Interesting Appraisal Issues

[Goldenrain]

I haven''t posted in here in a while, so here goes...

Recently I purchased a diamond from GoodOldGold (F VS1 1.72ct)... For those that are familiar, they give you pretty much all the info you want to know about the diamond, including Sarin, Helium, and BrillianceScope reports. Regardless of that, upon getting the diamond, it was absolutely stunning. Nothing short of it. The proportions are absolutely incredible. Everything is in the "ideal" range (its a GIA Ideal/EX/EX diamond, but under AGS it would be Ideal 0). HCA score is around 0.9 to 1.1. And despite (or "because of", depending on your point of view) this, it looks even more incredible in person than what all the specs say.

Now here''s where it gets interesting:

1. The loose diamond came with an appraisal. The appraised value was pegged at a value such that 75% of this value would be the paid cost of the diamond. It seems to me that while this seems like a "service" to the customer, it might end up being a bad thing... Read on...

2. Before getting the diamond mounted, I had it looked at by a indie appraiser. She did the appraisal and said that "due to the location of the only inclusion in the diamond, I would rate it closer to a VS2." I knew that was a possibility. I haven''t completed the appraisal with her with the completed ring yet...

3. I got my diamond mounted with a Michael B setting from Partita in San Francisco. They looked at the diamond as well and agreed that they''d also go closer to VS2. At this point, I''m thinking the GIA cert (not an old one either) is probably a bit liberal, but fine. However, based on the cert, they appraised the diamond (for free as a service to their customers). They rated the diamond at 10% above Rap, instead of 25%. Note that if it were 25%, it''d be much closer to the appraised value determined by #1. This value turns out to be VERY VERY close to the actual cost of the ring (appraised value is a bit higher than paid cost). They also appraised the completed ring, but they included the cost of the setting at face value. (They admitted to me that they don''t look at the geometry other than what''s on the GIA cert. I found this to be odd, because great geometry/proportions can have an incredible impact on a diamond''s appearance and cost)

Here are my questions/comments:

A. Is it industry practice to appraise at a value much higher than the probable paid cost (I''m assuming appraisers don''t know the value of the diamond and if they do, then they could be biased), such as a fixed percentage, so that if it were sold, they paid cost would be fully recovered?

B. The setting itself uses quite a few diamonds, albeit small, so I have an issue with the appraised value equalling the paid cost, because it does not incorporate the current value of the diamonds itself.

C. The appraised value of the center diamond itself does not include tax. Opinions on this?

D. Is it "bad" (I know this is subjective) that the appraised value is just a tiny bit more than the actual cost of the diamond + setting? I don''t necessarily want an appraised value that is overinflated, but rather one that will be representative of the cost that it would take to replace the whole thing.

E. Should I even bother to complete the appraisal with the indie appraiser? It would be $150 to complete it. You see, I''m hesitant because it seems many appraisers don''t take into account the geometry in depth.

I''m new to this appraisal process and the ins/outs of claiming with insurance, so hopefully you guys can help me out!

 

[Regular Guy]

Sorry, I have only questions, not answers...

- would you look to the indie appraiser to do more than provide you an appraisal, i.e., confirm at the end of the day that the item is still the item you started with
- are you confident that your insurer would accept all docs you'd provide to them, including Jonathan's, which you'd uniquely probably want to include, since he does a good job documenting the qualities of the diamond, should the need for replacement become necessary
- do you know what kind of insurance you will want to take advantage of after the fact, and if so, which set of docs you'd use to set the valuation at? You might prefer the lower or higher rate, depending on your circumstances. If lower, this too will answer your question. Higher may give you greater piece of mind concerning replacement, but may not be unnecessary, actually, depending on whether you are seeking replacement of like kind from your insurer, or cashing out.

Best of wishes!

 

[denverappraiser]

Welcome back,

I see several issues here. You mention an interest in ‘appraised value’ several times in your question and this can mean considerably different things in different situations. You also mentioned that you were asking about what to expect if the ring were sold. Is this the value that the appraiser was describing? This is a bit unusual for an appraisal of a new item but it’s certainly one of the options available. What type of value did you request? The value definition used and the market chosen should both be in the body of the report.

