RAPAPORT... The challenge of appraisal work is assigning the proper value to an item. All too often, that involves “playing detective,” combining proper methodology and perseverance. To find out exactly how appraisers successfully do what they do, we consulted with a group of experts, all gemologists who have been trained and accredited by major appraisal organizations, including the Appraisers Association of America (AAA), American Society of Appraisers (ASA), National Association of Jewelry Appraisers (NAJA) and Accredited Gemologists Association (AGA).
There are different levels of the retail market, says Joseph Tenhagen, Joseph Tenhagen Appraisals, Inc., Miami, Florida. With a ring, he points out, “we look to see if it had a trademark or a hallmark and what store it came from. If it came from a top-quality store, we would appraise it in that particular market. If it came from a discount store, we would appraise for that market.”
According to Nancy Stacy, Jewels by Stacy Appraisals, Walnut Creek, California, the most credible way to arrive at value is to compare an item to “other items that have been sold recently, do some adjustments for little differences and come to a market price.” If it’s a trademarked piece, she says, you can call the maker and see what it is selling it for.
RESEARCH IS KEY“You need to seek information from whatever market you’re researching,” continues Stacy. “For cash values, you try to find actual transactions and that’s hard, but not impossible. Most professional appraisers who have been working for a while have a network of dealers that they can call.
“For Fair Market Value, and all kinds of value, you need to find sales of comparable jewelry,” Stacy points out. The key here is being able to define what is comparable. Unless it’s a watch, most likely you won’t find an identical piece of jewelry that has been sold. So, she points out, you need to identify what about this jewelry is giving it value. “Usually,” she says, “there will be a few elements of value — in a diamond ring, it will be the quality characteristics of the diamond.” But if you get into other kinds of jewelry, she explains, such as a brooch, you need to see if the value comes from the materials it’s made of, the person who made it or the period it represents. Condition also has a big influence on value in that market. “And then,” Stacy says, “you find other pieces that have similar elements. Once you find them, you analyze them and there are appraisal techniques that you can use to add to or subtract from the selling price of the comparable item to make it equivalent to the one you’re appraising. That’s part of the Sales Comparison Method of valuation, where you’re looking at market data.”
If it’s a period piece from the 1920s or ’30s or earlier, you have to look to the auction markets or the estate jewelry markets to see what similar types of pieces are selling for, says Charles Carmona, Guild Laboratories, Los Angeles, California. But if it’s a modern piece, made by a modern manufacturer and still available on the market, and you are determining replacement value, “you just look at the stones, add up their value at a wholesale level and determine the cost to manufacture the mounting and any other labor involved and that brings you to the wholesale value. And then you apply an appropriate markup to retail.”
“If you have a modern platinum diamond line bracelet,” says Robert Mark Bunda, Bunda Jewelry Appraisers, New York City, “that’s basically cost — how much the diamonds cost, how much the mounting costs, how much it costs to put it together. But if you have a diamond and platinum Art Deco bracelet, then that’s a mix of cost and comparative market data. You would still cost it out for the diamonds that are in there but, because it’s in an Art Deco mount, instead of it being worth $800 a carat, a dealer might pay you $1,500 a carat. So to me, that’s a blend.”
The Cost Method, says Stacy, where you calculate what the cost to the consumer would be to make the item again, either in the jewelry shop or by the manufacturer, is one approach. There is another method, but, she says, it isn’t used very much. Called the Income Method, “you treat the piece as if it’s the equivalent of an apartment building — something that can make money — not in a sale, but if it’s leased or rented out or authorized copies are made, like Jackie O’s faux pearls. If it can produce a stream of income, then you use business analysis tools to figure out the present value of future income. We don’t have to do that too often.”
“In contrast to Fair Market Value, Marketable Cash Value,” says Stacy, “is what you can expect to realize from the sale of the jewelry after any selling expenses are deducted. So if there were, for example, auction fees or broker fees or advertising fees or any of the expenses you could incur in selling, you would deduct those estimated expenses and come up with a cash-in-hand value.” That is what most estates choose, she says, when there are no tax consequences, rather than the “government way,” which requires a Fair Market Value appraisal. “It makes it easier to divide up the estate if the jewelry is on a cash basis.”
