Now that you have taken the time to choose the perfect gift, whether to commemorate a special occasion or just to wear and enjoy, is your prized possession properly protected? Unfortunately, the answer is probably no. This article will educate you on getting your jewelry properly appraised, including who is qualified to appraise your jewelry, what an appraisal should contain, insuring your jewelry, common misconceptions about jewelry insurance and how jewelry claims are handled. Since you have taken the time to choose the perfect piece of jewelry, I strongly recommend you take the time to read this article to protect your purchase.
How do I choose a professional appraiser?
This is actually a bit trickier
than you may think. Unfortunately ANYONE may
present themselves to the public as a personal property appraiser.
Only real property appraisers (real estate) are licensed,
which leaves it up to you to qualify the appraiser that you
retain. This applies to all forms of personal property, but
this article will focus on jewelry only. Because there is
so much confusion about the jewelry industry regarding who
is and does what we will start this guide with some different
titles and definitions of those titles to help raise your
understanding of the jewelry industry.
The professional appraiser
Working within the jewelry
industry by buying and selling jewelry does not make one an appraiser,
nor should appraising be treated as an inalienable right that
comes with the job. Appraising is a profession, just as a doctor,
lawyer, or CPA, where one must be educated and tested. Unfortunately,
as of today, there is no overseeing body to administer government
testing and licensing (just like dentistry before the American
Dental Association was formed), therefore, anyone can hold himself
or herself out as a personal property appraiser. BEWARE! It is
up to you to separate the “quacks” from the professionals.
A professional personal property appraiser will have a high level of education backed with a high level of experience and product knowledge. A professional will have taken and passed courses and prescribed examinations in evaluation and valuation, principles and business practices, appraisal ethics, standards and report writing. This type of professional will also keep up with the standards and changes through rigorous continuing education. Membership held within a professional appraisal organization is a good indicator of the appraisers’ commitment to their clients.
However, please keep in mind that not all organizations are equal! Not all organizations requirements are at par with the levels and standards that are all too important today. First, you must ask the appraiser how their designations are earned. Some organizations give titles for just paying their dues! Ask them what their level of membership is within the organization and what it took for them to earn that level of membership. You will also want to ask how often they have to retest to maintain their level of membership and what the testing involves. Some organizations “grandfather” their members. Grandfathering means that they pass one test and never have to be retested. This is not acceptable an organization must retest its members at least every five years to ensure that they stay current and up to date in regards to changes within the profession.
Quack: Slang term for a self proclaimed “appraiser” with no proper or formal appraisal and gemological education or training. The “quack” also has a blatant disregard for “due diligence”, theory, methodology and, worst of all, their clients.
Jeweler (Bench Jeweler): Working within the jewelry industry does not make one a jeweler by default. A jeweler is a craftsman or artisan who has the ability and expertise to manufacture and, or repair jewelry. This ability comes from apprenticeship and, or educational institutions.
Graduate Jeweler (GJ): Same as above but the jeweler has completed all courses and passed all of the prescribed examinations of the Gemological Institute of America’s (GIA) manufacturing arts program.
Lapidary (stone cutter): One who cuts, facets, and or polishes colored gemstones or diamonds.
Lapidary Artist (gem artist): One who has abilities that go over and above a lapidary. These artists sculpt and carve gemstones along with being the most talented in the field.
Graduate Gemologist (GG): One who has taken and passed all courses and prescribed examinations (Theory and Practical) of the (GIA) Graduate Gemologist program. Should have the ability to identify and grade gemstones. This does not make one an appraiser or jeweler.
Fellow of the Gemological Association of Great Britain (FGA): One who has taken and passed all courses and prescribed examinations (Theory and Practical) of the (GAGB) FGA program. Should have the ability to identify and grade gemstones. This does not make one an appraiser or jeweler.
Horologist (Watchmaker): One who has been trained either by a school or apprenticeship and has the ability to manufacture watch parts, rebuild, and, or repair watches. Changing watch batteries does not make one a watchmaker.
Certified Horologist: Same as above but the Horologist has taken and passed all courses and prescribed examinations of an educational institution along with passing a state certification exam on theory and practical horology.
Watch Repairman: A person that can do basic watch repair, but has no formal education or training and has not passed any examinations. This is not a horologist.
Jewelry Wholesaler: One who sells to retail jewelers. There are a lot of retailers that misrepresent themselves as wholesalers. This is incorrect. A wholesale transaction is between a wholesale dealer, jobber or manufacturer to a retail entity for resale. A sale to the final consumer is a retail transaction. A true wholesaler would never sell to the public due to the risk of losing their wholesale accounts. Thought. If a person is dishonest about how their business is actually run, then how honest do you think they really are in regards to the product that they are trying to sell?
