Appraisal Values

[domer]

So perhaps the only point of contention in my diamond buying process came with my appraisal. I paid $13,305 for my ring, and the GOG appraisal that came with the ring was just over $21K. Nancy Stacy, the Bay Area appraiser that I had review my diamond, mentioned that the valuation was the only problem with the appraisal from GOG. While she agreed the diamond may have cost $21K in a B&M store, she didn''t see the reason to insure it at that value since I purchased it in the internet market. Her logic was, chances are if the diamond were lost or damaged, either the insurance company would be tasked with finding a like diamond, which at their wholesale volume would probably cost them even less than $13,305, or I would be given the amount to go purchase a diamond on my own, which I would most likely do again on the internet and not through a B&M store. Her appraisal came in at just under $16K. I actually asked her to take the tax out of the appraisal, putting the value around $14,500, since, barring online legislation changes, I wouldn''t be paying tax if I were to replace it with a like diamond online. My primary reason for asking her to do so was my fiance lives in LA, and the Jeweler''s Mutual insurance rate was $2.00 per $100 in value for jewelry up to $15K, and $2.50 per $100 for jewelry valued between $15K and $30K. IMO, that''s a HUGE difference in insurance premium for little value, seeing as both the $14,500 and the $21,000 valuation are both higher than I paid anyway.

Am I missing something here?

 

[Chrisk327]

As far as appraisals go...
the GOG appraisal was almost double what I paid. I got my GOG ring appraised and it came in about halfway between what I paid and the GOG appraisal.

Far as I know there is no reason to insure for the higher amount, b.c they well not pay out for that kind of money. I will be insuring for the lower appriased value.

As far as tax goes... my guess is it will be only a matter of time before tax is charged on the internet.

I hate paying taxes.. but honestly its only fair.. creates unfair competition if some places are taxed and some not.
Chris

 

[niceice]

The reason that many internet dealers issue appraisals for double the purchase price is because most traditional brick and mortar jewelry stores double and triple the cost of the product in order to establish the selling price of the product... Hence 50% off sales, it's easy to cut the price of a product in half and put it on sale when you tripled the cost of the product to begin with... With this information in mind, it makes sense to double the price of an internet diamond when preparing an appraisal because most of us are only working on 5 - 6% in terms of profit. However those of us who provide the major insurance companies with replacement diamonds know that most of the insurance companies have a clause in their insurance contract which enables them to "replace the item with similar like and kind or pay the insured what they can replace the item for"... With this in mind, we prepare our appraisals based on the average market cost of the product (not necessarily our cost, but what we expect the average jeweler to pay for the product) x 1.4 (40%) which provides adequate coverage for a period of 2 - 3 years in the average market for replacement purposes. We also disclose the actual purchase price paid by the client for the jewelry item... So our appraisal states:

Actual purchase price: $13,500.00
Estimated Retail Value: $XX,XXX.00

Because failing to provide this information to the insurance company at the time the policy is issued can actually enable them to void a claim on the premise of fraud by omission in regards to the actual amount paid for the jewelry item... In other words, it's all right for the insurance company to make a profit by selling you the policy, but they do not think that you should be able to make a profit at their expense in the event of a loss...

So you might be thinking, why not just insure the item for what I paid for it... Because diamonds have a tendancy to increase in price throughout the year (although they have not really increased very much since the events of 9/11 - this is an exception which is likely to change soon) and you will be underinsured within a period of a year or two if you insure for the amount you purchased the diamond for... The 40% provides reasonable coverage for a few years of market growth which is important because most people forget to have their appraisals updated every two years or so... At which time, they should probably review their insurance needs in general because they have probably purchased a few other major items that they might want to add to their policy...

 

[newenglandgemlab]

I like the figure that Nancy Stacy came up with. It makes total sense. It is so easy for you to check pricing from time to time to see if you should increase your insurance (on line). I think you will find more and more B&M stores are working with closer margins than ever before. Don't pay unecessary preminums on inflated amounts. That does you no good. The insurance company will never give you a check for more than the diamond will cost to replace it with like kind and quality. The vendors should be giving you a Document of Purchase stating what they are selling and at what price and not using 'appraisals' as a selling tool. I am sure Nancy can pull your file at any time in the future and check the figures for you. Your stone has a 'pedigree' which makes it easier for any claim that may happen. Lets hope it never comes up. Have a great New Year! Cindy

 

[strmrdr]

Something to be careful of is that the appraisal doesnt just say something like.
h vs1 x.xct value xxxxx.xx
anytime the diamond is something other than a typical mall store diamond.
see my post in this thread on why:
the one that starts "copied from one of my posts on another thread"

pricescope

 

[Caratz]

----------------
On 12/23/2003 7:49:44 PM domer wrote:

My primary reason for asking her to do so was my fiance lives in LA, and the Jeweler's Mutual insurance rate was $2.00 per $100 in value for jewelry up to $15K, and $2.50 per $100 for jewelry valued between $15K and $30K. IMO, that's a HUGE difference in insurance premium for little value, seeing as both the $14,500 and the $21,000 valuation are both higher than I paid anyway.

Am I missing something here?----------------

No, you understand the situation perfectly.

