How two appraisers determine retail replacement value of jewelry
Determining retail replacement value
A single jewelry piece can have different values so I asked two appraisers how they determine the retail replacement cost of a piece for an insurance appraisal.
The first appraiser I interviewed was CHARLES CARMONA of Guild Laboratories in downtown Los Angeles. I first met him when we served as officers for the local GIA Alumni Association. Charles said he determines the cost by first asking clients where they buy their jewelry; he then appraises the piece for the type of store they shop in.
If, for example, the customer regularly shops in the downtown jewelry district where overheads are lower and competition is greater, he will assign a lower retail replacement cost than if they regularly shop in a suburban jewelry store where more services are offered and the overhead is greater. He explains to his clients why a similar piece of jewelry sells for different prices depending where they shop, and the value of extra services and convenience.
Charles says it’s best not to value jewelry for more than what customers pay because the higher the appraisal value, the higher their insurance premium. In America, if your jewelry is lost, stolen or damaged, it’s unlikely you’ll get cash. The insurance company will usually just replace it with a piece matching the description on your appraisal, and they’ll buy the piece at wholesale from one of their suppliers.
Charles knows of only one American company that will insure your jewelry by itself for cash—Jewelers Mutual Insurance Company (www.jewelersmutual.com). Other companies require that an expensive piece of jewelry be insured separately as an addendum to your homeowners or renter’s policy. An agreed value policy is available from selected companies (e.g. www.chubb.com)–they will pay you the insured value for a loss, but your premium will be higher for this option.
Charles uses a combination cost approach and market data approach for appraisals of modern generic jewelry. This means he estimates the cost to manufacture the piece (cost approach) and then applies the appropriate retail mark-up for its market (market data approach).
Properly hallmarked designer pieces (names or stores that are well-known) are appraised at what they are priced to sell for in authorized retail stores (market data approach), and not as generic copies.
Charles advises his clients to be wary of jewelers who sell their jewelry for one price and give you an insurance appraisal for a higher price. He says they normally sell it for what it’s worth, not half of what it’s worth.
The second appraiser I interviewed was SINDI SCHLOSS of International Gemological Services in Scottsdale, Arizona. Like Charles, Sindi bases the retail replacement cost on the most appropriate market in which the jewelry is purchased. If, for example, it’s from a designer jewelry store, she will price it in that arena.
If a diamond in a ring is accompanied by a grading report, Sindi does not want to know the grades beforehand, nor the price of the ring. She believes it’s her job to independently determine if the price is fair. Ideally the appraisal won’t be over valued, yet will provide adequate insurance coverage for 5–7 years, at which time many insurance companies require an update.
According to Sindi, when a diamond is mounted, limitations exist which can make the determination of carat weight and color grade very difficult. When Sindi is grading a mounted diamond, she often gives a triple split color grade with the value based upon the center grade. There are discussions in the professional appraiser world concerning giving a split grade to mounted diamonds. Some appraisers argue that in the event of a loss, an insurance company might replace a diamond that was given a split grade with any of the two or three grades given and often the lowest grade. Sindi tries to prevent this by describing that value is based upon the center grade in a cover letter. It’s ideal, of course, if the diamond is brought in loose before it is mounted. This removes all the limitations of a mounting and allows an accurate grade. After the diamond is mounted, Sindi finishes the written appraisal and verifies that the diamond is the same and unbroken. (Insurance companies normally don’t want to insure loose diamonds because it’s too easy to lose them.)
Even if a diamond is accompanied by a report, she prefers to evaluate the diamond before seeing the grade on the report. If the report is from the GIA and she graded it differently by one grade, she’ll usually honor the GIA grade, after verifying that it is the same diamond. Sindi doesn’t use the SI3 clarity grade on her appraisal because it is not part of the GIA grading system. An important part of her report is the cover letter in which she explains the market, methodology and value determinants used for the appraisal.
Since many of the items she appraises are purchased from small independent retail jewelry stores, Sindi often uses a combination of the market approach and the cost approach to determine value. For jewelry purchased from well established, multiple outlet retail jewelry stores, typical of those found in malls, she often uses the market data approach; for custom pieces, she’ll frequently use the cost approach.
Sindi has the following comments for consumers:
1. Keep in mind that grading is subjective. Strict graders may grade tougher than an accompanying certificate. There are few graders who strongly dispute a GIA grading report, unless the diamond does not match the plot (map of the inclusions).
2. Verify that stones match the certificates that they accompany by going to an unbiased, independent appraiser.
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