Appraisals 102

Okay so let's say that you've been buying jewelry over the years and never had an appraisal for any of it, but you've just started working with a new insurance company for your homeowners policy and they tell you they want an appraisal of your jewelry to cover it properly. This again requires a retail replacement value appraisal. An appraiser should use the same general approach in valuation as I described in the last posting but prices should be updated to reflect current metal and stone values. In the case of gold and platinum, the prices are up so it might be possible to have a value assigned to a particular item that is, in fact, higher than what was paid for the piece. In the case of diamonds, it is possible that the price will be lower as the RETAIL price of diamonds has dropped over the last 5-7 years. Some consideration of the condition of the jewelry has to be taken into account as well. In the case of a piece with missing stones, or with a lot of metal worn off, it really isn't up to the insurance company to replace a lost or stolen item with a new, perfect condition piece. All of these factors should be taken into account when valuing these pieces. Other factors on older pieces (are they collectibles?, were they made by a known--now dead---artist?, etc.) should also be taken into consideration. In the case of items that are collectibles the values should be based on similar items that are being offered for sale to the general public.

The most important thing to remember however about insurance replacement appraisals is that the values shown will have absolutely no relationship to what you might be able to sell the pieces for. As such, these appraisals should NEVER be used to help make a sale to a private individual, nor will they help you in the least if you take your jewelry to a jeweler to sell it. So if you want to sell your jewelry you do NOT want an insurance replacement value appraisal. And, conversely, if you are buying jewelry from a friend, or from an online used jewelry site, you should not use a retail replacement value appraisal as a starting point for price negotiations.

Estate appraisals are a different type of appraisal that is used, obviously, when estates are being settled. It can also be called a fair market value appraisal, and can be a more accurate representation of what a piece might sell for privately. Fair market appraisals have to reflect a price for what the piece might actually sell for, if there are no time constraints, between a willing seller and buyer, given the condition of the piece at the time. Now in some cases, on badly worn pieces, this could be the actual scrap value. It also could be a value close to what an antiques dealer might pay for the goods at the time (a good reason not to have the dealer do the appraisal themselves). It is helpful for people who have an estate to settle in terms of financial liability (estate taxes, etc.) and it can be helpful in the event that a jewelry collection is being split up among heirs (something I get people in for routinely). It's rare that I see collections with a value that will actually impact taxes (most of those tend to go to auction houses) but it is helpful if you want to equitably split up some jewelry (or assign a buyout price for one portion of the value, i.e.--mom only left one diamond but there are two daughters; one gets the diamond and pays the other the fair market value of half of the diamond).

The values in estate appraisals will be much lower than in insurance replacement value appraisals, but they may still not reflect what you would actually receive from the sale of old jewelry for scrap since there often will be more value than just the metal and stone content. Additionally, a fair market value appraisal valuation must take into consideration the phrase I used earlier: "if there are no time constraints". If you go into a place to sell your jewelry for scrap there is, effectively, a time constraint. You want to sell and you want to sell now. That always lowers the value.

The last type of appraisal I'm going to briefly discuss is a relatively new one on the scene (well at least in that they previously were used exceedingly rarely), which is one that is supposed to reflect the value of what you would get currently if you did go in to sell your jewelry because the price of gold is so high (or just because you need the money). The idea is to get an independent valuation so that when you go to the scrap buyers you will have a reasonable idea of what to expect. This sounds like a great idea except there are two problems. The first is that any legitimate appraiser charges for their time. If you pay out half of what your scrap is worth to find out what you're going to get for it, it's pretty much a waste of money. Now if you have hundreds of pieces of varying karats of gold with a lot of different stones in them, it might (and I say might because your cost for the appraisal will be much larger given the quantities of items) be worthwhile. But the real problem is that by the next day the value is already moot as gold prices fluctuate daily (especially these days). The second problem is that it doesn't matter what ANYONE writes on an appraisal. If no buyer is willing to pay you more than $100 for a piece then that is what it's worth even if an appraiser thinks you should get $150. So if you are selling (and I discussed this a bit earlier in my posts on selling gold), the best thing to do is simply go to three or four different places (or if you have a family jeweler you trust go to them) and see what they offer you. Then take the largest offer.

On my next posting I'll talk about finding an appraiser, what you should expect from them, and what they will need from you.

