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July 1998
Managing:Appraisals
What Price is Right?
Valuing jewelry has grown more difficult as the marketplace continues
to splinter and divide
BY AL GILBERTSON
Appraisers are shooting at a moving target, observed a newcomer to our
profession. I couldn't agree more. With all the different kinds of retail
jewelry sellers in the marketplace today, nailing down a "price"
is no easy task.
The profession of appraising jewelry has made quantum leaps in the past
two decades. Twenty years ago, there were few guides on how to describe
jewelry for an appraisal, on methodologies for valuation or on what legal
liabilities an appraiser faced. Today, several national organizations have
begun to offer education programs that address all of these issues.
Numerous price guides discuss values in the market – from diamonds
and colored gemstones to antique jewelry available at auction. And all of
the major trade publications have addressed appraisal issues in one form
or another.
Unfortunately, the availability of this information and education has
made our profession more complex (in other words, ignorance was bliss).
A few examples of the vagaries of appraisal follow.
- A client has a circa1960 women's Elgin watch with about a half-carat
of melee diamonds surrounding the dial with attached Speidel stretch bracelet.
It is discontinued. Do you place value based on the selling price of a
used watch of similar manufacture and quality? How do you find out how
competitors are selling a used item such as this? Do you find a non-Elgin
watch of similar quality in the "new market" and use its value
as the value for your client's watch? As you research both scenarios, you
find one dealer who sells a comparable used watch for $325 and another
who sells one for $650. The first one is a dealer who buys and sells used
jewelry off the street; the second one is a jeweler who has a few cases
of estate jewelry on consignment from private clients. Which value is right?
Isthere a right value? When valuing it as a new watch, you find
a national chain store that sells a comparable watch (though you note the
diamond quality isn't as good as those in the original Elgin), but never
sells it for as much as it's tagged. Now you have to decide whether you
will value it for its tagged price or its usual selling price. You also
find a mom-and-pop jewelry store that sells it for more than what the chain
store does (not more than the tagged price, however) and a large independent
jewelry store that sells it for about 20% less than the chain store's selling
price.
- A client has a lightweight, four-prong basket-style tanzanite ring.
The gem weighs 3 carats. Price guides tell you the wholesale price range
for this particular quality is $175 to $250 per carat. You see the goods
of two wholesale dealers. One has comparable goods at $135 per carat, the
other $240 per carat. You manage to see a comparable piece at a chain store.
After computing and deducting the value of the mounting (at $40/gram) the
retail value of the tanzanite itself is $225 per carat. Nothing seems to
make sense.
- A client has a ring that bears a nationally known designer's trademark.
You verify the item is part of the designer's line. Only one store in your
area carries the line; it sells the piece of jewelry in question for $2,200.
You check with two other stores outside your area that sell the line; they
sell it for $1,750 and $1,825 respectively.
Market Research
Though our profession now has an idea of what to do in most cases, it is
stymied by certain scenarios, as in the examples given. All appraisal associations
teach us that value is based on the most common price in the market (called
mode). There is legal precedent for this approach. Twenty years ago, market
research was unheard of. Now we're taught that market research is essential
in establishing value. But there are so many selling prices it's difficult
for an appraiser to be certain that value is based on the most common selling
price. If the appraiser lives in a region with 120 jewelry stores, how many
other jewelers must be researched to find the mode? The Internet is having
a growing impact on society's buying patterns. Must an appraiser research
the Internet as well? If so, how many sites must he or she visit to find
a mode? There's a limit at which continuing research becomes impractical.
An appraiser must address issues that limit his valuation. And all appraisals
should state somewhere that values are based on limited research. In the
example of the watch, discuss with the client whether he or she wants to
replace it with a new or used comparable because new Elgins are no longer
made. In many cases it's practical to place both types of value in an appraisal
report. In every situation, always distinguish the type of replacement and
market analysis performed. While another appraiser may disagree with your
approach or conclusion about the value of a piece of jewelry or watch, it's
essential to make clear what you did in the report. If you fail to make
it clear, you have failed the basic assignment from your client.
Value as Defined By Market
Without discussing the most proper methodology for valuations, realize that
in the examples that show varied pricing in the market, always clearly define
the market for which the value is being reported. If the market is local
only, state it clearly. If the value is based on a used or estate reselling
market, clarify what you mean. The major problem with many appraisal reports
is they don't clearly define their methodology. If the methodology is defined,
the client and other parties will more clearly understand the limitations
of the appraisal report. If you fail to make it clear, you have again failed
the basic assignment from your client. The more we research some items,
the more inconsistent the prices become. The tanzanite example happens frequently.
A mass manufacturer may make an excellent buy and pass on that savings;
other parts of the market simply can't compete. Different wholesalers may
sell virtually the same item for 100% more. We see from these scenarios
the first moving targets are value (prices) and market (different types
of sellers). Appraisers must be careful in their research because these
two factors can so significantly alter a value conclusion. Make it clear
on your reports the limitations of your research or methodology.
Next Month: Legal precedents, another moving
target.
Al Gilbertson owns Gem Profiles, an independent appraisal service
in the Pacific Northwest. A member of the American Gem Society since 1978
and the International Society of Appraisers since 1990, he was also on the
Jewelers Vigilance Committee's Appraisal Task Force and the AGS Appraisal
Committee. He is a fellow of the Jeweler's Education Foundation (teaching
on appraisal and valuation of jewelry), a member of the Gemological Advisory
Committee to the AGS Gemological Laboratory, director of Diamond Profile
Laboratory and an editorial adviser to The Guide, published by Gemworld
International.
Copyright © 1998 by Bond Communications.
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