- [sc_fs_multi_faq headline-0=”h2″ question-0=”1. Why isn’t an “appraised value” just the amount of money I can get if I sell my jewelry today?” answer-0=”An appraisal for insurance is not the same as a “bid” to buy. When you sell jewelry, the price depends on who is buying, their current inventory, and even their local popularity. An appraisal is a formal document defining the item’s qualities, whereas a sale price is simply what a specific person is willing to pay you at a specific moment.” image-0=”” headline-1=”h2″ question-1=”2. If my appraisal lists a high value, will the insurance company give me a check for that amount if I lose the item?” answer-1=”Usually, no. Most insurance policies are written to replace the item with one of “like kind and quality.” Insurance companies use professional shoppers to find the best possible price. If they can replace your ring for $3,000, they will do that—even if your appraisal says it is “worth” $5,000. In this case, the appraised value acts as a “ceiling” or maximum limit of what they will spend.” image-1=”” headline-2=”h2″ question-2=”3. What is the most important part of an insurance appraisal?” answer-2=”The most critical part is the description of “like kind and quality.” Think of your appraisal as a “purchase order” for the insurance company. To ensure you get an exact match, the appraisal must include every detail: weights, grades, dimensions, designers, model numbers, and photographs. If a specific detail isn’t listed, the insurance company isn’t obligated to replace it.” image-2=”” headline-3=”h2″ question-3=”4. Why is the “Retail Value” on an appraisal often higher than what I actually paid?” answer-3=”Retail” refers to the price an item sells for to an end consumer, but different stores have different costs for their talent and branding. Additionally, since insurance companies often replace items with new materials and labor to “make you whole,” the appraisal reflects the cost of sourcing those new components at current market rates, which often trends higher than a discounted sale price.” image-3=”” headline-4=”h2″ question-4=”5. What is “Fair Market Value” (FMV), and when is it used?” answer-4=”Fair Market Value is a specific term used by the IRS for things like estate taxes or charitable donations. Unlike insurance value (which focuses on replacement with new items), FMV focuses on what a used item would sell for in an open market between a willing buyer and seller. It represents the value of the item in its current, pre-owned condition on a specific date.” image-4=”” count=”5″ html=”false” css_class=””]I try to avoid using the term “appraised value” entirely because it causes so much confusion. The problem is that customers don’t even understand what’s confusing about it. “Just tell me what it’s worth.”
Here’s the problem:
Cynics often want to define value as what someone will give you. That is one definition, but it’s almost never the one used in a jewelry appraisal. Someone? Who? Not all potential buyers pay the same. Not all potential buyers are interested at all. Even within the range of professional buyers, say jewelry stores, how much they may be willing to pay contains variables like how many similar things they already have in stock, how much money they have in the bank, how popular things like that are their neighborhood, etc. These are important elements of value and they will certainly affect the bid, but they’re not elements of the property.
This definition gets even worse when you note that it includes what someone will give YOU. Do they think you’re a sucker? Do they just dislike you? They can offer or charge whatever they want, just as you can decline any offer you want, but don’t confuse that process for an appraisal. That’s a bid or a sale, even if it’s in writing on a piece of paper titled Appraisal.
Insurance appraisals.
The usual jewelry appraisal, probably 90% of them, is prepared for insurance purposes. The idea is as documentation that will become part of an insurance contract where the insurer can reasonably expect to replace the item with another of like kind and quality, or words to that effect, in the case of a loss. Normally this means replacement with another at retail, new, locally. Replace. Like kind. Retail. New. Local. All 5 of those words can cause troubles.
Replace
Replace means they plan to give you a new item, not a check. If they can get it cheaper than you, and usually they can, that’s what they’ll do. The big insurance companies employ full time professional shoppers. They buy a lot of jewelry, and they have a pretty good idea what things cost. Submitting an appraisal that says it’s worth twice as much doesn’t change that. Their job is to fund the replacement and the appraised value means almost nothing for this purpose. If you decline the replacement, they owe you for what it would cost them to replace, not the bottom-line appraised value on your appraisal. In this case, think of the appraisal value as the maximum limit of liability.
Like kind and quality
Defining like kind and quality is really what the appraisal is for. Weights, grade, dimensions, manufacture, style, size, that sort of thing. Think of it as the purchase order for the replacement. Everything counts. Grades, weights, designers, photographs, model numbers, special things like ‘hearts and arrows’, everything. If it’s important to you and especially if you paid extra for it, it should be in your appraisal.
