Appraising Gemstones

Should I, as an appraiser, include information on gemstone treatment in my reports? Should I also include information on the care and handling for relevant gemstones? Are appraisers required to follow the Federal Trade Commission’s Jewelry Trade Guides on these issues?

These three questions are all related, and the approach to dealing with them should be too. The answer to all three is “yes.”

Identifiers, graders, sellers and appraisers of gemstones would be well-advised to “position” themselves as the consumer’s provider of comprehensive information on jewelry trade products – gemstones in particular.

There are two good reasons to do so:

  • We’re required to.

  • It’s good business.

There is an occasional flurry of trade attention paid to the subjects of treatment disclosure and the need to better understand and convey gemstone care and handling information. But then another topic comes up and the issue is forgotten, and we go back to business as usual.

A new imperative has been created by the FTC’s recent revision of the “Guides for the Jewelry, Precious Metals and Pewter Industries.” [Part 23 of Title 16 of the Code of Federal Regulations (CFR) – 16 CFR Part 23 – Effective since May 30, 1996.] For the first time, the Guides have a reference to the obligation of identifiers, graders and appraisers.

Disclosure issues

The issues of treatment disclosure and providing information on gemstone care and handling are linked in the FTC revisions. This is no accident. The industry’s Gemstone Enhancement Manual has been a guide to voluntary disclosure since the late 1980s. Its adoption was largely based on the tie-in to care and handling affording opportunity to disclose treatment in a more palatable and positive context. The Gemstone Enhancement Manual, cited often by the FTC, is available through the Jewelers of America, the American Gem Trade Association and other trade associations.

Appraisers should have felt obligated to provide such information in our reports even without the Gemstone Enhancement Manual or the FTC. But they make it possible to do so in a uniform manner. This also avoids the pitfall of appraisers disclosing what the seller did not, which would put appraisers in the undesirable position of providing information that could kill a sale. The ethics codes of most appraisal societies require that we disclose any material facts. Fortunately, we can now do so in a manner consistent with official trade practice.

The one area that remains sticky is the lasering of diamond inclusions. The “Guides” do not require disclosure of this treatment, but most appraisers would consider this to be material information that must be included in the appraisal report. This presents the possibility that honest jewelers who function in accordance with the “Guides” could be hurt by an appraiser implying they were less then forthcoming with information. For this reason, appraisers should be clear in their reports that such disclosure is not required by the FTC.

An educated consumer can be your best customer

Whether it’s a gemstone jewelry customer or an appraisal client, it pays to make the extra effort to obtain and provide information he or she needs to better understand the purchase and better care for it. It’s good business to develop a reputation for honest, meaningful and comprehensive information.

Appraisers are information providers. We sell our knowledge and expertise. So why not show off our expertise in the manner in which it will be most appreciated – through concern for the client and any potential third party.

Jewelers are gemstone product providers. There is a constant quest for methods of positioning ourselves as different or better than the competition. What better way to do it than in the manner in which we present the product for sale – and at the same time staying on the right side of the law.

Full disclosure

There are many different views on how far to go with disclosure. The Gemstone Enhancement Manual goes considerably further than the “Guides,” and appraisers should as well. A colored gemstone such as tanzanite is not treated to imitate any generally available natural stone. Tanzanite color is not the natural color of its original zoisite. The color is permanent. The stone is fragile, but this is not attributable to the treatment.

Nevertheless, it seems appropriate to provide the information that this color is the result of heating. At the same time, advise clients to avoid sudden temperature changes when wearing their tanzanite jewelry.

‘Inherent vice’

Insurers will often shy away from insuring items they consider to have a built-in “risk on insurability.” They might even take the position that if an insured party failed to disclose such risks, the policy was not entered into in good faith. They could try to cancel the policy after a loss.

There is a fundamental difference between a stone that has a dangerous crack or cleavage and stones that can be damaged if improperly handled. Properly worded paragraphs in reports can advise clients of “Normal Care and Handling” for the relevant gemstone. If that report is submitted to the insurer, the client has then notified the insurer. It’s critical not to use wording that would erroneously imply that normal care and handling is a special risk.

It doesn’t take much to develop a routine procedure for providing such information – even for insurance reports.

  • Use a boilerplate paragraph on gemstone treatments.

