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Thursday, June 3, 2010

Appraisals 101

The subject of appraisals seems to be coming up a lot lately so let me write a post or two on this issue for those of you in need of some advice. First of all you need to understand that there are different types of appraisals for jewelry. The most common type is an insurance appraisal. This is an appraisal that will describe a piece and give the cost to actually replace the piece described at a retail store in the event of a loss or theft. The next most common type is a fair market value appraisal. This is commonly used in estate valuations and should reflect the amount the piece would sell for if offered for sale in its current condition. Lately some appraisers have been offering an appraisal that would reflect what should be a reasonable price to assume receiving if you scrapped the piece/s. There are a number of other types of appraisals (donation, IRS related, etc.) but most people aren't going to be concerned with these.

What most people don't realize, even many jewelers who think they can scribble something on a piece of paper and that that constitutes an appraisal, is that an appraisal is a legal document. It can be used in a court of law. As such, those doing the appraisals have to follow some guidelines (although many don't) about establishing value for the items.

An insurance appraisal on a new purchase, sometimes also known as a point of sale appraisal, is the most important type of appraisal for most people to be aware of. This appraisal should reflect what it would cost to replace the same item in the event of a loss. This is the type of appraisal that most insurance companies will want to write a policy to cover your jewels. Except in rare instances, such as when there is a true sale on the piece (not like in the department store sales where everything is on sale 350 days of the year), or errors were made in pricing (I sometimes have this issue on custom work, if I under quote a job and realize afterwards that if I do it again I will HAVE to charge more), insurance appraisals should not show values higher than what was actually paid for a piece (this presumes it's a new piece you've just bought).

Unfortunately for a long time jewelers used to sell people something for $1000 but then tell the customers, oh well the real price would be $2000 so I'll write you up an appraisal for $2000 and you should insure it for that amount. This was bad in a myriad of ways. First of all, they did it to make you think you were getting a deal, when in fact, if you went back the next day for the same thing, you'd pay the same price. Secondly, you would then pay insurance on $2000 rather than the $1000 that would actually be paid for the piece, enriching the insurance companies but not anyone else. In fact many insurance companies have deals with retail jewelers in which they pay far less than the retail price (the real retail price of $1000 not $2000) in exchange for sending the jewelers a huge amount of business. So all of this time you've been paying an insurance rate on $2000 when the insurance company may only pay out $6-800. Good for them, but not so good for you. So if you purchase something for $1000 that is what the appraisal should say. And if you're purchasing from some company that claims that their jewelry will appraise for double or more of the price paid, in fact they are making a false, unethical, claim. If an appraiser were to value the piece at double what you paid for it, knowing that you could go back to the same location and buy the same thing for the same price, then they shouldn't be calling themselves appraisers.

Now mind you, some of appraising is subjective in nature. It can also vary depending on the area you are in. A custom made piece from a jeweler in the boondocks of North Dakota is going to cost less than from someone like me in an area where my costs are much higher. So values will vary. Different appraisers use different formulas as well. And there are a number of things like diamond grading that have some very subjective issues around them. One appraiser (or even a diamond grading lab) may see a VS2 stone and another may think it is an SI1 stone. That can sometimes make a huge difference in price. However a retail replacement value appraisal should reflect a value that is fairly accurate of what it would cost, in that specific area, to replace a piece at a similar venue to where it was purchased. In the case of custom work, unique designs, or designer jewelry, the value should reflect what that piece would actually go for. It is illegal to copy designs so a David Yurman piece, or a Daniel Spirer piece for that matter, should be valued at what it would cost to replace a piece made by that actual company/person not at what it would cost to have someone else steal the design and duplicate it. Things like branded diamonds also need to be recognized for what they are. A Royal Asscher cut diamond, actually cut by the House of Asscher, will carry a higher price tag then a diamond cut to the same shape by any old cutter. The same goes for the Lazare Diamonds that I sell.

My next post will be on insurance replacement appraisals on items that were not recently purchased and, if possible, on fair market value appraisals (although that might have to wait for a third posting). The earrings pictured above are a 16 layer mokume gane in 22k gold and 18k palladium white gold with a .10 ct. ideal cut, "E" color, VS clarity diamond in each earring. A proper appraisal would have to show the price it would cost to buy these from me as this is one of my designs.

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