Why are diamonds appraised higher than purchase price?

[nukezero]

Just curious, I noticed that, on this forum and elsewhere, when buying a diamond/ring the appraisals given by the store is significantly higher than what one is paying for. Why is that?

Why would the store appraise something higher than what they are selling you. Thereby, "pretending" like you are getting a good deal?

Or is it for insurance reasons?

 

[the_universe]

to make the buyer feel like they are getting a great deal. When you buy jewelry retail the markup is typically 300%-1000%. The reality is that IF De Beers released their entire diamond stock to the public diamonds would be worth about 50 cents per carat. They are not rare at all. You can learn about this by watching any of the thorough diamond documentaries on youtube.

There is nothing better than being able to sell an item with infinite supply and make people believe its very rare; marketing at its best.

There are many stones that are truly rare (only found on 1-2 mines on planet earth) and are very beautiful that are worth much less to the public because of the marketing and monopoly that De Beers has on the industry. The Marylin Monroe Diamonds are Forever marketing campaign was one of the most successful marketing campaigns ever across any industry and is studied to this day by top business and marketing universities around the world.

Edward Bernays revolutionized marketing in the western world. He was the first to anchor emotions to items; emotional selling. You want to look and feel like this beautiful happy person then buy XYZ product. You can watch lots of documentaries on this guy on youtube as well.

 

[Asscherhalo_lover]

If it's from the store it's usually to make you feel good about the purchase, your best bet is to get an actual "retail replacement value" appraisal with maybe an extra 10% to cover inflation for a period of time. It is important every few years to get an updated appraisal because the values of diamonds, gems, and precious metals does normally go up and you would want to adjust your insurance value accordingly.

 

[Gypsy]

to make the buyer feel like they are getting a great deal. When you buy jewelry retail the markup is typically 300%-1000%.

this is not at all accurate. There is a larger mark up for finished pieces than for loose stones. But even that is no wear near 300%. As for loose stones typical mark up is much closer to 10%.

 

[heididdl]

The answer to the question is simple replacement value. But the joke is if you go to sell it as the others alluded to your ring is wroth 20% of that replacement value ......So for insurance company benefit

 

[denverappraiser]

The usual appraisal is an estimate of what it would cost to replace the subject item with another of ‘like kind and quality’ at retail, new, locally.
There’s a lot of wiggle room in there and it’s a process that definitely gets abused but it’s not entirely crazy. That’s what the insurer is agreeing to do. The appraisal report submitted at the time you bind the policy will become the purchase order for the replacement. The budget provided is the maximum limit of liability, not the expected price.

Replacement value can be more than purchase price for a couple of common reasons:

1) Different markets. The presumed market for replacement is retail, new, local. That is to say, a specialty jewelry store. That may not be where you bought it. This is the biggest point of confusion but the marketplace that the appraiser is funding for is often the most expensive place in town or even a completely imaginary place. Special note: This is probably NOT where the insurance company is going to go unless there are branding and trademark issues that prevent them from buying at a discount place. They are agreeing to replace with like kind and quality. They are not agreeing to spend a particular amount.

2) The replacement is likely to presume custom making the piece using US labor and US supplied materials. Again, that may not be what you bought but an item made in a Chinese factory probably can’t be replaced there.

3) Vanity. People ‘feel’ good if values are high and they feel bad if values are low. It makes customers happy and it makes the jeweler look good.

It’s worth noting that replacement value is NOT a valid way of identifying a bargain. It’s also correct that resale value is a completely different question. I don’t agree with the above that you can convert by a simple formula but nearly everyone takes a loss on resale. Some are high and some are low and it depends on variables that don’t appear on the appraisal and the value conclusion on the appraisal is not a reasonable way to set prices. There is no conversion formula.

 

[WillyDiamond]

to make the buyer feel like they are getting a great deal. When you buy jewelry retail the markup is typically 300%-1000%.

this is not at all accurate. There is a larger mark up for finished pieces than for loose stones. But even that is no wear near 300%. As for loose stones typical mark up is much closer to 10%.

I know it has been bantered around on the forum about a 10% markup, but I find that hard to believe with jeweler costs. If they only made 10%, expenses would wipe them out and they would be out of business real soon.

 

[TC1987]

quoting DenverAppraiser

The appraisal report submitted at the time you bind the policy will become the purchase order for the replacement. The budget provided is the maximum limit of liability, not the expected price.

^That's a good way of putting it. Be specific and accurate so that your insurance must replace you item(s) with equivalent quality.

nukezero, you haven't been on PS a long time. But there was a time period back in 2008 or 2009 or so when there were some big & abrupt price hikes at the wholesale level, with certain portions of of the carat weight spectrum increasing as much as 35% before they leveled off at lesser but still significantly higher prices. In that case, having my diamonds insured for more than I paid for them was a good thing, so I will not complain.

But, yes, some of those brick & mortar stores, particularly the mall jeweler chains that sell so-so quality, give appraisals that his the Ludicrous Zone.

 

[Rockdiamond]

The motivation of a seller using an inflated appraisal value seems so utterly transparent to me.
It's not all that different from sellers knowingly offering misguided diamonds.
It's an rather repugnant ( to me) selling technique.
it's an attempt to make the buyer believe they are offering something really "special".
If Joe's jewelry store is asking 5k for an item that "appraises" for $10k, while Ed's is offering a $5k ring that they appraise for $6k, well, Joe must have the better deal, right?

IMO, any seller offering an appraisal document has an additional responsibility to the the buyer.
Appraisals issued by a seller need to come with an explanation of how the value was formulated for them to have any value at all to the buyer.