December 2001 Managing/Appraisals Protect Yourself, Do Your Research A thorough job reveals a department store's excessive markup Several months ago, we appraised a 1950s platinum Hamilton watch with about 12 carats of diamonds. We appraised the watch at $19,000, but our client had paid $35,000 for it at a very high-end department store. That created an interesting and often nerve-racking situation. Here’s how we defended our appraisal. The Inspection The first step was a very thorough inspection that yielded information on carat weight, diamond quality, condition of the watch, type of movement and approximate age. The Method This is what saved us. Using a cost approach – a valuation method combining the costs of the components and labor – would not be accurate. This approach assumes the item can be remade, which doesn’t apply in this case because the 1950s vintage was integral to the value. Instead, our appraisal had to reflect the value of a 1950s watch on today’s market. So we used a market data approach, which involves finding watches of similar age, style and materials and their prices on today’s market. Luckily, we found the same model watch had sold at auction a few months earlier for $6,500. We also looked at several estate jewelers’ inventories and found five similar watches ranging from $18,000 to $20,000 retail. After comparing the information and adjusting the watch sold at auction to a retail store price, we felt comfortable with an appraised value of $19,000. The Report Our written report outlined the method of valuation and explained very clearly to the client (and later her attorney) why a cost approach to value was inappropriate. The appraisal also provided a copy of the auction catalog photo and hammer price. The Client Our client had complete faith in our abilities. She watched us inspect the watch and was impressed by the thoroughness. She also read and understood the report and later asked us to further clarify why we valued her watch as we did. She believed our report because she was treated in a professional and candid manner and because the report had a clear and concise layout. The Problem Our client wanted the department store to refund a portion of the purchase price. We felt that was unlikely, but she succeeded in getting some money back. The department store countered her claim with two appraisals supporting its $35,000 price. However, one was based on a cost approach, and our client’s attorney was easily able to show the error of this methodology without going to court. The other appraisal was by the auction house that had sold the same model of watch for $6,500. Our client’s attorney pointed out the auction record from that auction house and asked the department store to explain the $28,500 markup. The department store responded with a partial refund. The Lesson A detailed professional appraisal protects the client and the appraiser. If we hadn’t done our research and used a supportable method, our client and the department store could have taken legal action against us. So if you do appraisals, do them right! The possibilities for problems are endless if you are sloppy. – Julie Nash, A.M. and Arthur Skuratowicz, N.J.A. Julie Nash and Arthur Skuratowicz operate Anton Nash LLC, Independent Jewelry Appraisers and Jewelry Trade Consultants, Colorado Springs, CO; (888) 440-6274, www.AntonNash.com.