warranty issued to the purchaser, diamond certificate, etc.
They request a “resale”, or fair market evaluation, to help them
sell the ring to another individual. The piece is very unique,
copyrighted, and can only be replaced at the original store for the
$5000 price, yet is it worth $5000 to the second purchaser,
considering they will not have any warranty? If there is only one
value, then will the original customer ever be able to sell her ring?
There would be no incentive to the second purchaser to buy the used
ring, as she could buy new and have a warranty.

To believe that there is only one value for every item is simply
unrealistic, at best. A good appraiser must understand the needs of
his or her customer, and have a good understanding of the marketplace
in their area. I personally don’t try to do appraisals either, but
simply supply replacement documents for my customers when requested.
Appraising can and should be a full-time job, requiring continuous
education and market research, and I have the utmost respect for an
appraiser who is good at their job.

Jon


#17

Bruce, While I appreciate your thinking on the matter and while it
appears to be unfair it really isn’t when you consider all the
factors. Fair market value is used to establish the value of an
existing piece. If you own a ring and you need to sell it tomorrow
to pay your estate taxes the question is what is the value. If the
ring has been worn for 40 years and is in bad shape no one is going
to pay a price anywhere near what was originally paid for the piece.
The value of that piece is determined by the state that it is in at
the time of the appraisal and attempted sale.

Now let’s assume that you own the ring and have been wearing it for
40 years. All of this time you have been paying for replacement
insurance through your homeowner’s insurance policy. One day you are
robbed and the ring is gone. First of all the insurance company has
promised, by accepting your premiums, to make you whole again (making
whole is an actual insurance term here folks). Making you whole does
not mean going out and trying to find a ring that has been worn by
someone else for 40 years so that it looks the same. Making you
whole means replacing the piece with something equivalent to its
original, insured value. Since over the period of time you wore the
ring the value increased, it is up to the insurance company to source
and replace an equivalent piece. They are going to have to go to a
jeweler and either buy or have made a duplicate to your original
piece, regardless of the price. The price they pay is absolutely not
going to be fair market value as no retail jeweler sells at that
price (except perhaps antique dealers, but as stated the insurance
company has to make you whole, not purchase an equivalently worn
piece).

This is one of the reasons that different values are assigned in
appraisals, depending on what the appraisal is to be used for. All,
please note that not all insurance companies pay out the same way so
before everyone jumps in with the stories about how different
companies paid out (or didn’t pay out), just remember to ask your
appraisal customers to read their policies carefully.

Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com


#18
In my personal opinion, the open market fixes the value of any
given object. Values can be no more and no less, and as long as one
keeps to a single set of verifiable standards, one should have no
trouble in defending one work. Any attempt to assign differing
values to the same object can only be attempts at hiding the true
value whether by undervaluing or overvaluing. 

So if you replace a used watch, the value will be the same as if you
are selling the used watch?

It may cost more to buy a replacement watch (replacement cost or
reconstruction cost) than what one may sell it for in the used
market (ie dumping it at a pawn shop or selling it privately). So
when an appraiser does an appraisal with a specific intended use,
they have to research the appropriate market which inevitably will
have situation specific values. At least this would be the ethical
and responsible way to do it.

Replacement value (like or new) for insurance replacement will
reflect what an item replaces for. On a contemporary commercial
item this commonly is what it sells for.

Fair market value for paying estate taxes, would reflect what an
item sells for in a secondary market, used, estate, auction. The
IRS has a specific definition, and the appraisers research would
determine which is a consistent and appropriate market to compare
to.

In these two examples the value may change drastically. If an
imaginary absolute value was used, either the item might be
underinsured or taxes might be overpaid on an item that could never
be sold in a secondary market for the alleged value. We apply
different values all of the time. Wear a ring for a year and then
tell me it’s worth the same as when you bought it. Typically value
decreases with wear and tear, but lets say it was made and worn by
someone famous, the value may change and go up. Would you insure
the item for its fair market value?

Would you insure an item at its fair market value? No way, you would
never be able to process the claim, because an item may cost much
more to replace than what you may be able to sell it for in a
secondary market.

