Appraisals: Worth the Paper They are Printed on?

[Caratz]

I figured I''d start a new thread on this topic.

Anyone who has been diamond shopping very long notices that diamonds are often accompanied by an appraisal that shows a value ridicuously higher than the actual sales price -- sometimes more than twice the sales price (on eBay sometimes 10x the sales price).

And consumers will often buy a diamond and have it appraised by their own appraiser, who will often also name an inflated value (though, as Cindy noted, not all appraisers do this).

The numbers in many appraisals have no relationship to reality whatsosver. So what do these numbers represent? What good it is to have a $5000 diamond appraised as being a $10,000 stone when nobody in his right might would ever pay $10,000 for it? Is this not a bad faith misrepresentation to say that such a stone is valued at 10,000 when nobody would ever pay that amount? Are there any standards binding on appraisers in the industry? Or can an appraiser put down whatever number pops into his head, as long as it makes the consumer happy?

How can this be legal? Is there any accountability?

 

[Hest88]

Well, it makes consumers happy and makes them think they got a great deal. I agree it's not really ethical, but I guess it's been such common practice that no one questions it.

 

[strmrdr]

My cynical side says:
ethics in the diamond industry? Rofl
Its a racket from De Beers on down with few exceptions.
One question is if diamonds are so rare how come just about every other person in the US has one and sometimes 5-6?

My emotional side says:
But But they sparkle and my precious come back to me!!!

My practical side says:
Gota run the men in white coats are outside!!!!!!!!!!!

 

[Richard Sherwood]

There are many different market levels for a gemstone or jewelry item. Which of the market levels an appraisal is valued at depends on the purpose of the appraisal.

High Retail Mall store markup, specialty store prices, and very high end "name" store prices. Used by appraisers if the situation warrants (diamond purchased at Tiffany's for example, and appraised at the Tiffany's selling price).

Average Retail Replacement This value is the most commonly used by appraisers. It is the average price a gemstone or jewelry item sells in the majority of bricks & mortar stores operating at a normal retail markup.

Low Retail Value Pricing which exists among highly competitive dealers in major metropolitan markets, or on the internet.

Average Wholesale Value at which a retail jeweler will purchase from a wholesaler.

Auction Liquidation The value at which a gemstone or jewelry item will sell in a fairly short period of time through an auction.

Cash Liquidation Price at which second hand dealer will purchase the jewelry item on an instant cash basis.

These values can differ by as much as 300 to 400% from top to bottom of the scale.

The values that we see here on Pricescope are low to very low retail selling prices. The majority of the diamond selling and buying world does not operate at these prices, therefore the majority of appraisals are higher than what you see offered here. Internet prices are the exception, not the rule.

Consider this for a moment. You've just purchased a diamond for average retail value at a reputable jewelry store, well known for it's quality inventory, premier service and excellent guarantees. Then you take it to an appraiser who appraises it for a very low retail internet price.

Does it not seem fair for the appraiser to take into account the average retail market level at which the item was purchased? Are not thousands upon thousands of people willingly purchasing at this level, and thousands upon thousands more making their livings selling at this level? Is it not a legitimate market, which establishes a legitimate range of market value?

An appraiser has to be cognizant of all these facts, and match the appraisal to the purpose for which it is intended. For the b&m retail consumer, they want to know if they got a fair retail value for their money. For the internet customer, they might want an appraisal reflecting the low price they purchased it for in order to pay reduced insurance premiums.

Most the "high" appraisals you're seeing mentioned are targeted at the average retail value, and sometimes the high retail value. The $12,000 appraisal you mentioned on the other thread is a good example. The diamond in question wholesaled for about $6500. The $12,000 retail value is figured at a 85% markup over wholesale. In actuality this is not a tremendously inflated appraisal, considering that there are still some jewelers out there selling at 100% over wholesale. It's not the norm any more, but it exists, especially in resort areas.

When I do an appraisal for a client, I let them know if they paid an appropriate amount for the market level in which they purchased it. I then explain how insurance companies work in replacing an item, and ask them what market level they would like to have their diamond appraised for. Some will choose average retail value, some low retail value. I discourage high retail appraisals, advising them that there is no benefit in it.

 

[Richard Sherwood]

-----------
One question is if diamonds are so rare how come just about every
other person in the US has one and sometimes 5-6?
-----------

Actually, less than 1 in 100,000 women in the U.S. own a diamond 3/4 carat in size or larger.