Retail.
This is another confusing word. It means the price that an item changes hands to the end consumer. It doesn’t mean some more-or-less random number that the store discounts from. It’s not the same as MSRP. This can get tricky because not all stores charge the same for their time and talents. A ring that costs $1000 from one place may be $2000 at another. Differences can be as subtle as the brand mark on the inside of a ring or the nature of the warranty.
New.
Chances are good that what you have isn’t new, even if it’s in superb condition. It’s been used by you, if no one else. New generally means it’s in the hands of the manufacturer or an authorized dealer and is in unworn condition with all warranties intact. That’s curiously different than what insurance companies generally agree to do. Their job is to ‘make you whole’. Realistically, that would mean a used watch in comparable condition. That means a secondhand diamond ring. The big design houses, like Tiffany and Rolex don’t sell those. They ONLY sell new. Even so, they generally will buy a new item made using US labor and US materials, which tends to be a little expensive. That’s part of why appraisal conclusions tend to be on the high side. It’s the one area where consumers tend to come out ahead.
Local.
In the age of the Internet, that’s become tricky too. It has come to mean the entire US. Anyone with an address and a FedEx account is a possible supplier. They can and do use suppliers across the country. They’ll buy the diamond from one place, the mounting from another, and the labor from a 3rd.
Then there’s that ‘reasonable expectation’. What’s that? It leads to all sorts of confusion. ‘Retail’ is used as a price to discount from. It’s the highest price that anyone could ever get while everyone gets a bargain. Only a dope pays retail. Is that reasonable?
The last definition of appraised value that people often come across is Fair Market Value. Don’t let the name confuse you. It doesn’t mean fair and equitable. FMV is an IRS term, and that’s not their issue. It means a free and open marketplace, and it applies to everything that has an IRS purpose, like estate taxes and charitable contributions. It means used because, well, that’s what it is. It’s always for a specific date and that usually isn’t the date of the inspection or the report.
Fair Market Value
“The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.” IRS Regulation §20.2031-1.
Frequently Asked Questions: Understanding Jewelry Value
1. Why isn’t an “appraised value” just the amount of money I can get if I sell my jewelry today? An appraisal for insurance is not the same as a “bid” to buy. When you sell jewelry, the price depends on who is buying, their current inventory, and even their local popularity. An appraisal is a formal document defining the item’s qualities, whereas a sale price is simply what a specific person is willing to pay you at a specific moment.
2. If my appraisal lists a high value, will the insurance company give me a check for that amount if I lose the item?Usually, no. Most insurance policies are written to replace the item with one of “like kind and quality.” Insurance companies use professional shoppers to find the best possible price. If they can replace your ring for $3,000, they will do that—even if your appraisal says it is “worth” $5,000. In this case, the appraised value acts as a “ceiling” or maximum limit of what they will spend.
3. What is the most important part of an insurance appraisal? The most critical part is the description of “like kind and quality.” Think of your appraisal as a “purchase order” for the insurance company. To ensure you get an exact match, the appraisal must include every detail: weights, grades, dimensions, designers, model numbers, and photographs. If a specific detail isn’t listed, the insurance company isn’t obligated to replace it.
4. Why is the “Retail Value” on an appraisal often higher than what I actually paid? “Retail” refers to the price an item sells for to an end consumer, but different stores have different costs for their talent and branding. Additionally, since insurance companies often replace items with new materials and labor to “make you whole,” the appraisal reflects the cost of sourcing those new components at current market rates, which often trends higher than a discounted sale price.
5. What is “Fair Market Value” (FMV), and when is it used? Fair Market Value is a specific term used by the IRS for things like estate taxes or charitable donations. Unlike insurance value (which focuses on replacement with new items), FMV focuses on what a used item would sell for in an open market between a willing buyer and seller. It represents the value of the item in its current, pre-owned condition on a specific date.
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Do You Need A Jewelry Appraisal in Denver, Colorado?
The American Gem Registry provides a variety of jewelry appraisal services in Denver, Colorado:
- Gem and Jewelry Appraisals
- Estate Evaluations
- Expert Witness
- Pre-Custom Consultation
- Re-Cut Consultation
- Damage Consultation
- Restoration Evaluation
- Fair-Market Value Appraisals
- Insurance Appraisals
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If you have any questions, please call during my normal business hours at the number below. Or, you can schedule your Jewelry Appraisal Appointment online today!