To answer your questions:

A. Is it industry practice to appraise at a value much higher than the probable paid cost (I''m assuming appraisers don''t know the value of the diamond and if they do, then they could be biased), such as a fixed percentage, so that if it were sold, they paid cost would be fully recovered?

Insurance replacement appraisals, which are the ones most commonly requested on newly purchased items, are commonly estimating the replacement cost with new items of ‘like kind and quality’ in the local retail market. If you didn’t buy in this marketplace, the value conclusion may be very different from your purchase price. The amount you can expect to realize if you resell it is a completely different question. The ‘like kind and quality’ term is important if this is what is being done. If they didn’t document the attributes that make your ring valuable, their report will probably not be useful as a definition of replacement. As you noticed, all one carat VS2-F’s don’t cost the same.

B. The setting itself uses quite a few diamonds, albeit small, so I have an issue with the appraised value equalling the paid cost, because it does not incorporate the current value of the diamonds itself.

The replacement value of a new and currently available design should be the expected cost to buy that piece in the appropriate marketplace. The individual values of the components have very little to do with it.

C. The appraised value of the center diamond itself does not include tax. Opinions on this?

This is common and, in my opinion, it’s a mistake. Assuming the defined market has sales taxes, it will be necessary to pay those taxes in order to make a replacement. Appraisers often exclude this because the tax rates vary so much from one location to the next, even within a single market. I used to do this and have changed my policy.

D. Is it "bad" (I know this is subjective) that the appraised value is just a tiny bit more than the actual cost of the diamond + setting? I don''t necessarily want an appraised value that is overinflated, but rather one that will be representative of the cost that it would take to replace the whole thing.

I agree with you.

E. Should I even bother to complete the appraisal with the indie appraiser? It would be $150 to complete it. You see, I''m hesitant because it seems many appraisers don''t take into account the geometry in depth.

Did you discuss this with your appraiser? The report should contain sufficient description to allow the insurance company to replace using an item that meets YOUR satisfaction. If you count it as important, it should be in there. GOG provides lots of data so it’s pretty easy for the appraiser to include this if you request it and if they believe it to be accurate. Paper is cheap and they can include it in an appendix that causes it to become part of the insurance contract.

Neil Beaty
GG(GIA) CGA(AGS) NAJA
Professional Appraisals in Denver

 

[Goldenrain]

I know we (my fiancee and I) will never ever resell the ring or diamond. That being said, the issues we are concerned with are:

1. If the ring is ever stolen/lost, we would like to replace the ring. If that''s the case, then appraised value won''t mean too much, since at the least we''d get a similar, or better ring back. (Michael B''s not going anywhere any time soon, so replacement shouldn''t be a problem. Just in the last 2 months, the cost of the setting has gone up $100. I''m assuming that''s due to the appreciation of the platinum and also the diamonds.

2. If for any reason the ring cannot be replaced, then obviously the insurance company will have to pay it out. If that''s the case, then the issue of having a high appraised value versus a lower one will come into question. (This gets into the topic of how often someone should re-appraise to capture the correct value, most likely higher, of the e-ring)

Thanks!
Jackson

 

[Goldenrain]

Thank you very much denverappraiser... Very useful... Given that I will never resell, then I guess the appraised value that I got from the jewelery (as mentioned in #3, not GoG) is very fair. It would be enough to replace the ring today, and obviously in 3-5 years, I should probably get it re-appraised.

I never asked for the resell appraised value, so by default, the values I''m getting is probably the replacement value, which is very good thing in my case, since I won''t be paying an overinflated premium.

Jonathan''s appraised value of my diamond is a bit high, but I think that''s because if I were to resell just the diamond alone, he would want me to be able to get at least the same diamond (in quality and likeness) back.

For the indie appraiser, if she can include GoG''s reports, minus their appraised value, I think that would be great, because more information''s always better than less in this case.

This is all starting to make a lot more sense now!

 

[RockDoc]

Date: 7/21/2006 7:22:19 PM
Author: Goldenrain
I know we (my fiancee and I) will never ever resell the ring or diamond. That being said, the issues we are concerned with are:

1. If the ring is ever stolen/lost, we would like to replace the ring. If that''s the case, then appraised value won''t mean too much, since at the least we''d get a similar, or better ring back. (Michael B''s not going anywhere any time soon, so replacement shouldn''t be a problem. Just in the last 2 months, the cost of the setting has gone up $100. I''m assuming that''s due to the appreciation of the platinum and also the diamonds.