Appraisals 101

The subject of appraisals seems to be coming up a lot lately so let me write a post or two on this issue for those of you in need of some advice. First of all you need to understand that there are different types of appraisals for jewelry. The most common type is an insurance appraisal. This is an appraisal that will describe a piece and give the cost to actually replace the piece described at a retail store in the event of a loss or theft. The next most common type is a fair market value appraisal. This is commonly used in estate valuations and should reflect the amount the piece would sell for if offered for sale in its current condition. Lately some appraisers have been offering an appraisal that would reflect what should be a reasonable price to assume receiving if you scrapped the piece/s. There are a number of other types of appraisals (donation, IRS related, etc.) but most people aren't going to be concerned with these.

What most people don't realize, even many jewelers who think they can scribble something on a piece of paper and that that constitutes an appraisal, is that an appraisal is a legal document. It can be used in a court of law. As such, those doing the appraisals have to follow some guidelines (although many don't) about establishing value for the items.

An insurance appraisal on a new purchase, sometimes also known as a point of sale appraisal, is the most important type of appraisal for most people to be aware of. This appraisal should reflect what it would cost to replace the same item in the event of a loss. This is the type of appraisal that most insurance companies will want to write a policy to cover your jewels. Except in rare instances, such as when there is a true sale on the piece (not like in the department store sales where everything is on sale 350 days of the year), or errors were made in pricing (I sometimes have this issue on custom work, if I under quote a job and realize afterwards that if I do it again I will HAVE to charge more), insurance appraisals should not show values higher than what was actually paid for a piece (this presumes it's a new piece you've just bought).

Unfortunately for a long time jewelers used to sell people something for $1000 but then tell the customers, oh well the real price would be $2000 so I'll write you up an appraisal for $2000 and you should insure it for that amount. This was bad in a myriad of ways. First of all, they did it to make you think you were getting a deal, when in fact, if you went back the next day for the same thing, you'd pay the same price. Secondly, you would then pay insurance on $2000 rather than the $1000 that would actually be paid for the piece, enriching the insurance companies but not anyone else. In fact many insurance companies have deals with retail jewelers in which they pay far less than the retail price (the real retail price of $1000 not $2000) in exchange for sending the jewelers a huge amount of business. So all of this time you've been paying an insurance rate on $2000 when the insurance company may only pay out $6-800. Good for them, but not so good for you. So if you purchase something for $1000 that is what the appraisal should say. And if you're purchasing from some company that claims that their jewelry will appraise for double or more of the price paid, in fact they are making a false, unethical, claim. If an appraiser were to value the piece at double what you paid for it, knowing that you could go back to the same location and buy the same thing for the same price, then they shouldn't be calling themselves appraisers.

Now mind you, some of appraising is subjective in nature. It can also vary depending on the area you are in. A custom made piece from a jeweler in the boondocks of North Dakota is going to cost less than from someone like me in an area where my costs are much higher. So values will vary. Different appraisers use different formulas as well. And there are a number of things like diamond grading that have some very subjective issues around them. One appraiser (or even a diamond grading lab) may see a VS2 stone and another may think it is an SI1 stone. That can sometimes make a huge difference in price. However a retail replacement value appraisal should reflect a value that is fairly accurate of what it would cost, in that specific area, to replace a piece at a similar venue to where it was purchased. In the case of custom work, unique designs, or designer jewelry, the value should reflect what that piece would actually go for. It is illegal to copy designs so a David Yurman piece, or a Daniel Spirer piece for that matter, should be valued at what it would cost to replace a piece made by that actual company/person not at what it would cost to have someone else steal the design and duplicate it. Things like branded diamonds also need to be recognized for what they are. A Royal Asscher cut diamond, actually cut by the House of Asscher, will carry a higher price tag then a diamond cut to the same shape by any old cutter. The same goes for the Lazare Diamonds that I sell.

My next post will be on insurance replacement appraisals on items that were not recently purchased and, if possible, on fair market value appraisals (although that might have to wait for a third posting). The earrings pictured above are a 16 layer mokume gane in 22k gold and 18k palladium white gold with a .10 ct. ideal cut, "E" color, VS clarity diamond in each earring. A proper appraisal would have to show the price it would cost to buy these from me as this is one of my designs.