Resale Question

[hihowareyou]

This has been bugging me for some time since I discovered that stores with upgrade policies resell the trade ins without disclosing it.

Don''t get me wrong. I don''t have any problems with buying a second hand diamond, after all they are millions of years old in the first place. Provided the polish, etc matches the certificate and there has been no damage the stone may as well be brand new.

I guess my issue is this: Why is the resale value of diamonds so low if they can and are being resold for full retail prices by vendors?

 

[Lorelei]

Date: 11/27/2009 8:08:27 PM
Author:hihowareyou
This has been bugging me for some time since I discovered that stores with upgrade policies resell the trade ins without disclosing it.

Don''t get me wrong. I don''t have any problems with buying a second hand diamond, after all they are millions of years old in the first place. Provided the polish, etc matches the certificate and there has been no damage the stone may as well be brand new.

I guess my issue is this: Why is the resale value of diamonds so low if they can and are being resold for full retail prices by vendors?

Bear in mind that vendors can offer the buyer various protections and benefits that aren''t available with a private sale. Also sometimes the stones need repolishing, regrading, resetting etc before they can be resold.

 

[oldminer]

Prices on second hand diamonds being sold by the public to dealers depend on "supply and demand" levels. Dealers generally have most of their money already in diamonds and only want to buy extra ones if the price dictates an especially good value. There is no credit on such purchases as the public wants immediate payment. Lorelei has given you some of the added costs surrounding a purchase and these are not the only ones. With sufficient shopping a diamond can be sold for what the market provides to a willing dealer, but many consumers do sell for less than they ought to as there are many buyers who do not pay full market prices and hope for a fast buck deal. Just like when buying the person selling has to educate themself on the market and the value they can expect before agreeing to make the sale.

 

[denverappraiser]

As grim as the resale numbers for diamonds seem, they are actually better than they are for nearly everything else you buy. Consider the case for electronics, clothing, food, art, furniture, cars, toys, tools et.al. Even things that are undisputed ‘commodities’, like lumber and gasoline simply don’t have viable consumer resale markets. Much of the problem is not that the resale marketplace is unavailable or expensive in terms of transaction costs but that customers are led to believe that they have made a financial ‘investment’ by the sellers when, in practice, they have made a consumptive purchase.

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

 

[kenny]

I think the expectations of the public is key.
When buying something used from a private party the public expects a much lower price than they expect to pay at a retailer.

Whether this is right or wrong or even logical doesn't matter.
This expectation is firmly established.

 

[Rockdiamond]

Date: 11/28/2009 5:17:38 AM
Author: Lorelei

Date: 11/27/2009 8:08:27 PM
Author:hihowareyou
This has been bugging me for some time since I discovered that stores with upgrade policies resell the trade ins without disclosing it.

Don't get me wrong. I don't have any problems with buying a second hand diamond, after all they are millions of years old in the first place. Provided the polish, etc matches the certificate and there has been no damage the stone may as well be brand new.

I guess my issue is this: Why is the resale value of diamonds so low if they can and are being resold for full retail prices by vendors?

Bear in mind that vendors can offer the buyer various protections and benefits that aren't available with a private sale. Also sometimes the stones need repolishing, regrading, resetting etc before they can be resold.

+1
There's a big difference for a buyer between buying form a person on Craigslist for cash, or from a reputable vendor with refund policies and service.
It only makes sense the craiglsit price needs to be a lot lower than a store's price.

I think it's a very good questions though- and brings up a few others.
In terms of value, does it matter when a diamond was cut?
To me, as a dealer, a stone cut 30 years ago is stone is worth exactly what a stone cut yesterday is worth.
For the purposes of discussion, say it gets a new GIA report and comes back the same grade with no damage at all.

In this limited manner, a diamond does act like a commodity. If prices are higher today than when it was cut, or if they are lower today, an undamaged diamond is still worth market today.
If the stone is damaged, its a different story entirely


There's also rings and jewelry, which are entirely different in many aspects.
IN that, I think it's good practice for sellers to disclose if an item was previously owned.
I think that would be very important to many jewelry buyers.

 

[ChunkyCushionLover]

Date: 11/27/2009 8:08:27 PM
Author:hihowareyou
This has been bugging me for some time since I discovered that stores with upgrade policies resell the trade ins without disclosing it.

Don''t get me wrong. I don''t have any problems with buying a second hand diamond, after all they are millions of years old in the first place. Provided the polish, etc matches the certificate and there has been no damage the stone may as well be brand new.

I guess my issue is this: Why is the resale value of diamonds so low if they can and are being resold for full retail prices by vendors?

Its called Dealer Markup and the Oligopoly(used to be Debeers Monopoly) of the diamond market.

Diamonds are estimated to be 1/10 as rare as their current prices dictate. If there was a strong resale market and people actually were not socially conditioned to hold on to their wedding heirlooms than prices would crash and the whole industry would be shaken up.

If you are going to take a craiglist''s diamond to a certified appraisor versus a vendor''s diamond to that same appraisor if they both came back the same grading from the appraisor they would be worth the same to the buyer, the problem is both buyer and sellor lack the experience or deep pockets to hold on to inventory or to get proper appraisals and complete information. Confidence in the sellor, return, upgrade and buyback policies are also a factor in pricing. One of the most important factors is whether a vendor has to risk their own capital and increase their stock by holding on to an expensive diamond or not. One good way to resell a diamond is to find a vendor willing to take it on consignment and charge you a reasonable fee to conduct the transaction. Some PS vendors will do this, but they may ask that you use the funds to purchase a diamond from them.