2. If for any reason the ring cannot be replaced, then obviously the insurance company will have to pay it out. If that''s the case, then the issue of having a high appraised value versus a lower one will come into question. (This gets into the topic of how often someone should re-appraise to capture the correct value, most likely higher, of the e-ring)

Thanks!
Jackson

If you are going to get replacement type insurance coverage, then I would suggest the following:


1. Call the insurance agent, and ask if he knows WHO will replace the item? See if they have someone that they require you to go to for the replacement. If the insurance agent doesn''t know contact your insurance company''s claims department to find out.

2. You should tell him if your diamond is a branded one. Your ring obviously needs to be replace by the manufacturer or one of their authorized dealers. The policy and methods of various insurance companies will vary too. They may just tell you that you can go where you want to get it replaced OR send you back to GOG and Michael B. OR they may have someone else in your area or elsewhere that they would want to deal with.


The appraiser needs to discuss with you the details about how it will be replaced. They should consider if the type of item you have is easily replaced, or difficult to replace.

You and the appraiser should also discuss the relation of insurance replacement to purchasing. One of just many considerations is TIME. When you are shopping on the internet, and allow time to search out that "perfect pet rock" and buy it you are not under any time constraints generally. If you have an insurance loss, you ARE under a time constraint to have it replaced as per the time to replace it under the conditions of the policy. For an easy to find item, this isn''t much of an issue, but if you have a "difficult to find" type stone, having to potentially pay more to get it timely COULD be an issue worth considering and discussing with the appraiser and/or the insurance company.

It a stone by stone consideration that merits attention on an individual basis.

Rockdoc

 

[rogue]

What do independent appraisers put down on their reports if they disagree with a lab cert? For example, if an appraiser evaluates a GIA graded F VS1 stone as a G VS2, and he puts down G VS2 on his report, won''t the insurance company happily use G VS2 for their replacement parameters should something ever happen to the stone? This is troubling to me because 1 independent appraiser, as good as he may be, may not be able to hold up against 5 GIA graders that have come to a concensus on a stone''s grade. And certainly, if the appraiser thought your stone was actually E VVS2, there''s no way the insurance company would use that figure in its replacement consideration...thoughts?

 

[rogue]

Can you just ask the appraiser to reconsider and use the GIA grades?

 

[Goldenrain]

Both appraisers I''ve dealt with will go with the cert. They don''t want to rock the boat, usually. However, they may appraise at a lower value, or higher value, if necessary.

 

[Cehrabehra]

Date: 7/21/2006 7:22:19 PM
Author: Goldenrain
I know we (my fiancee and I) will never ever resell the ring or diamond. That being said, the issues we are concerned with are:

1. If the ring is ever stolen/lost, we would like to replace the ring. If that''s the case, then appraised value won''t mean too much, since at the least we''d get a similar, or better ring back. (Michael B''s not going anywhere any time soon, so replacement shouldn''t be a problem. Just in the last 2 months, the cost of the setting has gone up $100. I''m assuming that''s due to the appreciation of the platinum and also the diamonds.

2. If for any reason the ring cannot be replaced, then obviously the insurance company will have to pay it out. If that''s the case, then the issue of having a high appraised value versus a lower one will come into question. (This gets into the topic of how often someone should re-appraise to capture the correct value, most likely higher, of the e-ring)

Thanks!
Jackson

NOT an expert - just my 2c...
On #2 you say "if the ring cannot be replaced"... now, I''m pretty sure you have enough info/documentation to make sure you *can* get an equal stone. The setting as you mentioned is ''face value'' and that''s where I see you running into more problems later on if you can''t get that setting and plat prices have gone up significantly higher. It seems like most of your concerns were about the diamond itself, not the setting... but as I see it, it might be the reverse. I could be way off... like I said, not an expert LOL Good luck!!

