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The Diplomacy of Reality: Explaining the Differences in Appraisal Valuations
January 18, 2007
Here’s what happened… A customer walks in and asks you to appraise an emerald and diamond ring. You go forth assessing the costs for all the round diamonds which are old mine cuts mixed with some large modern brilliant cuts, the emerald cut emerald, the weight of the platinum…eventually you figure the cost if the person were to loose it and it was replaced at today’s market price. The replacement value is assessed at $3000 (your cost). You go ahead and set the replacement value for $6000 assuming most jewelers will at least sell the ring for keystone. The customer comes in to pick up the appraisal and is extremely upset. She lashes out, “The appraisal I received with this ring stated the rings replacement value to be $18,000.” She pulls out the appraisal and you vaguely see the number 18. The customer is furious, won’t show you the appraisal, and tells you that she does not want to pay for your services. How do you justify and explain the numerical differences to the customer?
Before you take in the appraisal, Jill McKenzie, Certified Gemologist Appraiser from the American Gem Society reminds jewelry storeowners and appraisers the following:
- Always ask for any documentation that this piece may already have.
- If the customer denies having documentation, ask what they know about the piece, i.e. who purchased it, what the purpose of the valuation documentation is and if they have any notion of its value.
- Don’t forget the possibility that this piece may have provenance i.e.…Oscar Heyman, Cartier, or Tiffany. If that is the case, the method of valuation, the cost approach is not a correct method of valuation. A vintage piece should be valued by the market the client wishes to use to replace it. Do they want it replaced with a new piece with modern cut gems or a vintage piece? If it is a vintage piece, you must check secondary markets not always a retail store. These items are available at auction and antique sellers. It would require a much different approach to valuation. If the piece is not a designer or branded piece then the cost approach would indeed be applicable.
Doing your job…You asked the customer all the right questions when she came in. “Do you currently have any sort of documentation that came with the ring. Do you know anything about the piece regarding who purchased it and if the customer has any notion of its value?” The customer denies having any documentation and wants an appraisal to state the replacement value if it were to be lost and replaced in today's market. The piece is not a vintage piece or stamped with any designers name. You did everything you could to accurately convey the replacement value…contacting dealers who still cut and sold old mine cuts, etc.
Jill McKenzie tells us what she would do… It has been my experience, on nice emeralds and colored gems of gem quality the markup is closer to three times the cost of the gem, but that too depends on the market the piece is valued in i.e.…New York, LA or Charlotte.
As long as what you are doing to reach a valuation is:
- Defensible - You have used proper equipment, taken care in your measurements, have the proper training and experience, followed the standards covered by USPAP and checked your document for mistakes.
- Researched the applicable market - Retail market for insurance replacement, E-Bay for an online item, QVC for a TV purchase, etc.
- Know the type of valuation needed - insurance replacement, Fair Market for Estate etc.
- Perform the valuation in an unbiased manner - There is no conflict of interest, and no charging a price for the valuation that is based on a percentage of the item's value etc.
If you meet these criteria, you have performed correctly and offered your educated opinion, which is what an appraisal is. You then say to the client:
- “I understand why you might be upset.” If the client does have documentation including what may now be an inflated value, you can “explain the difference in the metals pricing and markups taken at that time or the generously inflated valuations used by jewelers of that era.”
- Alternatively, you could say, “I understand why you might be upset. What do you know about the method that this previous valuation was performed under?” If there is nothing other then a price, no metals market info, no plot, no measurement, no picture, a vague description, and no credentials for the person who did the valuation and sometimes no signature...whose information looks more credible?
What Would You Do?
Please add your knowledge of how you would handle the situation or email me (shanu@gulianis.com) with your own situation whether it’s about your staff, boss, another store, or a co-worker.
Jill McKenzie is a CGA, GG, and an NAJA member from Matthews, NC. For any questions, regarding appraisals or gemological inquiries please email her at (jillmckenzie@carolina.rr.com).
Posted by Shanu Singh Guliani on January 18, 2007 | Comments (0)
