Your Q & A Appraisal Questions Answered

We’ve been thinking about restructuring our store’s appraisal department. Consumer appraisals seem to bring more headaches than rewards. Are there more lucrative opportunities in appraising than what we’ve experienced—the freebie appraisals we have to do with every sale and the free information customers expect us to provide when they are thinking of selling an item?

A: Professional appraising can be a very lucrative endeavor—if it is set up to maximize profits over pitfalls.

The first thing to keep in mind is that appraisals should never be “free.” Clients won’t appreciate appraisal professionalism if merchants persist in treating an appraisal as though it were no more than gift-wrapping. The old adage applies: “A free appraisal is worth what you paid for it—zero.”

If your store regularly provides appraisals, you should post a fee structure. If you decide to provide a “free” appraisal at the point of sale, you should tell the customer, “This is a professional service for which we usually charge a fee [pointing to the fee schedule], but we are going to waive the fee for you.” Your customers therefore will have more appreciation for what they are getting. This practice is good for business because it wards off future requests for free appraisals and helps improve consumer perceptions of the appraisal profession.

You might also consider that your knowledge can be put to good use in performing appraisal services for lawyers, bankers, insurers, government agencies, and other professionals. Work for these clients is much more lucrative than consumer insurance, resale, and post-purchase appraisals.

Such services often go hand-in-hand with serving as an “expert witness” and a “trial consultant,” which also fetch much higher fees. And there is the side benefit of possibly making customers out of these professional clients.

Q: I often hear people say, “If you want an accurate diamond grade, you need to go to an appraiser,” or, “An appraiser is a gemologist,” and vice versa. Are they the same, or how do the two fit in with each other?

A: The two are really quite different, but a person can be both. A gemologist is trained in the identification and grading of gemstones, essentially “evaluation,” while an appraiser is one who has specialized knowledge of the ethics, principles, procedures, and reporting methodology recognized in the practice of “valuation.” Gemologists are lab folks, “identifiers” who grade-describe gemstones; appraisers provide opinions on the worth of a described item in a particular market.

To truly understand the distinction, we need to understand that the primary role of an appraiser is to provide valuation and cost estimates. An appraiser should have as much product and market knowledge as possible but doesn’t have to be a gemologist. An appraiser can establish a value for an item based on grades provided by a gemologist without being a gemologist himself. An appraiser can even provide a value based on a hypothetical description of an item that no longer exists (a stolen or destroyed piece). So, while an appraiser should also ideally be a gemologist, he doesn’t have to be.

In our store we never appraise items we’ve sold, but there are a couple of jewelers in our area who regularly write “low-ball” appraisals that hurt our sales. Then there are some who write appraisals on items they sell for “values” higher than their selling price. Isn’t there a way to stop these unethical practices?

A: Although many jewelers make their own decision not to appraise items they sell, it’s not considered unethical to write such appraisals. What is unethical is failing to disclose in the appraisal that the appraiser was the seller. Similarly, it could in fact be unethical for a seller to write an appraisal for the amount charged if his price wasn’t typical of selling prices in his market. A true appraisal provides an opinion of worth in the market rather than a restatement of one store’s selling price!

“Low-ball” appraisals designed to harm the sales of competitors is a different story. Such a practice is not only dishonest and unethical but also illegal in many jurisdictions, based on laws that often provide for heavy civil and/or criminal penalties.

We don’t want to provide appraisals for items we’ve sold but don’t want our customers to go to our competition for the insurance appraisal they’ll need. Is there a way to help them with their insurance needs while avoiding the writing of point-of-sale appraisals?

A: There are two related options. Many insurers will accept—in fact, some prefer—a sales receipt as the basis of insuring a newly purchased item. But the receipt must contain an adequate description of the item; the insurer needs enough information to determine the basis of a policy. Keep in mind that in most jurisdictions anything put in writing is considered an “express warranty” of quality. This shouldn’t concern honest sellers. And, truth is, a point-of-sale appraisal that includes statements of quality also can be considered an “express warranty.”

