What are reasonable differences between appraisal value vs. cost?

[barnsiebear]

Hi,

I just recently got an appraisal done on a platinum engagement ring, 1.19 carats, G, VS2, AGS0, HCA of 0.8. We purchased this ring from a reputable PS online vendor for ~ $9,300. We got a well-regarded, independent, PS appraiser to value the ring and they came back with a value around ~$11,000. The original value estimate from the vendor (that came with the ring) valued the ring at ~$12,500. We''re wondering if it''s normal to get an appraisal that''s ~20% above what the cost is?

What difference amounts are considered to be reasonable and unreasonable? Our independent appraiser claims to value based on replacement cost and discussed this with us prior to hiring them as they explained how this would affect our premiums. Thus, we''re scratching our heads as to why we seem to have underpaid by 20%? Is this normal? If this happened to you, what was your appraisal vs. cost difference? Thanks.

 

[barnsiebear]

Bump...Can anyone address my questions? All help would be appreciated! Thanks.

 

[Regular Guy]

We used a well regarded DC appraiser, with actuals at about $4300, and appraised value at about $6500.

I can''t give you any theory, too much, but the general topic''s been discussed a lot, and you may want to search for it. I can say that your experience seems to me within normal tolerances from what I read here.

 

[oldminer]

When I appraise a diamond ring, I calculate the wholesale cost of the diamond, the mounting, the setting and polishing. Then I apply a mark-up to this already "estimated" cost amount. Using a mark-up low as 1.15 x cost to a high of about 2.5 x cost is totally dependent on the market the item was bought in, the cost of the item, and what I know the needs of the client are based on my interview with them before placing the "value". This only is dealing with insurance replacement work. Other types of appraisals use other mark-up or mark-down levels.

There are inherent errors built into simply estimating the "cost" properly and then selecting a reasonable range of mark-up adds to what might look like an error, but isn''t. When I have no idea of where a client bought a diamond I use a mid range mark-up, which varies lower as the cost rises because that''s how most B&M stores mark up their goods. I''d never be as low as 1.15 or as high as 2.5 if I was unaware of the important additional facts surrounding the purchase. I''d stick to a mid course of action when I''m kept in the dark.

This is what makes appraising an art not a science. One practices the art of appraising in hopes of perfecting their skills. There is no one value or one way to do the work. You can''t expect the number in your head to be the number the appraiser arrives at. What you are paying the appraiser for is a credible, independent "opinion" of value. Appraisers'' opinons do vary quite a lot and it must be expected. The more you reveal to the appraiser about in what market the item was obtained, the more likely the appraiser will come to the range of value appropriate for the item in your possession.

 

[denverappraiser]

I’ll give you some theory.

Theory #1. Any statement of value must contain an element of how much an item is worth to whom, when and under what circumstances. Without this the information is worthless.

The usual definition of value on pre-loss insurance type appraisals is something like: “The appropriate funding expected to be required for the client or their agent to replace the item with another of like kind and quality in the most appropriate marketplace and in a reasonable amount of time.” There are quite a few variations on this but there are some important qualifiers in that definition that you want to contemplate.

Funding (we’re assisting in setting a budget, not a price)
Replace (Reproduce? Replicate? Purchase from manufacturer or dealer stock? These can be quite different and can produce considerably different answers depending on what is meant)
New
Agent (that’s your insurance company and they probably have a different shopping procedure than you and quite possibly different from what your appraiser is describing)
Like kind and quality
Reasonable amount of time
Most appropriate marketplace

There’s been quite a bit of discussion here in the forum aout all of these items but I think it’s clear that

Theory #2. Appraisers are estimating ‘value’ under a specific set of circumstances (based on whatever definition is being used), not setting prices.

Merchants can and do charge whatever they want for things and customers are welcome to either buy or walk away as they wish. This is the fundamental dynamic of a free market and appraisers play no part in it. There are a few cases where the above set of assumptions are going to be identical to what you are doing but it’s actually pretty rare. For example, the marketplace where most Internet shoppers as well as most B&M shoppers are looking is probably NOT the marketplace where replacement is most likely to occur.

Theory #3. Appraisers are not all the same. We don’t all use the same methodology, we don’t all use the same assumptions and we don’t all use the same definitions. Some have put a fair amount of thought into this sort of issue and some don’t even understand the question. Anyone who wants to can call himself or herself an appraiser and can produce an opinion that they call an appraisal. This doesn’t make it right (or wrong) but especially if what they have to say is different from what you otherwise expected, it must be taken in the context of the source.

To answer your question, a replacement budget of 20% over what you paid is entirely within the realm of reasonable although it will depend on what you paid and what you got. Some items, like large ‘generic’ diamonds in relatively simple settings tend to be closer than others. This understanding is part of what you are paying your appraiser for. If it’s not clear what they mean from the report, ring them up and ask them.

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

 

[barnsiebear]

Great, thanks for the responses/inputs - all very helpful!!!