Would you deduct a donation at replacement value? No because the
item probably sells for much less as a used item. Replacement may
cost more due to finding or recreating the item.

I don’t have the time or space to go into the many other situations
of how value is impacted by situation and market. But just because
a competent appraiser follows a documentable and supportable
methodology to valuating and finds one or more values does not mean
the are changing the value to suite their own motives. This is why
appraising should be avoided by retailers and labs. The may have a
bias that could influence the research and conclusion.

As far as inflated or deflated appraisals to misinform or represent
a false sense of value to the consumer, these alleged "appraisers"
should be flogged. We have a hard enough time convincing the public
that not all of us will steal the diamonds, now we have to deal with
fake and misleading, unsupportable plastic laminated appraisal cards
designed to make the customer feel that they bought a $8,000 for
$2,000.

Let the trained appraisal professionals do appraisals. Not the
wanna bees. It takes more than a basic knowledge in gemology to be an
appraiser. You need a competent, working knowledge of gemology,
jewelry manufacturing, legal issues and valuation principles. You
also need to keep up on new appraisal laws and guidelines and keep
abreast of new jewelry and gemology technology. An association with
a reputable appraisal association helps, especially when a consumer
needs to mediate bad service or you can show the public an ethics
policy that you adhere to and suffer consequence of you don’t. Most
of the professional appraisal organizations require that you
practice in compliance with USPAP (Uniform Standards of Professional
Appraisal Practice). Remember, you sign an appraisal, you are legally
responsible for it, with or without those fake preprinted
disclaimers. And you have to store you note for a minimum of 5
years, 7 if it goes to court. This includes verbal appraisals.

You can read about some appraisers that got in trouble for losing
their note in a back issue in JCK magazine. It’s the article
dealing with a Florida jeweler and an emerald purchase gone bad.

Thanks for letting me vent. I hope I didn’t offend too many people,
maybe except for the hacks.

Later, stay cool
Arthur in the burning state of Colorado
Anton Nash LLC
www.AntonNash.com

www.appraisalfoundation.org (USPAP info)
www.appraisers.org (ASA, American Society of Appraisers)
www.isa-appraisers.org (ISA, International Society of Appraisers)


#19
   There are a number of reasons  the wholesalers use a triple
keystone markup in their catalogs. 

Daniel a question from a newbie - what is a “keystone” markup? Does
keystone refer to true wholesale cost? If so, how does one know from
catalog to catalog whether it is a double or triple markup?

Thanks to all on Orchid for the sharing. I’m learning lots here.

Mary Collier Fisher, Walpole, MA


#20

All, How right Daniel is ! Insurance replacement guidelines are
widely variable and do not follow consistent criteria. And yet, why
shouldn’t this be so ? Appraisals also do not follow consistent
criteria. If you were to have a given object appraised by ten
different appraisers you would get ten different values and those
values could vary all over the board. This generalization obviously
would not apply significantly to something that is very simple and
common…ergo; a quarter carat SI2 G round brilliant set in a
conventional Tiffany solitaire. On the other hand, what would the
variation be for a one hundred year old one and a half carater set
in filigree platinum and flanked by custom cut Kashmir saphires ?
Furthermore, if the piece were in top condition, the stones
unblemished and well cut, and the design textbook perfection for the
era, how variable might the estimate be ? My guess is that the range
of valuation might be as great as three hundred percent or more.

In my own experience, the above description is the kind of ring that
my clientele will kill for; it is like beachfront property in
California. There is no limit to what it might bring and very often
will invoke bidding wars.

One need only to look back through the articles in JCK to see how
inexact and inconsistent the criteria for jewelry appraising can be.
Appraising will always be influenced by subjective considerations.
My own guideline is what do I think I could get for it ? This
question is prompted by personal experience and knowledge of my own
market. It also relates to my network of potential clients…those
people who are interested in particular categories of jewelry.
Nothing is ever as simple as it seems ! Ron at Mills Gem, Los Osos,
CA.