 

[denverappraiser]

Date: 11/28/2009 8:02:05 PM
Author: ChunkyCushionLover

Diamonds are estimated to be 1/10 as rare as their current prices dictate.

CCL,

Rarity in isolation is not what drives the price of diamonds, or anything else really. There are plenty of fantastically unusual things that aren’t especially valuable and some very common things that can be. ‘Value’ is not a God given attribute. That comes from people deciding that they like a particular thing and are willing to pay for it and the effects of market forces on their way to getting it or getting rid of it. It’s certainly true that approximately every diamond ever mined is still in circulation and that it would cause some serious problems for the mining industry if people did a massive dumping into the marketplace but I’m not convinced it would be the disaster predicted in The Diamond Invention, a book that seems to be at the heart of this theory and that's the usual source of the above estimate. What that takes to clobber the industry is potential customers deciding that they no longer want to buy diamonds and even then it’s the private sellers who are left holding the proverbial bag. Mines would simply have to close. I see no evidence that this is occurring. Population is growing, young men still want to get married, and an increasing percentage of young women worldwide seem to be insisting that diamonds be part of that deal. If anything, this is increasing, not decreasing. The upcoming crop of consumers seems to be demanding goods that are demonstrably different from what their parents and grandparents wanted. Fashion is a fickle thing to be sure, but I don’t see any evidence that this is on the wane either.


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

 

[ChunkyCushionLover]

Date: 11/28/2009 11:50:57 AM
Author: denverappraiser
As grim as the resale numbers for diamonds seem, they are actually better than they are for nearly everything else you buy. Consider the case for electronics, clothing, food, art, furniture, cars, toys, tools et.al. Even things that are undisputed ‘commodities’, like lumber and gasoline simply don’t have viable consumer resale markets. Much of the problem is not that the resale marketplace is unavailable or expensive in terms of transaction costs but that customers are led to believe that they have made a financial ‘investment’ by the sellers when, in practice, they have made a consumptive purchase.

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

It is a rather interesting trend though for diamonds though. The other things you described lose value as new is not the same as used. Although settings and diamonds can be "used" the cost to bring them to new, not a "refurbished new" is negligible. We certainly are nowhere close to simple supply and demand market in diamonds, and although the debeers chain of siteholders is no longer the only source of diamonds of North America, I still beleive the diamond industry is far from a perfect free market and still has influences and still acts as a modified Oligopoly. I see this Oligopoly eroding over time and the prices of diamonds either falling or not rising as fast as other commodities but this is speculation.

 

[ChunkyCushionLover]

Date: 11/28/2009 8:55:41 PM
Author: denverappraiser

Date: 11/28/2009 8:02:05 PM
Author: ChunkyCushionLover

Diamonds are estimated to be 1/10 as rare as their current prices dictate.

CCL,

Rarity in isolation is not what drives the price of diamonds, or anything else really. There are plenty of fantastically unusual things that aren’t especially valuable and some very common things that can be. ‘Value’ is not a God given attribute. That comes from people deciding that they like a particular thing and are willing to pay for it and the effects of market forces on their way to getting it or getting rid of it. It’s certainly true that approximately every diamond ever mined is still in circulation and that it would cause some serious problems for the mining industry if people did a massive dumping into the marketplace but I’m not convinced it would be the disaster predicted in The Diamond Invention, a book that seems to be at the heart of this theory and that's the usual source of the above estimate. What that takes to clobber the industry is potential customers deciding that they no longer want to buy diamonds and even then it’s the private sellers who are left holding the proverbial bag. Mines would simply have to close. I see no evidence that this is occurring. Population is growing, young men still want to get married, and an increasing percentage of young women worldwide seem to be insisting that diamonds be part of that deal. If anything, this is increasing, not decreasing. The upcoming crop of consumers seems to be demanding goods that are demonstrably different from what their parents and grandparents wanted. Fashion is a fickle thing to be sure, but I don’t see any evidence that this is on the wane either.


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

I haven't read that book, but here are two articles I do find relevant to this discussion:

http://www.nytimes.com/2009/05/12/business/global/12diamonds.html?_r=1&em
http://money.cnn.com/magazines/fortune/fortune_archive/2001/02/19/296863/index.htm

There are other ones I could dig up but they are older than the times article.

 

[kenny]

The only thing I''d think would not vary in price depending on who is selling it or if it is new or used is a gold bullion.

 

[kenny]

like this

 

[HVVS]

I have yet to find even a Craigslist diamond ad that even looks promising. And I'm looking in major cities within about a 275 mile radius, lol. Where do y'all see these Craigslist diamonds that might be worth even sending an email? LOL

Not all "used" diamonds have been worn by the previous owner, or have bad karma. In my case, I purchased a nice H&A diamond a few years ago for my personal use, intending to set it in a particular style of mounting. What I learned after I bought that diamond was that I'd have to have a jeweler recreate that mounting for me from the photo. Too much extra expense and too much trouble, I decided. If I was going to spend thousands of dollars more, I thought it was a better idea to just upgrade to a larger diamond. I returned the diamond unused.

I think some of the problem with private sales is there's no upgrade policy. Most of the problem is that sellers often don't have all of the documentation to prove the diamond's worth. If I saw an ad for an AGS or GIA diamond *and* the seller also had an independent appraisal and an inscribed diamond,and all of it matched, I'd seriously take a look at that diamond for the right price. But most sellers won't bother getting an updated cert, an inscribed girdle, a detailed appraisal, etc. And in that case, with sketchy documentation, the price should be 'way lower than retail.