Appraising For Consumer Resale

[EDITOR’S NOTE: This is the first of a two-part column on appraising for consumer resale. Part 1 covers the basics; Part 2 in a future issue will fill in critical and often overlooked areas. Together, the two parts will complete a set of general Q&As on the four types of appraisal-related reports typically requested of jewelers (see “Price vs. Value with Point-of-Sale Appraisals,” JCK September 1994; “Conflict of Interest/Bias with Point-of-Sale Appraisals,” JCK, November 1994; and “Appraisal for Confirmation of Fair Purchase Price,” JCK, December 1994).]

You advertise professional appraisal services; you also advertise that you buy “estate” jewelry. A gentleman comes in and asks to see the appraiser about a fine jewelry appraisal. The potential client indicates he is in a temporary financial bind and would like your opinion on the “resale value” of some jewelry. He is confident the “value” of some, or all, of his items will be sufficient to handle his current financial emergency. In keeping with your reputation for discretion, you escort him to a private room and ask to see the jewelry. He presents the following items:

  • A solitaire engagement ring containing one round brilliant-cut pink diamond.

  • A fine and heavy ruby bracelet.

  • A uniform cultured pearl necklace.

  • A handmade diamond-encrusted Art Deco ring.

All the items appear to be of fine quality and all are of the type of “estate” jewelry you normally like to acquire.

The client would like you to provide an appraisal containing information that would define his options and help him to alleviate his temporarily difficult financial situation.

What are those options and what kind of information should be provided? What are the possible parameters of such a consumer resale appraisal?

This type of appraisal is challenging. It presents a broad range of options for the client and the appraiser. It can be among the simplest and most straightforward assignments or it can be highly complex and require great and diverse expertise. As with so many assignments, the key lies in proper handling of the initial client interview. It is at this critical stage that the various options are explained to the client and agreements are reached on how to proceed.

Most jewelry appraisers seem inclined automatically to write an appraisal for the amount the consumer can get when selling the item to the trade – what a merchant would pay buying over-the-counter. This is either because this is the market the jeweler is familiar with or the jeweler would like to buy the item. I believe most would agree it is improper to make such an assumption. It can result in financial loss to the client and a possible charge of negligent malpractice against the appraiser. The client should be provided with the professional advice on all options.

There may be numerous viable options open to the client, depending on the time available to work with the property. Clients are often not told about two options that could bring a considerably higher return:

  • A properly promoted auction.

  • Placing the item with a retailer on consignment.

Clients might be interested in the alternative of temporary cash available through pawning the property. They also might want the retail replacement cost for an item in similar quality and condition in order to insure the item during sales efforts or as a benchmark of what they are giving up.

Some important and often overlooked points:

  • Sale to the trade reality. Consumers are predisposed to believe they will be cheated when trying to sell to retailers over-the-counter. The appraiser should explain the reality of such transactions and clearly convey that these apparently lower prices are fair value in that market level.

  • Client net. Clients need to know the net amount they might realize after all related costs and fees for each option. For example, they might gross more with consignment than with auction, but they will have less when the smoke clears.

  • Resale insurance. If an insurance Retail Replacement Cost Estimate is included in the report, it should be for a used item of similar quality and condition. The report should indicate clearly that the intended use is to obtain insurance to cover the property during efforts at resale.

  • Restricted Appraisal Report. Resale is a classic example of an assignment for which a Restricted Appraisal Report might be proposed. Such a report is clearly labeled as being solely for the information of the client and is not intended to be used as a selling tool with a third party. If the client chooses this option, lengthy detailed descriptions often are not required.

  • Preliminary report. If a client has many options and is unsure which markets he or she wants to pay to have researched, a preliminary report can be offered containing the appraiser’s initial opinions.

  • Range of value. Most resale efforts are made under unpredictable conditions or in unpredictable markets. To provide true and meaningful information, clients and any third parties need to be told of this reality. Providing a range of probable prices is a proper way to state the value.

It is often helpful to appraisal clients to have single dollar amounts on hand for easy comparison and deliberation, even if that amount is only a representation of the probable range.

A number of other issues are relevant to resale clients, including what dollar amount to consider as a reserve, the relevance of their basis in the property to any capital gains tax liability and the option of donating the property for a charitable contribution tax deduction.

Clients should be advised of these points. It will help them to make an informed decision on whether such data and analysis should be included in the assignment and cost. Part 2 of this column in a future issue will address reporting dollar ranges and some other issues.

The estimates below are this appraiser’s considered opinion of the single number most representative of the range of net amounts typically realized by sale into these markets. Each item is more fully described in the body of this report.
MARKETS (Net* Resale Estimates)

Pawn Trade Auction net Consignmentnet Replace
Pink diamond $2,500 $3,500 $9,900* $9,600 $16,000
Ruby bracelet $1,100 $2,500 $6,300 $7,200* $9,000
Pearl necklace $600 $1,500 $3,600 $4,000* $5,000
Art Deco ring $900 $2,500 $14,400* $12,000 $15,000
Option totals $5,100 $10,000 $34,200net $32,800net $45,000
Time for Sale 1-3 days 1-4 weeks 3-6 months 6-12 months Insurance
Fees Deducted None None 10% avg. 20% avg. N/A
*Highest net $ in bold

“Pawn” is the gross amount you might receive if you were to pawn the item for short-term cash needs as an alternative to selling it at this time. The pawn shop will hold the item for redemption for a period specified by state law. During that period, property may be redeemed by paying the principal amount borrowed against it plus an interest charge that is also specified by state law.

“Trade,”Auction” and “Consign” are the potential resale markets for which you request estimates. Selling into the trade, selling at a fine jewelry auction and consigning the item for sale through a retail jeweler are discussed in greater detail in the report’s Preface pages. The typical time frame for such sales is provided in the middle columns.

“Replace” is a Retail Replacement Cost Estimate representative of the typical range of prices you would typically pay in the retail market to replace the item with a comparable one – with one of similar quality and condition. It is provided should you want to insure the item while attempting to sell it. It also serves as a benchmark for you in considering the other dollar amounts in this table and in this report. This is explained further in the report’s Preface pages.