Jewelry Retailer: One who sells to the public (final consumer). The jewelry retailer takes on many different forms (e.g. chain stores, family owned stores, estate jewelry dealers, and discount outlet type stores). This does not make one an appraiser or jeweler.
Sales Associate: One who works as a sales person. This does not make one an appraiser or jeweler.
Beware of false profits!
I have only listed a few of the
titles that are out there within the industry. There are
many different companies and societies that issue “titles” for
paying membership dues or for sitting in on a few hour lecture
and taking a less than taxing “exam”. If someone
represents “designations” to you, then it is
up to you to find out what they mean and how they were earned.
Unfortunately there are a lot of people that hold themselves
out as being “Certified” that are actually not
certified in anything, other than holding a degree in BS,
and I don’t mean Bachelor of Science!
I do not need all of those pieces of paper
hanging on my wall, nor do I need to attend classes! I have
been in the jewelry industry for thirty years.
If you hear statements such
as the one above, I advise you to try to find another
person to appraise your jewelry. It is this “Ignorance
is Bliss” attitude that puts consumers and insurance
companies in harm’s way, to the tune of millions
of dollars a year, whether purchasing or insuring jewelry.
A “base” degree is never enough. Continuing
education is the only answer. Just one example is the
changes in gemstone synthesis and enhancements. They
are as continuously increasing as are changes to computers.
Therefore without continuing education one is more
than likely less than informed about current synthesis
and enhancements, along with the guidelines regarding
them.
How much does an appraisal cost?
As professional appraisers,
we go through this scenario time and time again. When we quote
our fees we all to often hear that “ I just talked
to another “jeweler” and the appraisal was going
to be $25 or free of charge.” I
will caution you that these $25 “appraisals” are
worth just that: $25. A competent professional appraiser will
charge appropriate rates for the time and work involved to
do the job properly. When you retain a professional appraiser,
you are retaining a professional and must pay for that. When
you hire a professional, you are insuring that your personal
property assets are properly protected. Think about it: if
you have a valuable item, one worthy of protection, then a
proper appraisal will be worth much more than the appraiser
will charge. The small premium you pay now is far less than
what you will lose in aggravation, time, insurance premiums,
and loss of dollars if you ever have an insurance claim and
your appraisal was done by an unqualified appraiser. This also
reduces the risk of having your claim denied due to misrepresentation
of material fact due to a quack appraisal. On average, consumers
pay an additional 40% per item, per year more than they should
due to unqualified appraisers and appraisals.
How do you know if the appraiser is a
professional?
Ask. All too often, the
only question that is asked by consumers when trying
to retain an appraiser is: ”How much do you
charge?” The question that you should ask is: “What
qualifies you to appraise my property?” The
professional appraiser will not be offended by this
question, but rather welcome it. This is not as short
of a question as it may seem, but it is rather a multi
part question.
Listed below in order are the questions you should be asking.
More questions
Cover Document: This explains in detail what type of value is being sought, the appraisal objective (Purpose) and how the appraisal is to be used (Function). It will identify the client and intended users of the report and where the property was inspected, as well as the dates of inspection and the dates of value. It will explain the approach to value used and the markets explored. The standards to which the appraiser complies will be explained, along with any limiting conditions and other pertinent information not found elsewhere within the appraisal document.
Grading Systems: An explanation of the grading systems used for diamonds, colored gemstones and pearls.
Professional Profile: This is the appraiser’s history of education and experience. It lets you know how much education the appraiser has and how current it is. This is very important to see in writing. This part of the appraisal packet will really let you know where the appraiser stands in comparison with their peers. Make sure you ask for a copy of this prior to the appraisal and ask questions about the information contained within.
Body: This is the item specific area of the appraisal. It is critical that it is written properly.
Reverse: The back of the appraisal should contain lab work, photographs, and any other support material not found in the appraisal body or cover documents.
Value, is not an abstract concept, as it is all too often treated by unqualified “appraisers.” Value is reported by, not set by appraisers. Value is set by market activity. In other words, if the mode (most frequently occurring commenced sale price) for a 1.00 ct. round diamond of a certain quality, within the defined marketplace is $5800, then the value of that diamond is $5800 and not $9000 (as some would like you to believe).
For example, if your house is appraised for $250,000 and three of your neighbors have recently sold their houses in the ranges of $230,000–270,000 for homes similar to yours, would you sell your house for $125,000? Let me rephrase the question. Do you think that someone is going to sell you a diamond that is worth $9000 for $5800?
