Appraisal craziness!

[Dreamer_D]

So with diamond prices going bananas recently the appraisal I got a year ago when I bought my diamond, which at the time was about 20% more than I paid, now would not allow me to replace my diamond. So I got a new appraisal. Tried a different place because I was not happy with the first.

The appraiser was no super ideal but I was satisfied with his service. I told him I wanted it for insurance purposed, retail replacement value. I asked how he came up with his appraisal value. He said he used the Rap and a few other sources to come up with a valuation and then applied a typical retail markup, consistent with the markup that the jeweler with whom he was affiliated would charge. I was fine with that after some more questioning.

The kicker? The appraised value was $15k higher, or 2.25 times more than the already inflated appraisal from a year ago! I told him it seemed high and he said he was comfortable lowering it by 15%, which he did, but no more because he was confident that his valuation was on par with what a typical B&M establishment in Canada -- and my city more specifically I guess -- would charge. The sad thing is I think he is right about that estimate.

ETA: If you wonder why I would want a retail replacement value for a Canadian B&M and not a US online store it is because it is possible when it comes time to replace in the event of loss that the US/CAN exchange rate or another factor would mean I had to replace from a local establishment, so I want that option covered in my insurance.

So now I have an appraisal that is almost $8k (or 50%) higher than the present actual replacement value of my diamond (i.e., price of equivalent at BGD). Seems pretty steep for a buffer against inflation, and I don't want to pay unecessary premiums for my insurance, but I am not sure I want a lesser value with diamond prices going the way they are!

As an aside, he said my diamond was exquisitely cut

 

[minmin001]

I think the appraisal I got 2 months ago already doesn't cover the ring cost... sigh..

 

[Rockdiamond]

DD- that really is horrible!
You are paying for a service.
Here's how I see it- an appraiser must be aware of the full range of options available to buyers.
Let's face it, anyone with a computer can easily find hundreds of thousands of diamond listings. At prices far below "traditional retail"
The same hypothetical D/VS1 online is $5k at whatever local store it might be $6500, or if it comes in a blue box, $10k
The point is- if a consumer is familiar with the range of options which includes internet pricing, an appraiser must take that into account when assigning a value- especially if the consumer asks.
I think the appraiser should be transparent about these issues- however if an appraiser is affiliated with a store, what's the likelihood he'd bring up internet sellers.

Basically, you paid for an advised opinion- in writing.
By using the inflated value, he's going to cost you the opportunity to insure the ring for a reasonable value.
Maybe a detailed bill of sale would suffice.

 

[diamondseeker2006]

Yeah, that is pretty nuts. If it was me, I'd get another one rather than overpay for insurance by that much. Mine is probably worth a little over the amount it is insured for, but it is not so much that I feel the need to reappraise at the moment because I want to be sure the prices are really going to stay this high. I know they have increased and then gone down before.

 

[denverappraiser]

I think the appraisal I got 2 months ago already doesn't cover the ring cost... sigh..

I've adopted a policy of offering free valuation updates (no inspection) to my insurance appraisal clients for a year from the date of the appraisal if they feel things have changed and then offer the same at a discount for another year. Beyond 2 years I think it's doing a disservice to both the insurer and the client to do it without an inspection because so many things can change with the piece.

One of the odd expectations of an appraiser is that we should be able to predict the future and, unfortunatlely, we just can't do it. All we can do is make a statement of what it is and what it's worth in a particular marketplace NOW. We can add a fudge factor in the possibility that things will go up and it's common for your insurer to apply a multiplier to adjust for inflation but things do NOT always go up and things that go up, do NOT always continue to go up forever. There are worse things than being told that your stuff is going up in value but this recent pattern of diamond and metal prices going up at 20-30-40% per year is GUARANTEED to end. The only question is when and what is going to happen next. I dont' have psychic powers for that either. I wish I did. It may just level off and join the price creep of everything else, it may take a nose dive as it has before, it may be a combination of these where some go up, some go down and some go sideways. One of the nice things about diamonds is that they remain lovely through all of this. At the end of the day, that's what they're for.

Here's a few things I'm wlling to predict about the future of the diamond market:
I think young men are going to continue to want to get married and I think young women are going to continue to want diamonds to be part of that deal.
I don't think any large new supply sources are likely to be discovered and go into production any time soon.
The population of people interested in buying diamonds is going to continue to rise.
People have been interested in adorning themselves with gemstones for the last 5000 years or so and I expect this trend to continue.
People will continue to want to show off that they have a doodad that's better than someone else's doodad. That just seems to be part of human nature. Diamonds will to be good for this purpose.

 

[denverappraiser]

DD- that really is horrible!
You are paying for a service.
Here's how I see it- an appraiser must be aware of the full range of options available to buyers.
Let's face it, anyone with a computer can easily find hundreds of thousands of diamond listings. At prices far below "traditional retail"
The same hypothetical D/VS1 online is $5k at whatever local store it might be $6500, or if it comes in a blue box, $10k
The point is- if a consumer is familiar with the range of options which includes internet pricing, an appraiser must take that into account when assigning a value- especially if the consumer asks.
I think the appraiser should be transparent about these issues- however if an appraiser is affiliated with a store, what's the likelihood he'd bring up internet sellers.

