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Friday, June 4, 2010

Appraisals 102

Okay so let's say that you've been buying jewelry over the years and never had an appraisal for any of it, but you've just started working with a new insurance company for your homeowners policy and they tell you they want an appraisal of your jewelry to cover it properly. This again requires a retail replacement value appraisal. An appraiser should use the same general approach in valuation as I described in the last posting but prices should be updated to reflect current metal and stone values. In the case of gold and platinum, the prices are up so it might be possible to have a value assigned to a particular item that is, in fact, higher than what was paid for the piece. In the case of diamonds, it is possible that the price will be lower as the RETAIL price of diamonds has dropped over the last 5-7 years. Some consideration of the condition of the jewelry has to be taken into account as well. In the case of a piece with missing stones, or with a lot of metal worn off, it really isn't up to the insurance company to replace a lost or stolen item with a new, perfect condition piece. All of these factors should be taken into account when valuing these pieces. Other factors on older pieces (are they collectibles?, were they made by a known--now dead---artist?, etc.) should also be taken into consideration. In the case of items that are collectibles the values should be based on similar items that are being offered for sale to the general public.

The most important thing to remember however about insurance replacement appraisals is that the values shown will have absolutely no relationship to what you might be able to sell the pieces for. As such, these appraisals should NEVER be used to help make a sale to a private individual, nor will they help you in the least if you take your jewelry to a jeweler to sell it. So if you want to sell your jewelry you do NOT want an insurance replacement value appraisal. And, conversely, if you are buying jewelry from a friend, or from an online used jewelry site, you should not use a retail replacement value appraisal as a starting point for price negotiations.

Estate appraisals are a different type of appraisal that is used, obviously, when estates are being settled. It can also be called a fair market value appraisal, and can be a more accurate representation of what a piece might sell for privately. Fair market appraisals have to reflect a price for what the piece might actually sell for, if there are no time constraints, between a willing seller and buyer, given the condition of the piece at the time. Now in some cases, on badly worn pieces, this could be the actual scrap value. It also could be a value close to what an antiques dealer might pay for the goods at the time (a good reason not to have the dealer do the appraisal themselves). It is helpful for people who have an estate to settle in terms of financial liability (estate taxes, etc.) and it can be helpful in the event that a jewelry collection is being split up among heirs (something I get people in for routinely). It's rare that I see collections with a value that will actually impact taxes (most of those tend to go to auction houses) but it is helpful if you want to equitably split up some jewelry (or assign a buyout price for one portion of the value, i.e.--mom only left one diamond but there are two daughters; one gets the diamond and pays the other the fair market value of half of the diamond).

The values in estate appraisals will be much lower than in insurance replacement value appraisals, but they may still not reflect what you would actually receive from the sale of old jewelry for scrap since there often will be more value than just the metal and stone content. Additionally, a fair market value appraisal valuation must take into consideration the phrase I used earlier: "if there are no time constraints". If you go into a place to sell your jewelry for scrap there is, effectively, a time constraint. You want to sell and you want to sell now. That always lowers the value.

The last type of appraisal I'm going to briefly discuss is a relatively new one on the scene (well at least in that they previously were used exceedingly rarely), which is one that is supposed to reflect the value of what you would get currently if you did go in to sell your jewelry because the price of gold is so high (or just because you need the money). The idea is to get an independent valuation so that when you go to the scrap buyers you will have a reasonable idea of what to expect. This sounds like a great idea except there are two problems. The first is that any legitimate appraiser charges for their time. If you pay out half of what your scrap is worth to find out what you're going to get for it, it's pretty much a waste of money. Now if you have hundreds of pieces of varying karats of gold with a lot of different stones in them, it might (and I say might because your cost for the appraisal will be much larger given the quantities of items) be worthwhile. But the real problem is that by the next day the value is already moot as gold prices fluctuate daily (especially these days). The second problem is that it doesn't matter what ANYONE writes on an appraisal. If no buyer is willing to pay you more than $100 for a piece then that is what it's worth even if an appraiser thinks you should get $150. So if you are selling (and I discussed this a bit earlier in my posts on selling gold), the best thing to do is simply go to three or four different places (or if you have a family jeweler you trust go to them) and see what they offer you. Then take the largest offer.
On my next posting I'll talk about finding an appraiser, what you should expect from them, and what they will need from you.

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