 

[Richard Sherwood]

-----------
ethics in the diamond industry? Rofl
-----------

The diamond industry is one of the few industries left which is still based on trust, with considerable business still done on a handshake.

Businessman who operate on that level of integrity seldom change their morals when dealing with their clients.

It is my experience that diamond industry professionals (men and women who choose it as their lifelong career) stand head & shoulders above the majority of professionals when it comes to integrity and ethics.

 

[DiamondExpert]

Richard,

very well stated in all cases...

 

[strmrdr]

Richard,
My reply was ment as a joke.
If you delt with some in the business in my area as a customer you would see where I was coming from and why it isnt always a joke.
They may be honorable people to the trade but they sure arent to their customers.
With wal-mart and all the other big chains getting into the game I think the days of 100% margins are over even for the big names.
The margins will drop down into the low teens max like other consumer goods.
Added to that the big retailers wont put up with a lot of the practices that were/are common on the wholesale side of things and have the clout and the $$$ to back it up.
Id be interested in your view on it.


Is there an online reference for the 1 in 100,000 number?

 

[strmrdr]

Now that I have a few minutes for a more serious answer.
First a little background.
I work in the computer industry and deal with insurance companies often on behalf of our clients.
This is how it works the insurance companies have preferred providers and they will try and replace your computer with the lowest end computer that they can from that provider.
Usually it will be a dell in today’s computer world.
This works for a lot of people because it is a nice upgrade but for the special purpose user or a dedicated gamer it sucks.
The systems they want to shove on you wont come close to what you had.
For example we had a client with a $3000 tv production card in his computer that got hit by lightning and fried everything on it.
The $3000 was the current price he paid over $6000 for it.
They tried to force him to take a $2000 settlement or a dell of that value.
By having us explain to them in writing why it was not a just settlement he got enough money to get a system that had the card in it.
Now you ask what does this have to do with diamonds?
Well they work the same way if you have a claim and all you have is a picture of the setting and a piece of paper saying the diamond is a .5ct g si1 you will get the cheapest .5ct g si1 diamond their preferred provider can get.
For a mall store grade original that might be good enough.
But if you put your time in here before buying it’s a rip off.
You need the paperwork to prove it was something special and worth more than the cheapest stone they can get from their source.
The more paperwork the better off you are.
Keep in mind that the average insurance adjustor is likely not going to be a diamond expert and their job is to get you to go away as cheaply as possible.
The best way to get a fair settlement is to bury them in relevant paper and the paper has to be legit or its insurance fraud and you will do jail time.
Once the diamond is gone there is no way to get the needed paperwork for a fair replacement.

 

[Richard Sherwood]

-----------
With wal-mart and all the other big chains getting into the game I
think the days of 100% margins are over even for the big names.
The margins will drop down into the low teens max like other consumer
goods.
-----------

If this were true, we would see the end of premium retailers such as Tiffany's, Cartier, Harry Winston, Neiman Marcus, Saks Fifth Avenue, etc, etc, etc.

I don't think that is likely. Walmart is never going to compete on the same level as Neiman Marcus. That's not what they're about. They have a niche market, and Neiman Marcus has a niche market, and never the twain shall meet.

It takes more than a teens markup for these premium retailers to stay in business. They have serious overhead to pay, and they charge a corresponding markup to pay those bills, and make a profit. A multitude of people are willing to pay that markup, for one reason or another. They are affluent, upwardly mobile, discriminating customers who demand more than a Walmart can deliver.

-----------
Added to that the big retailers wont put up with a lot of the
practices that were/are common on the wholesale side of things and
have the clout and the $$$ to back it up
-----------

There are certain areas where the big retailers can compete in the gemstone market, and many areas where they can not. The nature of gemstones makes mass merchandising impossible in many areas. There simply aren't that many 3 carat gem quality rubies available in the world, for example. For this reason the gemstone industry is one industry where the small firms will never be eradicated.

-----------
practices that were/are common on the wholesale side of things...
-----------

What kind of practices are you referring to?

 

[Richard Sherwood]

-----------
Well they work the same way if you have a claim and all you have is a
picture of the setting and a piece of paper saying the diamond is
a .5ct g si1 you will get the cheapest .5ct g si1 diamond their
preferred provider can get.
-----------

This, and your ensuing comments are dead-on, and illustrate the necessity of a professional apprasial to document your fine jewelry investment.

A vague appraisal allows the insurance company the liberty of replacing your item at the lowest parameters of the appraisal.

