Appraisals

What is a jewelry appraisal?

An appraisal of fine jewelry should be the professional, impartial, qualified opinion of an expert in the fields of gemology and jewelry valuation for a specific purpose.  It first requires an accurate representation of the item and its components – the gemstones and mountings – their identification and qualitative grading against industry standards.  It then requires the application of relative value through market research appropriate to the item appraised and specific for the intended purpose.

Are there different types of appraisals?

Yes. While the physical description of an article remains the same, the relative value is dependent upon the purpose of the appraisal.

INSURANCE APPRAISALS

For insurance purposes, a relative retail replacement value is typical. Since retail values vary from source to source, you may see discrepancies between appraisers depending upon their interpretation of the market.  It is important to remember that the “value” allows the insurer to charge premiums based on that dollar amount but does not obligate them to pay it out.  Their obligation is to indemnify you – make you whole again.  As long as you get back the quality of item lost, you are considered covered.  If the  insurer only has to pay a vendor $10,000 to replace your $20,000 ring (appraised “value”), you just paid excess premiums (about $120) each year to insure that ring.  Since insurance companies don’t always scrutinize a submitted appraisal, and a lot of appraisers routinely over-value items, consumers pay millions and millions of dollars for “hollow” coverage.

Some insurers will even “partner” with dealers, accept that dealer’s in-house appraisal at elevated levels, then replace through that dealer, again making  more money (yours) from excess premiums.  Fortunately, more and more insurance companies are on the lookout for excessive appraisal amounts in an effort to get values closer to actual replacement costs.

How insurance works

Your insurance policy (or agent) will explain your coverage limits and conditions pertaining to jewelry. To your homeowners or renters policy you need to add scheduled property insurance for individually listed items outside of the generic coverage.  Art, antiques, furs and jewelry are typical items so listed because they are of significant individual value and/or need detailed descriptions.  The premium you pay is based upon the dollar amount listed, usually from an appraisal.  Without this addition, your policy most likely has a limit (often $2500) with a deductible ($500) and covers loss from within the residence.  With a scheduled property endorsement, also called a “rider” or “floater” (terms from transport over land and water in the earlier days of insurance) your coverage now extends to the limit of the appraised value and generally  without a deductible and for loss anywhere.  Be sure to confirm this with your policy, since insurance companies my have different rules.  There are also  companies that insure just jewelry or high value items and can be contracted separately.

Remember, the insurance company’s obligation is to replace a lost item with one of equal quality,  spending what it takes, up to the amount scheduled for that item.  Because insurance companies obtain discounts from their replacement sources, they end up paying out less than the typical retail replacement figure states.  If you opt for a cash settlement, it will usually be at this lower amount.

What should I have appraised?

Your insurance policy will state a coverage for unscheduled specialty items such as art and jewelry. Generally, items worth less than $500 do not require the detailed description of an appraisal and the relative cost of an appraisal  becomes prohibitive.

  • Any single item of over $1000 in value is a good candidate for an insurance appraisal.

If the value of an individual item is $1000 or more, it usually deserves an appraisal and you list it on your scheduled property endorsement.  This is where the real strength of the independent appraisal comes in.  With a qualified appraisal, the insurance company has specific requirements for replacement and you have a document to make sure that happens.  The grading of the replacement has to measure up to what was lost, so it should be examined by the same professional appraiser.

Can’t I use my sales receipt?

Generally, a scheduled item will require a description beyond the scope of a normal sales receipt.  By scheduling an item solely on what was paid, you may also become under-insured for like replacement in the future.

ESTATE APPRAISALS

If the purpose of the appraisal is for an estate settlement, a fair market value is required. This type of value is generally much less than retail and is a requirement by courts and the Internal Revenue Service for legal purposes.  This type of valuation may also be appropriate for other purposes such as marriage dissolution, charitable contributions and for some criminal proceedings with adjustments made to the IRS description of fair market value.  Terms like “orderly liquidation” may be used with qualifications applied to the specific case.

Any other reasons for an appraisal?

Knowing whether you received the quality bargained for is usually sufficient motivation. With all of the claims made in the jewelry industry it is often difficult to compare similar items.   The prevalence of lab-graded diamonds in the marketplace has also created disreputable “laboratories”, making verification of provided information important.  With the many sources for jewelry purchase, fraud pervades the industry and “appraisers” are contracted to supply documents that entice purchase through bogus claims.

By having detailed descriptions with inclusion diagrams, you can have the identity of your diamonds confirmed if ever called into question.  Even if you don’t insure an item, crime statistics show the likelihood of theft to be a real concern.  A qualified appraisal helps substantiate a claim to the IRS for a causality or theft loss claim.

Specialty Items

When jewelry is custom-designed, handmade or from a particular manufacturer, its relative value may be substantially different from that of production pieces.  Just as certain artists command higher rates for their work, so do established jewelry designers and it is important to identify such work in the appraisal for proper replacement.

Antique Jewelry

Period pieces no longer in production require research of like items and their availability on the secondary market.  An appraisal for current reproduction can also be prepared, reflecting what a jeweler might charge to faithfully reproduce a like item by modern methods.  The appraisal time and charges and resultant insurance premiums will, of course be higher if this method is requested and it would only have a use for an actual replacement (not for resale).  In the case of discontinued watches, replacement may be requested based upon comparable new models or the same model from the secondary market.  Consult your insurance agent as to which they will allow.