 

[denverappraiser]

Date: 7/21/2006 8:05:38 PM
Author: rogue
What do independent appraisers put down on their reports if they disagree with a lab cert? For example, if an appraiser evaluates a GIA graded F VS1 stone as a G VS2, and he puts down G VS2 on his report, won''t the insurance company happily use G VS2 for their replacement parameters should something ever happen to the stone? This is troubling to me because 1 independent appraiser, as good as he may be, may not be able to hold up against 5 GIA graders that have come to a concensus on a stone''s grade. And certainly, if the appraiser thought your stone was actually E VVS2, there''s no way the insurance company would use that figure in its replacement consideration...thoughts?

Appraisers don’t all approach this the same way. The first responsibility of all appraisals is to report the truth. For most assignments of this nature, the minimum required are those attributes that contribute to the value of the stone and that will be necessary to allow the company to make a satisfactory replacement in the case of a loss. The question then becomes one of deciding what are the attributes that make a stone valuable and what must be included in the replacement to qualify as ‘like kind and quality’?

The presence of a credible lab report obviously makes a stone more valuable. Just look at the database and read the advice people give. A report both increases the price and the willingness of customers to pay it, right? A stone with a GIA grading report is worth more than the exact same stone with no documentation or if it were to have EGL-Israel paper. That’s value, and obviously it must be included in a replacement type appraisal. Put another way, replacing an AGS-000 with an IGI, or visa-versa would not be comparable, even if subject the stone were identical unless both the company and the insured agreed to this. What if the report is ‘wrong’? This is a touchier question and appraisers will address it differently. Is an SI2 that is ‘certified’ as an SI1 different from a ‘regular’ SI2 and does that difference materially affect the value (meaning the expected budget required to replace the stone with another of like kind and quality in the defined market in the case of a loss)? Again, look at the market. Misgraded stones get sold all the time based on inaccurate lab reports. Dealers will go through a lot of trouble and expense to get them and customers will pay extra, even when they know them to be incorrect. In many cases, dealers will effectively pay MORE to get an inaccurate report than an accurate one because they will need to submit the stone to several different labs in order to get the results they want! As appraisers, we are not being asked if this is silly, we are being asked to report the facts that affect value, and presence of the lab report is probably a relevant fact.

So how do you report this? It will depend on the nature and scope of the assignment, the limitations on the appraisers ability to grade the stone and other details that will differ from job to job. It’s not always the same. A typical answer is to describe the stone as a genuine diamond described by XYZ lab to be xyz, include the entire lab report as supporting documentation and make a value conclusion accordingly. An alternative is for the appraiser to grade the stone and describe it as a genuine diamond graded by the appraiser as ABC and accompanied by a report from XYZ lab describing it as xyz.

Clear as mud isn’t it?

Neil Beaty
GG(GIA) CGA(AGS) NAJA
Professional Appraisals in Denver

 

[yellowsparkles]

This is a good question. It is also something I sorta had to deal with. I bought my ring from a jeweler in DC while I was in CA. I took the ring to a "master gemologist" (supposedly there are only 50 in the US who are "master gemologist") to get appraised and mainly to see if she agrees with the HRD cert (is it the same stone?).

Her appraisal didn''t agree with the cert. She said the stone was "fancy yellow according to GIA standards" and "it is of natural color according the HRD cert ###". Her dollar amt for the ring included CA sales tax at 7.75%.

The jeweler in DC also gave me an appraisal but it was for a much higher dollar amt. Why? 1) she based her appraisal on the HRD cert of Fancy Intense Yellow and 2) maybe she wants me to think I got a great deal. (hope not, but could be)??

The question for me was what appraisal to use for insurance. I am using an agent in DC (chubb) and she only wanted the appraisal - not purchase price for the ring. I decided to use the lower appraisal since it was enough to cover what I paid for the ring. I am also saving $130 year in premiums. Is this the right thing to do? I figure chances are nothing will ever happen to the ring. If I do have to replace the ring, will the insurance company give me a fancy yellow or fancy intense? I guess my agent can answer that one.

Anyway, I just wanted to agree with you and share my appraisal experience.

 

[NanStacy]

Just to supplement Neil''s reply a bit.

We all need to keep in mind that all grades, whether color, clarity, or weight, blend from one to another. Even my electronic scale has some trouble deciding whether the weight is tenth of a point one way or another--it just flickers back and forth!