If I did the math correctly, you would have to pay ~$525 per year for insurance based on the GOG appraisal, but you will only have to pay ~$300 per year based on Nancy's appraisal (and you would only have to pay ~$266 per year if you insured it for the purchase price).

In other words, if you relied on the GOG appraisal, you'd be paying TWICE as much for insurance, but you would never see that $21,000 in the event of a loss.

 

[Mara]

There is a way you would see that $21k total in event of a loss, but only if you insured through a company like Chubb where they cut you a check and don't bother trying to replace the ring. Because if you are insured for $21k, then they give you a check for $21k. So in essence, you would make $$ off the loss since you paid much less way-back-when, but then again, no one PLANS to lose their ring and I am sure it does not happen that often, so it doesn't make financial sense to over-insure because the chances are slim of you ever reaping the benefit anyway.




If you insured through another company where they just tried to replace your ring, then you'd definitely never see that entire amount. They would pocket your overinflated yearly payments, find you a like ring for probably what you just paid for the one you have now, and then probably hike up your rates anyway for losing the ring! Ridiculous.




Definitely not worth it to over-insure....

 

[Caratz]

----------------
On 12/29/2003 5:19:47 PM Mara wrote:


There is a way you would see that $21k total in event of a loss, but only if you insured through a company like Chubb where they cut you a check and don't bother trying to replace the ring. Because if you are insured for $21k, then they give you a check for $21k.
----------------

That's true, Mara, but I think in most places the premiums are a lot higher for those cash out policies.

Does anyone know if it is possible to intentionally underinsure a ring? Could domer say "I only want insurance for $10,000." The premium would be $200 per year, rather than the $300 he'll end up paying. Chances are nothing will happen to the ring and he'll save $2000 over 20 years. If something happens he'll have to cough up some money to replace the ring -- but he won't have to cough up the whole $13,300. I like those odds. Does anyone else think like I do about this?

 

[valeria101]

----------------
On 12/30/2003 2:33:45 AM Caratz wrote: I like those odds. Does anyone else think like I do about this?----------------

The discussion of principle is interesting indeed

but I have some doubt that too many wold put that much wisedom into a $200/year decission. After all, what are the odds that one would give this much thought to all or most of any other ~$200 decisions in any given year? But hey, this is a really interesting thread about how and for what insurance is sold for these rings

 

[newenglandgemlab]

That's true, Mara, but I think in most places the premiums are a lot higher for those cash out policies.

Does anyone know if it is possible to intentionally underinsure a ring? Could domer say "I only want insurance for $10,000." The premium would be $200 per year, rather than the $300 he'll end up paying. Chances are nothing will happen to the ring and he'll save $2000 over 20 years. If something happens he'll have to cough up some money to replace the ring -- but he won't have to cough up the whole $13,300. I like those odds. Does anyone else think like I do about this?

Hi Caratz,

You are right, those premiums are more expensive so why waste your money? I like your train of thought too. I hate to see inflated values for items with high premiums. Most of these I run across are basically selling tools. Human nature is a funny thing. Even though clients 'kinda' know the value is high it makes them feel good. It may even make them feel good paying the premiums. I have lengthy conversations with my clients about pricing and the various markets.

I think you would all be very surprised how many people are not insured. They just don't want to spend money on the premiums. So this is a real issue. Although, if they have a well made setting and have it regularly checked by a competent person they may not have any problems as far as it falling out of the setting. Most of the losses I have seen have been when a ring has been worn for over ten years and has almost never been checked for wear. Theft is more of a threat. Your policies should also cover damage and loss in value in case a stone gets chipped. This does happen more than we care to think of. It is important to have a detailed report so the damage is known to happen after the appraisal.

The important thing about insuring it close to the actual replacement value is to watch the market closely. I tell my clients to call me anytime so I can review the values. This is so easy now with computers and digital pictures. But, I do recommend getting the ring looked at very closely for wear.

Now the underinsure question. I have had clients ask to have values lower than the actual replacement value due to the fact that the premiums were too high or they bought it in the secondary market. I can do this as long as I put a narrative in the appraisal stating what value I used and why.

Cindy

 

[hoorray]

My insurance company, USAA, recently told me that my policy was not a true replacement value policy. They will try to replace the ring or stone with like quality, but if the insured amount is too low, they will pay out the cash. It is my responsibility to keep track of the market value of the ring and adjust the policy value if neccessary over time. So, I assume I could become under insured, and just bear that risk myself. They did require an appraisel and purchase receipt to validate the value when I took out the policy, but we made it for just over what we paid on the net, to give me a little price buffer. I don't know if they would have let me go lower but they were reasonable to discuss the options with. I definitely would not insure for the high appraisel value. That just means you pay them more money to potentially replace the same ring. It's a pretty good racket they have going.

 

[geo10000]

As an appraiser myself I realize my objective is to find a balance between the insured and insurance company of the geographical area in which one lives (although this is becoming more and more difficult with the internet being open to people everywhere). If a client requests a lower value you can consider this with respect to a specific comparable (i.e. internet) and simply list this in the appraisal. The job of the appraiser is to research value and be able to substantiate it with (in my case) somewhat of a "cushion" so that the value is appropriate for the next couple of years. I agree totally with Nancy in her approach to how she handled this appraisal.

George