  • Use a sentence on the usual treatment for relevant stones.

  • Use a sentence on care and handling for relevant stones.

How detailed such information should be is based on the challenges presented by the assignment. Comprehensive reports for complete assignments should be more detailed, by definition. So should self-contained reports for limited assignments when an individual characteristic calls for it.

This is a good place for a reminder that appraisers “have no taste” – at least not when writing appraisal reports. Regardless of our opinions as merchants when appraising, it is our job to report on market “tastes” without bias. Disclosure – reporting – is the issue, not our personal judgment of right and wrong.

Federal Trade Commission on Appraisers & Gemologists

On May 30, 1996, the Federal Trade Commission published a notice in the Federal Register regarding final rulemaking on revision of its “Guides for the Jewelry, Precious Metals and Pewter Industries.”

Regarding gemologists and appraisers, the FTC explained:

“The Commission has concluded that it would be unfair or deceptive for appraisers to ascribe meanings to standard terms that are used in the jewelry industry that are different from the meanings attached to those terms by the sellers of the products. Thus, appraisers and those ‘identifying’ and ‘grading’ industry products are advised to follow the admonitions of the ‘Guides.’”

The concrete expression of this official FTC opinion in the actual “Guides” is found at a new “Note” in the opening Section 23.0 – Scope and Application. It is attached to the paragraph indicating who the “Guides” apply to, paragraph 20.3(b), and it states the following:

“Note to paragraph 20.3(b): To prevent consumer deception, persons, partnerships, or corporations in the business of appraising, identifying, or grading industry products should utilize the terminology and standards set forth in the ‘Guides.’”

Deceptive practices regarding gemstone treatment

“Sec. 23.22 Deception as to gemstones.

“It is unfair or deceptive to fail to disclose that a gemstone has been treated in any manner that is not permanent or that creates special care requirements, and to fail to disclose that the treatment is not permanent, if such is the case. The following are examples of treatment that should be disclosed because they usually are not permanent or create special care requirements: coating, impregnation, irradiating, heating, use of nuclear bombardment, application of colored or colorless oil or epoxy-like resins, wax, plastic or glass, surface diffusion, or dyeing. This disclosure may be made at the point of sale, except that disclosure should be made in any solicitation where the product can be purchased without viewing (e.g., direct mail catalogs, on-line services), and in the case of televised shopping programs, on the air. If special care requirements for a gemstone arise because the gemstone has been treated, it is recommended that the seller disclose the special care requirements to the purchaser.”

Use of the terms ‘enhanced’ & ‘treated’

“’Enhancement’ is the term used by the trade to describe the treatment of gemstones to improve their color or otherwise improve their appearance. However, the Commission has determined that a more accurate term is ‘treatment’ and has added this term, in lieu of ‘enhancement,’ to the list of attributes that should not be misrepresented.”

Treatment-related care & handling

“On the basis of the comments and for the reasons discussed below, the Commission has concluded that non-permanent treatments of various types (not just those that affect color), or any treatments that create special care requirements should be disclosed. There is no logical reason to limit disclosure to treatments that affect color. Further, consumers should be informed when the treatment is not permanent.”

“However, since enhanced stones that have special care requirements are newer products in the marketplace, and consumers may not be as familiar with the requirements of these stones, the Commission has recommended that the seller disclose special care instructions to the consumer.”

About Elly Rosen

Elly Rosen is a freelance appraisal principles consultant in Brooklyn, N.Y. His new Appraisal Information Services OnLine Network offers subscriptions to appraisers for appraisal consulting; the Appraisal Reporter (appraisal principles newsletter) and gemological appraisal supplement; and a

Glossary of Appraisal Terminology. Rosen also offers appraisal report “boilerplates” and formats for various types of appraisals, as well as an audiotape lecture series on appraisal issues and a glossary of professional appraisal terminology.

Rosen was one of the principle developers and instructors of the Certified Appraiser of Personal Property program (CAPP) from 1982 to 1993. He also is a member of the Jewelers Vigilance Committee’s Appraisals Task Force and was one of the principal developers of the new JVC Guidelines for Insurance Replacement Estimates. Rosen has offered to take questions from JCK readers at (718) 692-1975 or via e-mail to ais@polygon.net .