So, how much more difficult to draw a line where F stops and G begins, or where the line is between VS1 and VS2? There really is no "line". If one stone is a mid- VS1 and another is a mid-VS2, there would probably be no argument amongst trained gemologists. It is on the boundry lines where subjectivity comes in. We''re dealing with terms such as "somwhat easy/difficult to locate" and "considering size, number, naute and location" of inclusions.

This is why GIA, since the beginning, has maintained a one-grade tolerance for color and clarity. It recognizes that on borderline stones ther is no exact way to make the call. A gemologist could see it one way in the morning and another way that night.

Usually, however, the price of the diamond will reflect the fact that it is a "high range" grade or a "low range" grade. The appraiser should report what her or she sees, to give the client as much information as possible. On a borderline call with a GIA or AGS cert, probably most of us would tend to accept the certed grade, but inform the client of our opinion that it is a borderline stone and they would have graded it lower and make a comment on the appraisal. If the price is in accord, then if the stone checks out otherwise, there is no reason not to keep it.

If the difference is more than one grade, as is often is with off-shore and fly-by-night certs and more rarely with the major labs, the appraiser should grade the stone and reference the cert, noting the difference in opinion. We should all know by now that not all labs grade by the same standard of reference.

With cut quality such a big issue today, the appraisal and/or supporting documents should have all the information necessary to obtain a replacement with a substantially similar diamond. That would include the relevant cut information, and should also include at least a comment that the clarity is in the lower VS1 range. I mention that because in case a replacement is necessary, you may find that the best replacement stone is one of the same cut qualities but in a reverse position in regard to clarity--it could be a VS-1 appearing stone to the appraiser but with a VS-2 cert, with the price taking this into account. Such is life on the border!

Your appraiser will probably include cut information, or at least a copy of the essential cut information in the appraisal document--certainly so if you make that request.

Neil--somewher you mentioned about including tax in the appraised value. I used to include it, too. However, at least here in California, the insurance companies won''t cover tax. (It is not part of value, after all.) No problem with Chubb, who allow a 50% value margin in case of loss, so there will be plenty of funds to pay the tax. I don''t know the situation with the other agreed value underwriters. I see a lot of replacements being made where the insurance underwriter''s office is issuing the check across state lines to the jeweler, so no tax applies. I the client insures the item plus the tax, on some items that can add up to be a pretty big outlay in unnecessary premiums.

As always, the key to buying jewelry insurance is--buy enough, don''t buy too much, have a detailed appraisal to back you up, and read the fine print in you insurance contract!

 

[denverappraiser]

Nancy,

Can an insurance company deliver a replacement to a California client without incurring the sales tax? Is there some sort of exclusion where they are not required to pay it for insurance claims? Do they expect the insured to pay it?

In Colorado, tax is owed on the transfer of all tangible non-food items consumed in the state so sales tax is a legally required component of making the replacement.

Neil Beaty
GG(GIA) CGA(AGS) NAJA
Professional Appraisals in Denver

 

[NanStacy]

Neil,

That''s interesting.

In Callifornia, a purchase from outside the state is not taxed unless the corporation also has an outlet within California collecting sales tax. When Coldwater Creek (it''s a women''s clothig store) was totally on-line, no sales tax for me. As soon as they opened their first bricks & mortar store in CA I got the opportunity to help support the CA state legislature!

So, if the insurance company has a replacement jeweler outside of California and has the jewelry replaced there and shipped to their client in California, there will be no sales tax. Same as buying a diamond from a Pricescope vendor and having it shipped here. No tax. That''s why several California diamond brokers moved out-of-state.

When I found out that the insurance companies won''t pay for the sales tax, it didn''t make sense to write appraisals that included it. We have 8.25% tax in my county, which as I said can add up. Chubb obviously will pay for the sales tax because they look at the insured value. If the tax adds more cost than the insured amount, their 50% flexibility takes care of it. But that is not how most insurance contracts work, as you are well aware.

 

[Modified Brilliant]

By definition, wholesalers sell to retailers and retailers sell to the public.

Technically, there really is no such thing as "wholesale to the public."

It''s a tired, overworked phrase that means very little.