On the other hand, a comprehensive appraisal describing all aspects of the diamond ties the insurance company's hands in regards to replacement. They have to replace the diamond with one of equal quality, or better, or cash the customer out for the value insured.

Excellent analogies, Storm.

 

[strmrdr]

Richard,
I can agree that the high end players will have a place.
They may be able to get a premium but there are limits very few people are going to pay $20000 for something they can get elsewhere for 5k.
The higher the price differential the harder the sale is too make.
It is the low to midrange that is going to take a beating first.

The practices I’m referring to is stranglehold control over the market and artificial shortages and price fixing.
The large retailers need a steady supply and fixed to declining prices and have the clout to make even the diamond industry take notice.
For example lets say De Beers limited the amount of small to midrange diamonds it released next year and prices rise the large retailers would not like this because they could not meet their price points.
They would simple go to other sources and start flashing money around and get another source to pick up the difference.
They have been known to set up alternative procurement and distribution systems if the current one wont bend to their will.
If that didn’t work they would buy some politicians and get it that way.

 

[Richard Sherwood]

-----------
I can agree that the high end players will have a place.
-----------

Ahhh, we are in agreement there. Good.

-----------
They may be able to get a premium but there are limits very few people
are going to pay $20000 for something they can get elsewhere for 5k.
-----------

This price disparity is greater than actual reality. But I get your point.

-----------
The higher the price differential the harder the sale is too make.
-----------

Agreed.

-----------
It is the low to midrange that is going to take a beating first.
-----------

Isn't it always? Although I would tend to say "low range" is more appropriate than "mid range". This is already evident in the market created by mass merchandisers like the catalog showrooms (many of whom have gone bankrupt by the way, such as Lurias and Service Merchandise) and television shopping networks (some of whom have gone bankrupt as well).

-----------
The practices I’m referring to is stranglehold control over the market
and artificial shortages and price fixing.
-----------

It's interesting because Debeers no longer has a stranglehold over the market for several years now, yet diamonds have continued to appreciate.

-----------
The large retailers need a steady supply and fixed to declining prices
and have the clout to make even the diamond industry take notice.
For example lets say De Beers limited the amount of small to midrange
diamonds it released next year and prices rise the large retailers
would not like this because they could not meet their price points.
They would simple go to other sources and start flashing money around
and get another source to pick up the difference.
They have been known to set up alternative procurement and
distribution systems if the current one wont bend to their will.
If that didn’t work they would buy some politicians and get it that
way.
-----------

So in this scenario, who is instituting stranglehold control and price fixing?

Interesting eh? The same two scenarios, yet one company is free to do it, while the other's executives (Debeers) can be arrested when their feet touch American soil.

Such political hypocrisy.

 

[newenglandgemlab]

Very well written Rich! I knew this would take a lengthy reply and I didn't have the time to jump in.

The only thing I can comment on is back to that $12,000 appraisal. If memory serves me well, it wasn't a true wholesale but a low retail (internet) purchase. All the 'Carriage Trade' type of retailers that we know have become very competitve with their pricing and none are selling for a 85-100% markup. Those days are long gone. Blue Nile does include in their package a Report Verification with a much higher figure than what was paid for the item along with all the information for Chubb. Who makes out here? The insurer! Cindy

 

[newenglandgemlab]

p.s. The problem is the vernacular. If only sellers would supply a Documentation of Purchase and not call it an appraisal (which it is not). They should just be documenting what they have sold and at what price and not use a ficticious amount on a so called appraisal as a selling tool. Cindy

 

[strmrdr]

----------------
On 11/27/2003 1:23:41 AM Richard Sherwood wrote:

-----------

-----------

The large retailers need a steady supply and fixed to declining prices

and have the clout to make even the diamond industry take notice.

For example lets say De Beers limited the amount of small to midrange

diamonds it released next year and prices rise the large retailers

would not like this because they could not meet their price points.

They would simple go to other sources and start flashing money around

and get another source to pick up the difference.

They have been known to set up alternative procurement and

distribution systems if the current one wont bend to their will.

If that didn’t work they would buy some politicians and get it that

way.

-----------


So in this scenario, who is instituting stranglehold control and price fixing?


Interesting eh? The same two scenarios, yet one company is free to do it, while the other's executives (Debeers) can be arrested when their feet touch American soil.


Such political hypocrisy.


----------------

Different segments of the market can get by with different things.
In this case they are not really that compareable.
What wal-mart would be doing is bypassing the middleman or installing thier own for their purchases not trying to controll where everyone else gets their goods.
They are acting as a buyer in this case and not a seller and buyers have a lot more legal room to work with.

