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Home Appraisal Information About Appraisal

The appraiser has three functions, all of them important to you.

First, the appraiser is an identifier. Your jewelry must be identified as to the materials, workmanship, condition and any other elements affecting its value, and then evaluated-ranked in quality in relation to all other similar property. Second, the appraiser is a valuer. A value must be assigned to the jewelry that is appropriate to the purpose of the appraisal. Third, the appraiser is a witness to the property. The appraiser can attest in a court of law that the jewelry existed at a certain point in time, and that it was in a certain condition. (That is why it is necessary for your appraiser to examine your jewelry when you have the appraisal updated.)

Unlike real estate, that stays in one place and is sold in one market with public recording of sales, personal property such as jewelry moves from one location (market) to another. It is subject to a layered market including retail of several levels, wholesale of varying levels, and markets for sale of used (pre-owned) as well as new items. In addition, most of these transactions are by "private treaty", and thus are not a subject of public record.

In addition, the value of jewelry is related to circumstances surrounding the sale. The value must relate to the most common market for the item, considering its condition and all other value factors. Value is always specific to a certain date and a stated purpose and will vary according to the situation.

Just as in valuing real estate, valuation of jewelry is largely a matter of research. It is important to preserve any past documentation of your jewelry-sales receipts, previous appraisals, guarantees or warranties, etc. These record the history your jewelry, will aid your appraiser in assessing its current value. They could also be important at some future date in proving your history of ownership. At Jewels by Stacy Appraisals, we keep copies of your documentation for five years-just in case your records should be destroyed along with your jewelry.

The professional jewelry appraiser utilizes three traditional approaches to value-market research of sales of comparable jewelry, the cost of making a reproduction or a replica of the jewelry, and in rare cases, an estimate of the income producing potential of the jewelry.

Your jewelry will be valued appropriately to the purpose of the appraisal.

Typical situations where an appraisal is needed are:

Insurance Appraisals: The vast majority of jewelry appraisals are written for insurance-related matters. Yet, most purchasers of insurance and unfortunately the majority of jewelers writing appraisals know little or nothing of how insurance actually works.

Theory of Insurance: Insurance is a device by which an individual limits exposure to loss by sharing the risk with a large number of other people. Everyone pays money into a pool in the form of premiums. The insurer collects the premiums, investigates losses, and pays out claims.

Insurance company profit margins are dictated by the laws of each state. The companies maintain that percentage by keeping a ratio between their income from insurance premiums and their payments in claims. If cost of claims goes up one year, everyone's insurance premium goes up the next.

In effect, we all insure each other, with the insurance company holding the money and collecting a commission for coordinating the effort.

For insurance to work for the benefit of all, each individual should purchase enough insurance to cover the value of his property, and payment of a claim should put the insured back in the position he was in before the loss-no better and no worse off.

The first thing to understand is that insurance is not a lottery ticket. Over-insuring property and collecting a claim for more than your actual risk is fraud. Nor is insurance meant to be a convenient way for people to convert their property into cash. Obviously, that would tend to make people careless of their possessions, or tempt them into fraud, and everyone's insurance premiums would be sky high. A majority of insurance contracts now provide for the replacement of scheduled jewelry in case of loss, and repair and/or restitution for diminished value in the case of damage. This keeps the costs of settlement (and therefore premiums) lower.

The jewelry industry is notorious for jewelers selling an item for a certain price, and supplying an appraisal for an inflated "value". I like to think that if they understood more about how insurance works, and how much money their customers were wasting in excess insurance premiums, all jewelers would discontinue this costly practice. As we will see, excess coverage does not usually pay off. And, since we are all in this insurance pool together, it should not pay off.

Inflated appraisals have created a phenomenon, however, where rates are kept artificially low by the many consumers buying too much insurance based on inflated appraisals. This gives an advantage to people with appraisals stating realistic values. Their premiums are lower, yet they are fully covered!

The consumer needs to understand that an appraisal does not change the value of the property. Property is what it is, and the best insurance appraisal is an appraisal with an accurate, detailed description and a realistic assessment of the appropriate amount of insurance coverage needed.