Shop, compare the 4''C''s, prices, warranties, trade-in privileges, and service after the sale.

www.metrojewelryappraisers.com

 

[Modified Brilliant]

ooops, wrong thread!

www.metrojewelryappraisers.com

 

[denverappraiser]

Nancy,

That's a peculiar decision but insurance companies don't always behave the same way. Even the same company in different states can have wildly different policies. Sales tax is a tax levied on the consumer, not on the merchant and California customers who buy from out of state dealers who aren't required to collect the tax are expected to submit it themselves. Here's the tax return inclulding a brief summary of when taxes might be owed. Not surprisingly, hardly any individuals do this but I would expect the major insurance companies to be sticklers for this sort of thing. The cost of noncompliance can be considerable. Perhaps insurance companies have some sort of exemption.

Neil Beaty
GG(GIA) CGA(AGS) NAJA
Professional Appraisals in Denver

 

[RockDoc]

Neil

Your comparison with cars is certainly interesting, but let''s consider a slightly different approach.

In most states if you trade in a car that you''ve already paid sales taxes for you get a credit against the new car purchase price that is taxed by the state.

If you keep the old car and buy a new one, your taxed on the amount of the new purchase.

In the case of a lost ring, where sales tax in the state has already been paid, and the item is a replacement due to loss (even though it isn''t traded in) I would certainly want to ask if there is a credit deduction for an item where the tax has been previously paid, and the new purchase is not an addition to the "household".

In the case of most cars the one being purchased will cost more than the new purchase, but the buyer gets a tax "credit" for the trade in value. In the case of a loss, especially where the diamond or jewelry is damaged and is being replaced, should it be considered proper to charge again against the total new purchase price? Considering that the "purchase price" of the replacement in many cases would be equal to the "trade in", would this be fair or proper?

I would defer naturally to the statute law in each individual state''s sales tax code, but I thought it woud be worth spiffballing here to get different opinions that we could learn from.

Maybe some of our attorney members might render their thoughts.

Rockdoc

 

[denverappraiser]

Rockdoc,

Did I mention cars?

That''s an interesting idea but I have my doubts. If I trade in a car, the taxable amount will be for the difference in value, meaning the amount of cash that changes hands but presumably the dealer will stil be expected to collect tax from the poor schlub that buys the one I traded in. If they jacked up the price on my car so that I would feel good about my trade in even though it has no value, the effect is the same as if I had thrown it away and just bought the new car. Either way, in the end, the state gets their money because SOMEBODY is paying tax on the entire amount. In the case of a lost item, this doesn''t seem to be the case. There is no opportunity to collect the tax on the lost item. I would think the ''consumer'' in this case would be the insurance company because they are buying it in order to fulfill a contractual obligation.

Neil Beaty
GG(GIA) CGA(AGS) NAJA
Professional Appraisals in Denver

 

[laney]

Not an expert, but I did have a GOG stone, and indie apprasial, and a situation where I needed to use it.

After about a year with the diamond and tacori setting - I "broke" my diamond. Took a huge chunk out and needed to claim my insurance.

I had a normal policy with Allstate which was a ryder on our homeowners.

I had two apprasials - one from good old gold, and one from the independant apraiser. I chose to send GOG''s aprasial to the insurance company (when we added the policy). Not so much for the price difference - his was a bit higher.. but not a significant amount. but more for the documenation that was associated. Boy did that come in handy.

When it was time for replacement I was able to refer back to the idealscope images, brillancescope scores, I2see scores, angles, etc to say .. I just don''t want any replacement stone... I want one that matches THESE.

The jeweler saw that I knew my stuff, and found that he didnt'' have any that met those specs (my policy said insurance jeweler would replace with like and kind). Instead they wrote me a check. That in fact was 30% MORE than I paid for the stone. My policy didn''t state that they would give you the amount on the apprasial.. they would give you REPLACEMENT value (that''s important to check.. CHUBB or other specialty insurances are different).

So in my case, I was able to replace my stone with a similar quality... again from GOG.

So the moral to my story is documenation! Allstate accepted GOG''s apprasial without issue!

 

[Goldenrain]

Laney: My GOG appraisal is just for the diamond only (since I didn''t purchase the setting from them).. Is it possible to augment the finished ring to it? I have a Michael B setting and so replacing the setting would be easy in case it was damaged or lost/stolen. I guess I could see if GOG will add this for me after the fact.. Hmm...