Lets use hot dogs for an anology here:
You have 3 companies making hot dogs and selling them.
One distribution company buys one of them and contracts for the entire production of the other 2 at 2 cents each and warehouses them causing shortages and price increases.
The cost of hot dogs goes to $5 each.
Is this legal? no way... should it be? again no way!

Now lets look at what wal-mart does.
Same 3 companies,
Company 1 decides to cut production and refuses to produce enough hot dogs.
Prices start to rise and wal-mart cant meet there price point on them.
Wal-mart then contracts with company 2 and 3 to increase production.
I dont see anything illegal or wrong with it.

 

[dimonbob]

The big problem is that there are no rules that cover the appraisal business in general.

The real estate business has rules to cover real estate appraisers but if any of you decided to hang out a sign that you were the greatest automobile appraiser in your state and three states over, you can hang the sign and appraise cars without breaking any laws.

Most people doing jewelry appraisals have little or no training in appraisal theory. Many of them are not even graduate gemologist. So when you receive a diamond ring from an Internet vendor or a local B&M jewelry store and want an independent appraiser to check it out and get a “real” appraisal, you need to again do your homework. Is the appraiser truly independent? Meaning does he sell diamonds or work for a jewelry store? Is he a Graduate Gemologist? Does he belong to a recognized appraisal organization? Has he taken the USPAP course recently? Has he taken the appraisal theory courses?

You need an appraisal to get insurance and the insurance companies will take almost any document with the briefest of descriptions. You send a copy of the appraisal to the insurance company and everybody is happy, especially the insurance company who you pay until something happens. All of a sudden they are not your friends. They want to replace your beautiful ideal cut diamond with something about the same weight, color and clarity with an EGL or IGI certificate. Is it ideal? Well it says so on the certificate that also says it has a 58% table and a good polish.

When you insure your jewelry, get a cash out option. If your ring is lost, stolen or ends up in the garbage disposal, you want to be paid exactly what it was insured for! Period! With that money you can get whatever you want. You can upgrade or get nothing at all. It is up to you.

For those of you that do not have access to a good independent appraiser, you have the option of sending the Internet ring to one of the appraisers listed here on Pricescope. You can call them up and ask questions and tell them what you want. One of them might talk your ear off but maybe he is lonely.

Happy Thanksgiving to all!

 

[Mara]

----------------

One question is if diamonds are so rare how come just about every other person in the US has one and sometimes 5-6?

----------------

Diamonds are in fact NOT RARE, that's just marketing tactic from DeBeers to keep the illusions going. There are stockpiles of diamonds both in Russia and wherever DeBeers hides their stashes from what I have read, and DeBeers is desperately trying to get some control over what Russia does with their diamonds (supposedly around 20% of the supply) so that it doesn't affect their stranglehold on the retail market.

I read somewhere that there are enough mined diamonds already in the world for every person in the US to have something like 5. So seemingly not rare. It's all about the marketing, baby!

Some interesting articles--the first three are older, last is most recent:

http://www.codoh.com/newsdesk/2000/000720ap2.html

http://www.mips1.net/MGDmds.nsf/0/4225685F0043D038422569D1003A4E64?OpenDocument

http://www.therussiajournal.com/index.htm?obj=4657

http://www.mips1.net/MGDmds.nsf/0/4225685F0043D03842256DA1003F5B89?OpenDocument

 

[Garry H (Cut Nut)]

Gee that was a well thought out

response Rich

BTW where did the 1 in 100,000 come from?
that would mean 2,000 or 20,000 - surely there would be more like 1 in 1000?

Mara there are no stock piles anymore.
There have been stockpiles that might have at one time been around 1 to 2 years supply - but these were more about imdustrial diamonds and geo politics between Russia and USA during the cold war.
De Beers never held back diamonds for long periods - they only did so in times of low demand (like the great depression and early 1990's) or like the holding back of 'Asian goods' in 1997-1999.

 

[mtrb]

I was watching CNN about 1 month ago and they were talking to a guy about Debeers and the diamond industry. Apparenty he has writen a book called "Glitter and Greed". In this interview on CNN he claimed that with the current production of diamonds the average diamond in a womans engagement ring in the US has a true value of about $9-$10. Cutting accounts for about 20 to 30 cents of that amount. The rest is the cartel's mark up. I don't know how true that is, but I intend to buy his book to see how he supports this claim.

