June 2017

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Valuing Diamonds – Confusion, Complexity, and How Technology Can Help

As every jeweler knows, valuing diamonds for customers is tricky business. Many customers assume that the value of the diamond is the amount they paid for it when they first bought it, or the price listed on the insurance appraisal. And while others might have a general sense of how a diamond is valued, such as 4Cs grading, that doesn’t necessarily mean they know the correct value of their diamond. Valuing diamonds properly is not only necessary for insurance purposes, but also for peace of mind. After all, whether the diamond is a family inheritance, a gift of commitment from a loved one, or an item purchased to mark an achievement, for every diamond owner, the gemstone has deep meaning and personal value.

Valuing Diamonds: When One Plus One Doesn’t Equal Two

Many diamond owners believe that the diamond value listed on their insurance certificate is the actual value of their diamond, and, in a world outside of valuing diamonds, this would likely be the case. However, when it comes to diamonds, insurance companies list a diamond’s replacement value, not the diamond’s resale value.

The replacement value of a diamond is what it would actually cost the insurance company to replace a diamond in the event it was lost, stolen, or intrinsically damaged in some way. The replacement value is the value at which, in the present market, the insurance company would have to pay to purchase a new ring of similar quality. This amount would inherently be more than the value of the ring should you try to sell it second-hand, which is the resale value. Often, the resale value can be as low as 20-50 percent of the replacement value.

Beware Undervaluation

It is not uncommon for people to have their diamond appraised, put the appraisal in a drawer or safe somewhere, and assume that that appraisal price stands for the duration of the time. However, when valuing diamonds, this is not necessarily the case. The value of diamonds is continually open to fluctuations in the market, similar to other gemstones and precious metals. Therefore, it’s quite possible that the insurance coverage, based on the diamond’s appraisal amount, is not high enough, due to a raise in market value. If a diamond is undervalued, it then becomes underinsured, which at best can delay the handling of an insurance claim in the event of a problem with the diamond, and, at worst, could negate the policy entirely, leaving the diamond unprotected. Experts recommend valuing diamonds at least every two years.

Know Your Certifications From Your Appraisals

Both certifications and appraisals help to determine your diamond’s origins and worth, however, they are not the same. Both can function as a determining factor of valuing diamonds, as well as ownership when it comes to buying, selling, consigning, trading, putting a diamond up for auction or bequeathing it to someone. They can both also help fill in the blanks when a diamond is lost or stolen, as well as prove the diamond’s authenticity.

A certification is a report that is provided by an independent gem laboratory. The certification includes information about the diamond’s measurements, color, cut, clarity and carat grades, in addition to fluorescence, polish and symmetry. An appraisal, on the other hand, is valuation of a diamond by a lab, jewelry store, or gemologist. The main point of the appraisal is to help insurance companies determine replacement value. The dollar value of the appraisal takes into account a variety of factors, such as economic trends, stone availability, production and the cost of middlemen. Appraisers who are affiliated with the company selling the diamond could have bias that is reflected in the appraisal. Therefore, it is always best to find an independent certified appraiser.

Current technology can also be helpful in valuing diamonds. The use of blockchain technology in recording a diamond’s roots and authenticity is gaining momentum. In addition, new and technology based approaches to grading can help both retailers and consumers get a better handle on all aspects of their diamond’s value.

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