A diamond appraisal is a document containing information about the characteristics and the estimated value of a particular diamond. Diamond appraisals are typically issued by qualified appraisers, who are, ideally, trained to grade gemstones and research jewelry markets.
The appraisal value of a particular diamond is a subjective concept and depends on the purpose of the appraisal as well as the method used to estimate the value.
Types of Diamond Appraisal Value
There are a number of possible ways to classify appraisal value.
Some of the most often used terms in diamond appraisals are “market value,” “replacement value,” and “resale value.”
Let’s see how each of these types of value is defined:
Diamond Fair Market Value
Fair market value is pretty general term, and it doesn’t have much meaning unless it is specified what market is used as a reference.
For example, a diamond’s value on the wholesale market is a fraction of its value on the retail market.
If the term “fair market value” is used in connection with an appraisal, make sure you know what context it is used in – at the very least, you should be aware what market is used in the research.
Diamond Replacement Value
Replacement value tells you how much money you would need to spend in order to purchase the same diamond as the one appraised. This value usually corresponds to the current retail price of diamonds of the same quality.
Note that replacement value is estimated at the time the appraisal is done – there is no guarantee that a couple of years later the price to buy the same stone will remain unchanged.
This type of appraisal value is often used when the diamond is appraised for the purpose of insurance.
Diamond Resale Value
Diamond resale value usually refers to the money you would get if you sold your stone to a diamond dealer, to a jewelry store, or to the public.
Resale value is typically lower than retail market value – usually, between 20% and 60% of it.
To understand why this is the case, consider that jewelry retailers mark up their diamonds to make a profit, but they won’t pay more than wholesale price if you sell your stone to them.
Diamond Appraisals: Purpose and Issuer Affect Appraisal Value
Appraisal values depend on the purpose of the appraisal as well as the party doing the evaluation.
Two very common types of diamond appraisals are those issued for insurance purposes and those provided by the seller.
Diamond Insurance Appraisals
Appraising a diamond to determine its value for insurance purposes is one of the most common reasons appraisals are issued.
The value in the appraisal document is used by the insurance company to calculate the premium you will need to pay for a particular policy.
Insurance appraisal values are based on how much it would cost to replace the diamond at the time of the appraisal. Usually, this amount is equal to the retail price of the stone or is slightly higher.
Appraisals by Jewelry Retailers
Some sellers offer an appraisal for the jewelry you purchase from them, and the service is often free. Such appraisals can be biased, however, especially if the appraisal value is significantly higher than the purchase price.
You should not assume that the value in such a document represents the market value of the diamond before checking other sources of price information.
Finding Out the Appraisal Value of Your Diamond
There are two ways to find out the appraisal value of a diamond – to have it appraised by a professional appraiser or to estimate the value of the stone yourself.
Getting Your Diamond Appraised
This is the most straightforward way to find out the appraisal value of your stone. There are a couple of guidelines you should keep in mind when getting your diamond appraised:
First, make sure that you explain to the appraiser what you need the appraisal for. As already mentioned, depending on the purpose of the evaluation, the appraiser can arrive at different values.
Second, ensure that the appraiser you choose is not only a trained gemologist, but also an expert in valuation. If the person appraising your stone knows a lot about diamond properties but little about diamond markets and prices, the estimated appraisal value may end up being inaccurate.
Third, check how the appraisal fees are calculated. In general, they should not be based on the appraised value, as in such a case, the appraiser would have the incentive to inflate it.
Fourth, make sure there is no conflict of interest. For example, an appraisal offered by the vendor selling you the diamond, or by a diamond dealer willing to buy it, is likely to be biased. The appraiser should be independent.
Estimating Diamond Appraisal Value
You can also estimate the appraisal value of a diamond yourself.
First, you need to decide what kind of value you are interested in – is it retail market value, wholesale market value, or resale value?
Then you need to find out the prices of diamonds with the same quality characteristics in the respective market.
To find out the retail value of your diamond, look up the prices of stones with the same clarity, color, and cut grades, and of similar carat weight. This will give you an idea of the approximate replacement value an appraiser is likely to assign to your diamond.
The resale value of your stone can be calculated from its retail value. Typically, you can expect to get 20%-30% to 50%-60% of a diamond’s retail price if you resell the stone.
Where the actual price will fall within that range depends on whom you sell to – wholesale dealers and jewelers will pay you a price at the lower end, while individual retail buyers are likely to pay more.
Remember: Diamond Value Changes over Time
The value of diamonds is not constant – it fluctuates over time depending on supply and demand. This is why you should not assume that the number written in a diamond’s appraisal will reflect the value of the stone years later.
Because of the changing nature of diamond value, it is recommended that you update the appraisal of your stone after a certain period. Generally, unless you need the appraisal for insurance purposes, there is no need to get a new one in less than 5-7 years.
Insurance appraisals should be updated more frequently, and it is a good idea to do so every couple of years. For example, if the market price of your diamond falls, you will keep paying insurance premiums calculated on an appraisal value that is higher than the current one unless you reappraise the stone.
To figure out whether the appraised value of your diamond is likely to differ significantly from its current value, you can check the retail prices of stones of the same quality and carat, and compare them with the original purchase price of your stone. If there is a big discrepancy, then the appraisal value is also likely to have changed, and it might be a good idea to update the appraisal.