Definition of value is often the heart of confusion with appraisals. One of the most common questions I get as an appraiser is why resale values, meaning the prices people can get for their jewelry, are so different from the values seen on appraisal reports.
It’s a valid question and one of the problems is that so many people flippantly respond that it’s because a thing is only worth what someone will give you for it.
That’s true in a very narrow sense, but that’s not usually the question at hand. How much will someone give YOU? How much WHO will give you? When? Under what circumstances? Obviously, these have a profound difference in the value conclusion. Value does not have a single definition, not even that one, and differences in the definition of value are almost always at the heart of this misunderstanding.
Insurance appraisals, which make up at least 90% of what you see, are generally the source of the definition of value as what it would be reasonably expected to cost to replace the item with another one of like kind and quality at retail, new, locally. That’s full of buzz words that deserve individual thought.
Reasonable expectation. This means we don’t have an actual transaction. We’re projecting. The question is not what it did cost, it’s what it might theoretically cost. Not every jeweler charges the same for their time and talents. Charging more than some competitor is not, of itself, a problem. They can charge what they want, just as customers are welcome to hit the door if they don’t like the prices. A ‘reasonable expectation’ is somewhere in the middle. Not the cheapest store, not the most expensive.
Replace. Again, it’s not for the item at hand, it’s for a theoretical transaction to buy another one like it. Those may or may not be the same. Often that means custom making a one-off item using US labor. Equally often that’s NOT how the original was done. This is going to depend on the item.
Retail. Everyone knows this one. Jewelry stores make a profit. All stores do. The asking price in the store includes things like sales commissions, rent, trade-in programs, ‘free’ appraisals, warranties, and similar things that aren’t separately invoiced. This is called a bundle of benefits and just because they aren’t separately billed doesn’t mean they aren’t part of the price. Of course they are.
New. We instinctually know this with cars. They depreciate, but with jewelry, we’ve been told that it doesn’t matter. It does. Even with diamonds it does. Mountings wear out. Cutting styles fall out of fashion. Designers become more and less trendy. Jewelry is a fashion product, and new/used means more than condition.
Local. Specialty jewelry stores, in general, charge more than far away discount web outlets. That shouldn’t come as a surprise to anyone but the prices on appraisals are generally assuming that this is exactly the marketplace in question. Local specialty jewelry stores. This ties into the reasonable expectation comments above but it’s worth noting that they’re related. A hot dog costs more at the ballpark.
Then there the resale value question.
New vs. used. Especially with bridal pieces, people don’t care for used merchandise. It’s a symbolic thing. Given that we’re talking about a symbolic product in the first place it’s hard to criticize this but it means that most used engagement rings are sold for the parts. The customer will recycle the gold and use the diamonds to make something new with their own special symbolism.
Designer premiums. Certain artists and brands charge quite a bit for their time and talents. Sometimes they get it. Think of Tiffany.com or Cartier.com. This does not always, or even usually, translate well to the resale market. Just because THEY can command high prices, doesn’t mean that you can.
Fashion. Grandma’s taste was probably different from yours and what was popular 40 years ago may not be popular now. In fact, it probably isn’t. Fashionable isn’t a synonym for better, but it has a huge effect on salability.
Repairs. Diamonds chip. Prongs wear out. Shanks wear out. Stones get lost. Some damage is minor and some is severe but it ALL matters. It’s easy to count these things as unimportant but for dealers, it’s terribly important. They are going to need to repair it before they can move it along to the next customer, and the cost of these repairs is going to come out of their bid.
There’s no one answer to all of this. There’s no conversion chart. It’s all about the details, and it’s one of the reasons professional assistance is helpful. Not all appraisers are the same. Not all appraisals are the same. Read the fine print. If the definition of value and the purpose of the appraisal doesn’t meet your objectives, consider seeking out your own appraiser. While you’re at it, make sure to tell the appraiser what you’re doing. Even the correct answer to the wrong question is doing you no favors.