“We sell a lot of estate jewelry,” points out Rick Goodden, Gooden Jewellers, Inc., Kansas City, Missouri, “so we have a lot of basis for evaluating some of those pieces and I’ll state it right in the report that it’s our opinion that this is the price we might sell this item for in our store.”
“When you compare what we do in the jewelry industry to, say, real estate appraising, it’s a totally different ball game,” says Alan Chappron, Gemological Consulting Services, Seattle, Washington. “With jewelry, there’s definite spread, even locally between appraisers. The methodology might be different or their notion of what the prevailing markup for the industry might be in a given area, so it’s always a challenge. If you err on the high side, you never hear about it, but if you appraise something too low, you’re always going to hear about it.”
Stacy agrees. “An appraiser has to do a good job of documenting exactly what the item is as far as its value characteristics. If there is an insurance claim made on an item, all the outcome and satisfaction or dissatisfaction is hinging on the description of the jewelry that the appraiser put in the appraisal. That is by far the most important part of the appraisal.”
What is not an appraiser’s job, continues Stacy, is deciding whether or not somebody paid the right price. “An appraiser is supposed to report the market, not make judgments about it. Whereas there could be a lot of prices for the same thing, what the appraiser does is examine the markets and determine, for the kind of market the item was sold in, what its value would be in that market — in other words, the most common price in that market.”
IT’S A MYSTERYOne role an appraiser can play that really involves ferreting out clues, says Stacy, is that of an expert witness. “It’s the really fun part,” she says. “It’s like being a detective because there’s always a mystery. Sometimes it’s a crime but usually it’s a tort — somebody is suing somebody else because somebody did something to their jewelry. They could have caused it to be stolen or damaged it. It could be any number of things,” she says.
Moreover, Stacy continues, “often you have to appraise jewelry you can’t see.” One instance she recalls was in the aftermath of a fire, where jewelry that had been packed up by the salvage company was mistakenly taken to the dump. “So it is very interesting,” she sums up, “tracking down information and squeezing a little bit of information from here and a little bit of information from there. And helping people remember more information about the pieces.”
“Appraising is a simple field,” continues Stacy, “and until you actually study it, you have no idea how complex and interesting it is and we really need a lot more informed appraisers. It’s challenging to get started — it’s expensive and time- consuming and it can’t be passed on by simply working with another appraiser; you have to study — but it’s fascinating and it never gets dull!”
To Cert or Not To CertDoes having the certification for a piece make it easier to appraise? Not necessarily, says Nancy Stacy, an independent professional appraiser based in Walnut Creek, California. “Some appraisers prefer not to see the cert until they’re all done and some like to look at it to see whether or not they agree with it. Either way, if you have a disagreement as to what the grade is, then you have to deal with that. With some labs, like Gemological Institute of America (GIA), the American Gem Society (AGS), you might disagree with them some of the time, and with others, you may almost never agree. And the way I handle it is that I form my own opinion and use that for the valuation, but I will disclose the grade that the other lab gave it and just state that my findings don’t substantiate the lab’s grading.”
The value of the certificate, says Charles Carmona, Guild Laboratories, Los Angeles, California, depends upon who issued the cert. “If it comes from the GIA or AGS, I’ll take it at face value because they’re in the business of appraising. But if it’s one of the other ‘alphabet’ labs, I basically discount it and look at the stone myself.”
For Robert Mark Bunda, Bunda Jewelry Appraisers, New York City, “if the diamond already has the GIA certificate — which most diamonds do — then it’s a done issue. But, on the other hand, if someone comes to me with a large diamond and it’s poor quality, I basically can verify in-house that it’s a diamond. If a stone without a certificate is coming down through the family, and they want an insurance value and it’s high quality, I’d advise them to go get a certificate.”
Article from the Rapaport Magazine - June 2008. To subscribe click here.