 

[Mara]

So Garry...why are there these numerous articles talking about stockpiles around the world? Recently Greg showed me something in I think the WSJ about Russia and their huge royal stockpiles that aren't even available on the market. Something like they have basements full of diamonds that they have hoarded for many years.




I also think I vaguely recall someone (LawGem?) saying something about diamonds not being all that rare...?? I tried to search the Pscope archives for the post...but can't seem to find it.

 

[DiamondExpert]

I would venture to say that the statement cited above, "...average diamond in a woman's engagement ring in the US has a true value of about $9-$10.", is pure horse pucky and leans toward sensationalism and mis-information.

The cost of getting a 2ct. rough (assuming you could cut a 1ct. round for an e-ring) out of the ground and cutting it has got to be 10-50 times that amount.

Remember there are lies, damn lies and statistics! And a lot of throwing numbers about can serve the purpose of any argument if finessed appropriately.

For example, I have no doubt that there are enough diamonds available so that everyone could have 5-6, but what kind of diamonds are we talking about...does that include melee, industrial diamonds, diamonds under 0.50ct., etc.

It would be interesting to see stats on the numbers of each ct. wt. and grade of polished produced over the last few years, and maybe these figures are available...I do know that DeBeers has been less then forthcoming in this area at times.

I think there is some truth to all sides of these arguments, but there are always those with vested interests who try to mislead, distort and sensationalize to lend support to their side of it. The result is that the public and the trade are not well served.

 

[Richard Sherwood]

Diamonds are rare, and have had value for over a thousand years before DeBeers ever entered the picture.

Not only are they mineralogically rare, but they are expensive to mine, process, market, cut and sell. 250 tons of earth have to be processed on the average to find a crystal capable of yielding a 1 carat cut stone.

Because DeBeers is a monopoly which regulates the supply, they (and diamonds) continually take shots from every reporter who thinks he has stumbled on to a huge cover up. There's no cover up to it. DeBeers brought order to a former "feast or famine" industry, and did a good job of it.

The "9-10 dollar" thing is utter bull, written by someone who has no clue about diamonds or the diamond industry. Pure sensationalistic, irresponsible journalism. Talk about an industry with no regulation...

 

[Garry H (Cut Nut)]

I have a lot of friends in the diamond prospecting business.

Let me tell you - it is not easy.

There is a particualr bent to many journalists who rather like to bash what they see as "establishment"

You can not get any more symbolic for that than diamonds.

It just does not wash.
The trade are screaming diamond shortage.
Do a search in the news section of www.diamonds-net and find out the commercial reality - some of it from De beers biggest non USA arch enemy.
And remeber that the USA has always been #1 anti De Beers and has done many geo political things to have a commercial dig at De beers.

The head of L. K. has had very interesting liasons with US leaders and ladies in high places - and for some reason these matters never seem to get reported.

 

[fire&ice]

----------------
On 11/27/2003 7:32:09 PM Richard Sherwood wrote:


Not only are they mineralogically rare, but they are expensive to mine, process, market, cut and sell. 250 tons of earth have to be processed on the average to find a crystal capable of yielding a 1 carat cut stone.

----------------

Am I wrong to a kin diamonds to land? Tons of land - but, it has too be accessible & inhabitable. With diamonds, it has to be accessible (mined) & of gem quality.

 

[Richard Sherwood]

-----------
Am I wrong to a kin diamonds to land? Tons of land - but, it has too
be accessible & inhabitable. With diamonds, it has to be accessible
(mined) & of gem quality
-----------

Yes, good analogy, with the "accessible and inhabitable" land representing the rarity of gem quality diamonds, and the process of developing good land for habitation representing the mining, processing, and cutting process.

Then you've got "profit" in the picture, which the individual(s) who expended the time, energy and money on the project all deserve.

Then you've got "commissions", which the person(s) who sell the diamond all deserve for their time, energy and money.

Why is it that reporters can't understand this? I guess that's why they're reporters instead of businessmen. They wouldn't last a week in the real world.

 

[canadiangrrl]

Nothing particularly germane to contribute to this thread, but I wanted to say - Rich - you're one of the smartest people I've never met.

 

[Garry H (Cut Nut)]

Hey now CGrrl - you left out good looking / handsome / witty etc

 

[canadiangrrl]

Because you seem to have that arena covered quite nicely, Mr. Holloway.

 

[Garry H (Cut Nut)]

Oh my Oh my
double barrelled flattery