Insurance Policies: Insurance policies come in many varieties, and only an insurance agent can give you advice in this area. A good place to begin is in understanding the difference between unscheduled and scheduled property. The basic homeowner's policy had some blanket coverage for unscheduled jewelry (jewelry that is not listed) on the policy. This coverage is subject to a deductible (often $500) and a ceiling of coverage (often $1,500) and these amounts can often be modified for an additional fee. Normally, this coverage is good only for fire or theft, not things like damage, partial loss ("The diamond fell out") or mysterious disappearance ("My teenager had a party, and now my bracelet is missing"). This policy does not require an appraisal to be submitted in order to get coverage. These claims are settled according to a depreciated value, which insurance companies call "actual cash value" and appraisers call "replacement cost, comparable". Sales receipts, photos and written descriptions are helpful in these claims.

By law, only an insurance agent can give you advice about insurance. Be sure you have a clear understanding of the terms of your insurance contract, and read the fine print!

Insurance Scheduling: A detailed description is especially important in insurance scheduling appraisals, since in case of a loss your appraisal will be all you have left to form the basis of your claim. Most people have replacement policies, which give the insurance company the option of replacing the jewelry rather than making cash payment. Therefore, the detail and accuracy of description in the appraisal is paramount. In addition, the appraisal should have photographs, an explanation of appraisal methods used, and generally be able to stand up to the scrutiny of the insurance adjuster-and the courts, if it comes to that.

Since contemporary jewelry scheduled on replacement policies is usually replaced with new jewelry, the appraised value is often higher for insurance scheduling than for other situations (where the jewelry is valued "as is"). If the jewelry is older-antique or period pieces-then replacement with new jewelry would not be appropriate. In those cases, the jewelry is valued according to the purchase price of an equivalent piece of jewelry of the same period, style, materials, conditions, etc.

The insured value is used to calculate the amount of your premium. You will be charged a percentage of the insured value every year. Under replacement policies, the insured value is used to set a ceiling on the amount that the insurance underwriter will spend to replace your jewelry. The value for claims purposes will be determined at the time of loss. Only detailed documentation will ensure that the replacement is of equal quality to your original items.

Under agreed value policies, the amount that will be paid in case of loss is agreed on in advance, with some exceptions. If a material fact is withheld that would have affected the decision of the underwriter to issue the policy (such as the actual price just paid) the claim may be cancelled altogether.

Please consult your insurance agent for clarification as to the details of your insurance contract. There are many types of policies, often custom-tailored to the needs of the insured, and laws regarding insurance vary from state-to-state. Your agent will explain the difference between scheduled and unscheduled and replacement and agreed value insurance. The best guide for knowing how your claims will be settled is to read the fine print in your insurance policy. Look under "jewelry and furs" on the basic homeowner's policy, and for scheduled jewelry read the terms in the insurance rider, floater or endorsement. 

Insurance Claims: The amount of settlement for an insurance claim will depend on the type of insurance you have and the wording of your insurance contract. Insurance claims are complicated, and are settled according to the terms of your contract ("fine print") not according to what you might expect.

Most companies provide replacement coverage of scheduled jewelry, and will replace your jewelry or make a cash settlement based on their cost to replace, not your insured value. This is what makes an insurance policy different from a lottery ticket. There is no problem with this type of insurance as long as you have a properly prepared appraisal document.

You should seriously consider having any replacement jewelry offered to you checked for assurance that you are receiving an equitable settlement. For damage claims, an appraisal will be necessary to ascertain the loss in value so compensation can be made.

The secrets of buying insurance:

1) Buy enough insurance so that you could replace the jewelry yourself, in your accustomed marketplace, and don't waste money on excess insurance. If you bought a diamond for $5,000 with an appraisal for $10,000 and you used the appraisal as the basis for buying insurance, you will be paying double premiums, year after year after year. And, as we have just discussed, this will not affect the amount of your claims settlement in most cases. Enjoy the lower premiums that are caused by everyone who is buying too much insurance coverage! 

2) Consider keeping expensive, seldom-worn jewelry in a safe deposit box covered by low-cost vault insurance and pay normal rates only when you take the jewelry out to wear it (ask your insurance agent.)

Purchase Advice: Because jewelry can be a high-value purchase whereby the consumer is usually unknowledgeable, it is common for buyers to request an inspection period when making such a purchase. Most reputable jewelers will agree to an inspection by an independent, unbiased appraiser before the sale is finalized. This is usually done with a "provisional" sale, with a stated time period for returning the jewelry. If you plan to make such an arrangement, you will need to co-ordinate between the jeweler and the appraiser, so both the jewelry and the appraiser are available when needed.

