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Mark Up & Appraised Value


amaya
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Hello,

 

Many store boast that the sell diamonds that appraise for twice their selling price or more. I have also heard that the jewelry industry markup is 300%. Is the appraised value supposed to reflect the true cost of the diamond (purchase price) or the marked up price? So do you use the appraisal to indicate that you are getting a good price when you are paying less than the appraised value or should you expect to pay less than the appraisal from a store? (I would expect to pay less than appraised value from a private party).

 

Also, I've been searching my local craiglist (local internet site for buying/selling stuff). Most of the posting are private parties but there are a few that seem to be posted by a company since they offer free ring sizing and they have an 800#. In these adds, they post diamonds that appraise for much higher. Here's an example for a posting for diamond stud earings $3,488:

 

 

STONE SPECIFICATIONS

Stone: DIAMOND

Stone Cut : Round Brilliant

Stone Specifications: There are two diamonds of approx. 1.01 carats each. (approx. diameter 6.2 mm) Natural earth-mined diamonds

Total Stone Weight : approx. 2.02 carats

Stone Certification : Comes with a FREE STONE CERT worth $45.00

Color : G

Clarity : SI1 Appraised Value : $14,815.00

Appraisal : Comes with a FREE APPRAISAL .

 

This is an extreme example, but if it appraises for $14K, why would they sell it for $3,488. Does this smell like a scam?

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One of the important things to understand about appraisals is that anyone who wants to can call themselves an appraiser and they can say pretty much whatever they want. ‘Appraised’ for big buck doesn’t mean anything at all. The very first thing to read on an appraisal is the signature and the page where they explain why you should give a rats patotie what they think. If the answer to this is that it’s not there, or that you aren’t convinced, don’t even bother to read the rest of it. The burden is on them to convince you that their opinions have merit and the default answer is NO. I would not find a GG and some letterhead with the word ‘appraisal’ on it persuasive.

 

If you decide the appraiser has merit, the second thing to read is the value definition. The same thing is worth different amounts under different circumstances. What you would expect to pay for an item in a hotel gift shop in Aspen is not the same as what you could expect to get for that same item at a pawn shop in Compton. Both could be reasonably described as the ‘value’ but the correct answer to the wrong question would lead to a serious misunderstanding. Again, if it’s not there, or if what it says doesn’t apply to your situation, ignore the rest.

 

These two issues are the root of 90% of the confusion about appraisals and what they mean. Here are a few more red flags which appear in your question.

 

1) FREE. Nothing is free. The question is who paid and why. If it’s being presented by a dealer as evidence of a good deal, you can make a pretty good guess at these two questions and it’s unlikely to have been done in your best interest. Sometimes ‘free’ services can turn out to be remarkably expensive.

 

2) ‘Appraised value’. You pointed this one out yourself. It contains information that you KNOW to be false. Even ignoring that tidbit, I point out that you are relying on this same appraisal for other important data. The difference between a 1.01/G/SI1 and a 0.96/J/I1 is enormous even though some might call them 'approx.' the same. Since you’ve already got evidence that they are trying to mislead you about the pricing, are you sure you want to believe their opinions on these other things?

 

3) Missing and peculiar information. For heavens sake it doesn’t even include the shape of the stones, but it mentioned that the mines where they were found are on Earth. Gee thanks. I would have guessed that if they hadn't mentioned it but actually would be far more interested if they had some that were mined elsewhere. ;)

 

Neil

Edited by denverappraiser
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OK, since I know that almost every reader is going to ignore my advice above and is going to read the value conclusion and nothing else, I’ll try to explain the stores that guarantee high appraisals. I have a couple of those stores in my town (Denver) and I do appraisals on their merchandise fairly regularly. It’s not even all that unusual for them to appraise out at double the cost.

 

The usual issue is that it’s a different marketplace, which is part of that definition of value. The question being asked of the appraiser is about appropriate funding to replace the item with another of like kind and quality in the case of a loss. This often involves estimating custom manufacturing costs using US labor and materials purchased through a specialty jewelry store. Is this evidence that what they have at the flea market is bargain? No! This is the correct answer to the wrong question. What you really want to know is if you could find similar merchandise from alternative sources for less money, right? Should you keep on shopping? That’s a very different question. A good appraiser can answer that one too, but the seller is betting that you won’t ask, that the appraiser won’t explain the issue to you when you meet with them and that you won’t read all that fine print in the appraisal even if it’s there. Given the success of these stores, they seem to be making a good bet.

 

Neil

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Neil always explains these things so well ;)

 

But yes, the stores that do the it appraisers for 3x what you paid for it tend to be playing a marketing game.. Sort of like all the 75% off sales you see.. 75% off of "what"?? Usually a 5x markup so that an item they finally sell to you for $100 probably cost them $50 and they told you it was worth $250.00.. But the guy down the street may be selling the exact same thing for $105 without the "sale" smoke and mirrors and he is viewed as the guy ripping everyone off because he never runs a sale..

 

As for 300% markup.. It would be nice.. But on things like loose diamonds those days ended years and years ago.. Many diamonds are marked up online from as little 5% to 50%.. But remember, that bottle of water you just bought can have as much as a 1000% markup..

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I appreciate the responses. Thanks for the thorough explanation.

 

So I have to admit I am looking to buy from a private party and not a store because I'm hoping to get a better deal. Of course my fear is that there are risks and no guarantees from private parties. When people have all the paperwork and certificates, how do you know the diamond they are selling you is the same as the one in the certificate (assuming no laser inscriptions)? I guess I have a devious mind but I think someone could have a diamond ring with the certificate, remove the real stone and replace it wil a CZ of the same measurements and I would never know. I'm brainstorming and I thought of contacting a local appraiser and arranging to meet the seller at the appraiser's location before making the purchase.

 

Any recommendations for local appraisers near Fremont, CA (94536)? Approximately how much do appraisals cost, $100's? Any other suggestions for buying from private parties?

 

The one I'm really interested in is described below. The person is asking $8K and I verified the GIA report # on the GIA site."Near flawless white Diana Diamond ring, white gold with diamonds around the center stone, rectangular modified brilliant center stone. Purchased at Rinehart's in Walnut Creek. Appraised at $21083 just for the diamond, not including the diamonds on the band. GIA report #11566249 Shape/Cutting Style cut cornered Rectangular Modified Brilliant 1.54 carats Finish-Very Good Clarity VS1 Color H 74.7% Depth 72% Table Girdle Medium to Slightly thick Culet None Fluorescence None Paid over $14000 for it.

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Neil,

 

That's true... but I really did always wonder about the markup. It just happens that currently I'm testing out the private party route. If it doesn't work out I'll be back the stores which is why I asked the original questions.

 

Thanks again for your input.

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