Selling pre-owned jewelry

Transactions outside of the retail environment will depend upon an item’s marketability and the method of sale. An appraisal is beneficial to both parties because it establishes quality and gives a comparative retail value for comparison. Consult your appraiser for further information.

Who should appraise my jewelry?

Unfortunately, there are no local or federal regulations prohibiting the unqualified from appraising jewelry.   This means you need to check the credentials of your appraiser before contracting them.  Degrees from the Gemological Institute of America (GG) and Gem-A of Great Britain (FGA) indicate a fundamental level of study in the identification of gems and diamond grading but do not include valuation.  While a level of competency in gemology has been achieved, they are not qualified appraisers yet.

Memberships in trade associations indicate involvement in the industry and may offer courses in valuation theory. Conferences and trade journals allow the sharing of information and are important when new treatments, synthetics or gem sources are discovered.  Unfortunately, many, many people apprising jewelry, even with a gemological degree have little experience grading and identifying stones in mountings or applying accurate prices to them.   Without an experienced mentor, they are learning on your jewelry.    A common scenario is for a jewelry store employee to obtain their Graduate Gemologist degree (GG) and instantly become the store appraiser.  This is a formula for disaster – or at least inadequate appraisals.

  • Your appraiser should be an appraiser first, rather than a salesperson who also appraises.  Ideally, an appraiser does not buy, sell or broker jewelry – that is a true independent jewelry appraiser.

What should I pay for an appraisal?

A professional service by an independent dedicated laboratory justifies a fair price, just as would the work of a skilled attorney or accountant.  For documentation that thoroughly represents the article described, expect to pay around $100-125 for a solitaire (single-stone) ring.  Complex items, larger stones or antique pieces can take more time and thereby cost more to appraise.  Never pay an appraiser based upon a percentage of the appraised value.  Hourly rates may also be an option and make sense when reviewing estates or collections where individual documents are not needed on everything.  Once an appraisal has been performed, future updating by the same company should be easy and at a discounted rate (another good reason to deal with an well-established appraiser). However, if an article has changed – such as a new setting, added stones, etc. it requires a new appraisal.

  • Updating an appraisal every three to five years is a good rule-of- thumb, but some insurance companies have stricter rules.

Even if the value hasn’t changed, a current review is always advisable on a periodic basis. When you change insurance companies, they will usually require an document done within a date with a year or two.

How is an appraised value derived?

Insurance appraisals for contemporary jewelry usually compare like items readily available in a market approach.  Not unlike methods of the real estate appraiser, existing items from jewelers are used to establish a replacement value.  In a cost approach, components of the item are priced and added together to establish value.  Major diamonds are valued from comparable ones in the marketplace and from recognized trade price guides with a markup applied, reflective of the retail environment.  If the appraiser determines the cut, color, clarity and carat weight (the 4 C’s), application of price is pretty straightforward. Colored stones, on the other hand require extensive experience where the appraiser has learned the attributes and value for each specific gem at various quality levels.  Price guides are merely that and it is the expertise of the appraiser that really shows here. Dealers may be consulted, but if the appraiser can’t communicate a stone’s attributes properly, values will be way off the mark.  The markup on color is also very different than with diamonds. Mountings in the cost approach reflect metal content, method of manufacture, accent stones and a retail markup.  Pieces from specific manufacturers may warrant research back to their source.

An appraiser may therefor use different retail markups for a center diamond, colored gems and the mounting and add them together.  The goal is to reflect what a jeweler would charge to replace the article.  If a component of the item is lost or damaged, loss can be determined from the appraisal if it has enough detail.

More on retail markups

Retail is not what it used to be.   Before Costco and Blue Nile entered the marketplace, a 100% markup was common on a one carat diamond.  Today, jewelers need to be content with 20-30% over their cost to stay competitive. This is why updating diamond appraisals done before 2000 may see a lower replacement cost today.  While wholesale diamond prices have risen, retail markups have dropped.

Fair market appraisals reflect the anticipated (if only hypothetical) sale of jewelry.  An appraiser will research comparable items in the secondary market, such as auction houses and re-sellers for some items and resort to scrap value on others.  This means there is no magic number or percentage and reflects a best-use scenario for the assignment and for each item appraised. And, there is no one standard for fair market value.  The IRS definition reflects the price the item realizes (adding an auction buyer’s premium, for instance) while most other applications reflect the previous owner’s return (or cash received).

Don’t assume all appraisers know how to handle fair market situations.  Estates for probate, distribution or planning, divorce, bankruptcy, collateralized transactions or criminal proceedings each require proper treatment.

In estate situations, formal appraisals may not even be necessary.  If there is no need to document individual values – for the Feds or concerned family members,  an informal consultation may be all you need.  The appraiser can also provide a total value for potential declaration purposes.

Branding

A branded diamond or jewelry item is one that receives a value reflective of a  specific dealer.  Tiffany & Co. does not compete with Costco.  You are paying for a name and an experience.  In an insurance replacement you would go back to Tiffany.  Since Tiffany & Co. has published prices and never discounts, it is a straightforward appraisal application.

On the other hand, if you are on a cruise and buy  a Crown of Light diamond cut, your only source for replacement is from Diamonds International, the parent company.   A patented cut, this diamond  has its own price list, but the stores selling it offer varying discounts.   The appraiser needs to research overall transaction prices to establish a “normal” replacement value.