Internet purchases: The Internet is simply another market, with its own cast of highly reputable and unrepeatable characters. Many established jewelers now also market via the Internet, and many crooks do the same. It pays to check out the credential of the seller thoroughly before making a purchase. Websites like Pricescope and Diamond Talk have forums where consumers share their experiences with sellers-and appraisers.

If you are having jewelry shipped to you and you want it checked out during the inspection period, please check for appointment availability prior to purchase. Direct shipment from the seller to the appraiser can sometimes be arranged-check with the vendor.

Estate Taxation: An estate tax appraisal is a legal document for Federal tax purposes and/or for state probate of property named in a will. The IRS requires that the property be appraised at Fair Market Value, which is the amount for which the jewelry would change hands, in its present (used) condition in its most common market, with a disinterested third party for his/her own use, and with no compulsion to buy or sell. (Examples would be sale from the estate section of a jeweler, or sale at public auction.) There are other strict legal requirements that dictate how the appraisal must be performed. Fulfilling those requirements can help avoid red-flagging the estate for an IRS audit. 

State Probate: Property mentioned in a will needs to be appraised, either by the personal representative or by a qualified appraiser. 

Trusts & Conservatorship Formation: Appraisals for trusts and conservatorships are similar to appraisals for estate settlement, and are based on fair market value. They need to be updated periodically.

"Living trusts" avoid state probate, but if the estate exceeds the estate tax exemption (currently $1 million) property distributed from the trust is subject to estate tax and will need appraisal.

Estate Planning/Distribution: In estate planning or distribution, you will want to take into account that one individual might receive jewelry, while another might receive china, art or real estate, and the appraisal should facilitate a fair division. In such a case the estate will often use the fair market value (cost of purchasing similar items) for distribution. In other cases, some people may be receiving jewelry while others are receiving cash or cast equivalents. In those cases it might be preferable to distribute property according to its marketable cash value-actual cash in hand after selling costs. When planning your estate, these issues should be addressed with your estate planner before engaging the appraiser.

Establishment of Tax Basis: Often there is a benefit to appraising jewelry retained in the trust in order to establish a higher tax basis-thus lowering the tax liability when it is distributed to the next generation might. 

In community property states, where the spouse inherits property tax-free, it is often wise for the surviving spouse to obtain a fair market value appraisal to establish a tax basis for his/her own heirs. 

Resale of Property: In appraisals for property that the owner wishes to sell, the method of selling and the time available to find a buyer will affect the price that can be achieved. As in the case of automobiles or any other personal property, value fluctuates with the circumstances. "Market Value" is the gross price (without regard to selling expenses) at which the property would be expected to change hands, within a reasonable amount of selling time.

Often, however, the owner wants to know the expected net value after selling expenses such as advertising, auction expenses, broker's fees, etc. If there is plenty of time to find a buyer in the most appropriate market, and there is no pressure to sell, the value will probably be marketable cash value, (market value less selling expenses).

Liquidation: When there is a necessity of selling, such as to carry out the provisions of a will or by certain court orders, but some time is available to find an appropriate market, the value will probably be somewhat lower than market value and is known as orderly liquidation value. The amount of time available to find a buyer is a key factor.

In some cases, extraordinary circumstances or court order may necessitate the immediate sale of items without time to expose it to the most appropriate market. It may need to be sold to a pawn broker, friend, or jeweler for its immediate cash value, or forced liquidation value.

Divorce: Jewelry is very closely tied in to emotions, and both parties are likely to have an inflated idea of the actual current value of marital jewelry. Divorce is traumatic and expensive enough without fighting over the jewelry. I say, let him keep the big-screen TV and the sound system, and she gets the jewelry! Actually, how marital property will be divided is governed by state law and varies from state-to-state, so it is impossible to generalize. I suggest you not get an appraisal for divorce purposes until so advised by your attorney. Then, be sure the appraiser understands the measure of value to be used. It might be beneficial for both parties to hire the appraiser jointly to appraise both his and her jewelry-that way you can be sure the same standard of measure is being used for both. 

Litigation: Unfortunately, jewelry sometimes becomes the subject of a dispute that needs to be settled in the courts. Often, the matter could have been easily settled if a proper appraisal had been obtained before the situation arose. Professionally trained appraisers have the expertise to offer opinions of value in an unbiased manner to aid the court in reaching an equitable decision. The problem I see most often is that the appraiser is engaged too late to provide full benefit. Engaging the appraiser before depositions can often expedite an out-of-court settlement.