Basically, you paid for an advised opinion- in writing.
By using the inflated value, he's going to cost you the opportunity to insure the ring for a reasonable value.
Maybe a detailed bill of sale would suffice.

David,
An appraisal is a description of a particular item, in a particular marketplace, on a particular day. As you point out, changing any one of those can have a huge difference in the value conclusion. In the case of most insurance type appraisals, the question being asked is what it would be expected to cost to replace the item new, today, and in the usual and customary market. That ‘usual and customary market’ is the zinger you’re addressing and I agree that very similar things can cost very differently in different markets. That’s part of why it’s always best to have a direct conversation with the appraiser about exactly this issue. Things are worth more in that blue box. Why? Because customers pay more. The ONLY market where you can replace a genuine Tiffany item new is at Tiffany’s, and they’ll charge a lot for it. The appraisal question is to estimate how much they will be charging and to provide documentation to allow that to happen efficiently in the case of a loss. It doesn’t make a bit of difference what Costco would charge for something similar or even what Mr. Rapaport says it ‘should’ cost. It’s outside the scope of work for most appraisals to offer a variety of different definitions of value and different possible markets and/or dates and nearly every customer would choke on the price of such a service. The solution is to make sure you’re answering the right question FIRST and then answer it correctly. Even the correct answer to the wrong question is doing the client no favors.

 

[Dreamer_D]

I think the appraiser was upfront about the method he was using to appraise the rings value, and I think using that method, his estimate was reasonably accurate. I did not ask him about creating an estimate based on online buying, I should have done so.

I suppose the question I must ask myself is whether I want to have another appraisal done, perhaps at the first appraiser I used who had a very annoying attitude but seemed to give a closer value estimate to what I paid, or whether I want to keep my insurance as-is (like DS is doing, I could consider the difference in price a deductible of sorts ) or whether I like the "buffer" offered by the present appraisal. The inflation will cost about $60 more per year on my insurance premium than a more conservative estimate would cost. Put that way it is a little out of hand!

 

[Dreamer_D]

Yeah, that is pretty nuts. If it was me, I'd get another one rather than overpay for insurance by that much. Mine is probably worth a little over the amount it is insured for, but it is not so much that I feel the need to reappraise at the moment because I want to be sure the prices are really going to stay this high. I know they have increased and then gone down before.

I just worked it out and I am underinsured presently by about $4500. That is a lot, now that I think about it, and I certainly don't want to pay that out of pocket!

What amount of "buffer" do you like in your insurance DS to make sure the appraisal lasts? 20%? 30%? None? My present appraisal is 44% higher than what I would need to replace my ring at present.

 

[Rockdiamond]

DD- that really is horrible!
You are paying for a service.
Here's how I see it- an appraiser must be aware of the full range of options available to buyers.
Let's face it, anyone with a computer can easily find hundreds of thousands of diamond listings. At prices far below "traditional retail"
The same hypothetical D/VS1 online is $5k at whatever local store it might be $6500, or if it comes in a blue box, $10k
The point is- if a consumer is familiar with the range of options which includes internet pricing, an appraiser must take that into account when assigning a value- especially if the consumer asks.
I think the appraiser should be transparent about these issues- however if an appraiser is affiliated with a store, what's the likelihood he'd bring up internet sellers.

Basically, you paid for an advised opinion- in writing.
By using the inflated value, he's going to cost you the opportunity to insure the ring for a reasonable value.
Maybe a detailed bill of sale would suffice.

David,
An appraisal is a description of a particular item, in a particular marketplace, on a particular day. As you point out, changing any one of those can have a huge difference in the value conclusion. In the case of most insurance type appraisals, the question being asked is what it would be expected to cost to replace the item new, today, and in the usual and customary market. That ‘usual and customary market’ is the zinger you’re addressing and I agree that very similar things can cost very differently in different markets. That’s part of why it’s always best to have a direct conversation with the appraiser about exactly this issue. Things are worth more in that blue box. Why? Because customers pay more. The ONLY market where you can replace a genuine Tiffany item new is at Tiffany’s, and they’ll charge a lot for it. The appraisal question is to estimate how much they will be charging and to provide documentation to allow that to happen efficiently in the case of a loss. It doesn’t make a bit of difference what Costco would charge for something similar or even what Mr. Rapaport says it ‘should’ cost. It’s outside the scope of work for most appraisals to offer a variety of different definitions of value and different possible markets and/or dates and nearly every customer would choke on the price of such a service. The solution is to make sure you’re answering the right question FIRST and then answer it correctly. Even the correct answer to the wrong question is doing the client no favors.

I guess we see this a little differently Neil.
Maybe I'm jaded- having seen some really bad appraisals over the years.
If we're talking about a recently purchased ( over the past 5 years) new diamond ring, I do believe that it's the appraiser's duty to discuss method of valuation. I believe it's the appraisers duty to be familiar with the potential purchase venues, and typical prices.
If the appraiser is not familiar with any of this, they should decline the work. I do not believe this type of diligence should add a lot to the cost- in fact, it should be included in a reasonable fee. With the internet much of this info is at anyone's fingertips.
Since an appraisal is only a guess, clearly there's ample "fudge factor" available to the appraiser- he does not have to get it right down to the penny.