The other option is one we developed through the Appraisal Task Force (ATF) of the Jewelers Vigilance Committee in 1994—a “Statement of Sale and Replacement Cost [Based on Current Prices of XYZ Jewelers].” Such a document is not an appraisal but an alternative method of providing point-of-sale insurance documentation for customers. ATF developed specific guidelines for writing such documents, which can be found in the articles section of the Gems & Jewelry Guide on JCK’s Web site,

I’ve seen a lot of promotion of “appraisal education.” Isn’t buying and selling experience behind the counter the best teacher?

A: No, for many reasons. Though buying and selling is valuable experience, it alone doesn’t provide any information on the principles, procedures, and methodology of professional appraising (“valuation”). Having been a retail salesperson myself, I can say that my knowledge of appraising didn’t come from buying and selling; it came from studying how to appraise.

Virtually every professional appraiser in the jewelry industry today has a background similar to mine: We all learned how much we didn’t know only when we studied the principles of appraising. In 1982, when I was involved as one of the developers of the Certified Appraiser of Personal Property (CAPP) program, it was not coincidence that I coined the motto of “Ethics, Education, and Experience”—all are equally important.

What is appraisal education? It’s still a young and developing field, and it can take many forms, from formal courses, testing, and certification to various options for self-study, to active participation in appraisal groups and forums. Every level provides a different dimension and a different method of learning, sharing, and growing.

Is it illegal to charge a percentage of the value of an item being appraised as opposed to charging a specific fee?

A: Though it’s generally legal everywhere but Pennsylvania, it’s considered unethical by virtually every organized segment of professional appraisers. Appraisal groups consider such fees unethical because they provide an incentive to err on the high side in providing valuation opinions. My advice: Don’t do it.

You should also be aware that the practice violates Internal Revenue Service rules when the item is claimed as a charitable contribution with a value of more than $5,000.

We often have a problem buying over the counter from consumers because they bring along their usually inflated retail-replacement-cost insurance appraisals and expect us to pay close to those values. Why don’t appraisers consider this when writing these replacement appraisals?

A: Professional appraisers should clarify to consumers that appraisals for insurance replacement, consumer resale, and post-purchase price confirmation are three different things. These are three of the most typical consumer-requested appraisals. The differences should be clearly laid out up front during initial client interviews for any of these appraisals and should be reiterated and clearly stressed in the reports. We would be clearing up many misconceptions and heading off many such problems if more appraisers followed this basic approach.

When a client asks for an appraisal because she’s contemplating selling her items to jewelers, explain that the market for the appraisal is “sales to merchants by consumers.” It should also be stated that prices one might get in that market are nowhere near retail, and the reasons for the legitimate disparity should be given. Consumers getting such an appraisal in advance of approaching a jeweler would not be coming in armed for bear.

Clients routinely ask for “fair market value” for many different types of appraisals. Should we be using the standard Internal Revenue Service definition that most people are familiar with?

A: Usually not. The IRS definition of fair market value (FMV) applies only to related appraisals used for particular IRS situations, such as federal estate and gift tax and donations. Other jurisdictions generally do not use that definition, and in fact many jurisdictions have different FMV definitions for different situations.

For most of the typical consumer appraisals, such as insurance, resale, and price confirmation, the term “FMV” has no application at all.

There’s a jeweler in our area who advertises that he is a “licensed appraiser.” Who would be licensing him, and how can we get such a license?

A: To the best of my knowledge, no one is licensing him. There’s no government licensing of personal property appraisers (including gems and jewelry) in the United States that I’m aware of.

Many municipalities require a “business license” for certain businesses, including jewelers, and some might reason that “I am licensed and I do appraisals, so I can say I am a licensed appraiser.” Such an intentional misrepresentation violates professional ethics codes and is probably illegal, since it would violate at least the spirit, and often the letter, of most state consumer-protection and fair-trade practices laws.