The answer is no. There are bizarre mitigating circumstances when such a deal is to be had, but I will caution you now that they are few and far between and are never so dramatic, due to the low profit margins in diamonds.
It is best to find a jeweler who is honest and knowledgeable, someone with whom you feel you can trust and build a solid relationship. This will almost guarantee you will always get the best price possible. Loyalty goes a long way in the jewelry industry. When you hear these ads that state “the jewelry you purchase will appraise for double,” do you still believe them? The reality is the only thing that will double is your insurance premium. The selling price is probably exactly the true value. Feel good about your purchase, but don’t try to feel good about some fictitious, unsubstantiated, inflated dollar amount put on a piece of paper that only benefits your insurance carrier in the way of higher premiums.
With the exception of simple metal items (such as a plain gold bracelet), one-to-two line appraisals will only put you in harm’s way. Here is an example of a typical “appraisal,” one that is far too abundant on the market. “One lady’s 14kt yellow gold diamond ring. The ring has one 1.00ct round diamond, SI1 clarity, G color. Retail Value $10,500.”
Let me explain “Harms Way” with this alleged “appraisal.” You receive this paper and take it into your insurance agent to have the item scheduled (separately insured). It is typically written on some garbage boilerplate form with a fancy border and some ludicrous statement on the top, such as “we hereby certify we have been engaged in the business of appraising jewelry and watches for many years.” On the bottom is a disclaimer stating that they are not liable under any circumstances for anything.
WRONG! They are liable. They cannot, in the eyes of the court, absolve themselves of responsibility for their work. These appraisals would never hold up in court if challenged.
Your agent attaches a “rider” to your insurance policy for approximately $162 per year. The appraisal goes through the underwriting department and everything is fine.
Or is it? First, if you paid $6,800 for the ring, and that is what its appropriate value probably is, if they inflate the appraisal to $10,500, you are paying approximately an additional $60 per year in premiums that you need not pay and will never recover. That’s an additional $600 every ten years.
After you own the ring for a couple of years, let’s say you chip the diamond and so file an insurance claim. The claim agent will have the claim assessed by one of their replacement centers, which are jewelers who work on a heavily discounted rate with insurance companies, due to the large volume they handle for the insurance companies. If the claim center is handled by a competent gemologist-appraiser, there are a few different situations that may occur:
You must understand why the insurance companies are handling these situations this way. The insurance industry is harmed to the tune of millions of dollars a year because of these so-called “appraisals.” You should also understand that this harms you as well. It is because of such situations that your premiums are at the level that they are.
Insurance company claim agents work to indemnify you as the insured, based on the quality of your appraisal, and the lowest common denominator, while at the same time protecting the company from the damage that is caused because of these “appraisals.” If you have a properly written appraisal, you are protected and have just raised the bar on the lowest common denominator. Now if you have a problem with an insurance claim, you will have a leg to stand on and will be able to be truly indemnified.
The most dangerous statement you can ever make is “I only need this appraisal for insurance; I do not want to pay that much to have an appraisal done. A jeweler down the street says he will only charge $35 and told me that would be all I need to insure the item.”
Keep in mind, no one ever realizes how bad their appraisal is until they have a claim, and 99% of all appraisals that I review for the insurance industry are not properly written. Those clients are greatly at risk. You will never see that $10,500 check that you think you will be getting, and that is stated clearly within your insurance policy (unless you have an agreed cash value policy, which most people do not). Always keep in mind that old saying: “An ounce of prevention is worth a pound of cure.” Or as I like to say: “Amputation is not fun.”
Protect yourself. It is always better to hire a professional now than to find out down the road that some of the most sentimental purchases you will ever make in your lifetime are not properly protected.
Appraisals for insurance are done in the present. This means that the value is written for the date of value stated in the cover document. You must have a properly written appraisal updated at least every two years to ensure there has been no damage and that the value is current. It is also prudent to have the same appraiser update your appraisals. The reason for this is twofold. First no one other than the authoring appraiser may make any changes to the appraisal document. Second, an update from the same appraiser will be at a minimal charge.
Your insurance agent is most qualified to answer this question. I will tell you this: there are two ways that you can insure your items:
ALWAYS KEEP YOUR ORIGINAL APPRAISALS, LABORATORY REPORTS, AND PHOTOGRAPHS SOMEWHERE SAFE. MAKE SURE YOU KEEP THE ORIGINALS AND GIVE YOUR INSURANCE COMPANY A COPY, WHEN YOU GIVE THEM THE ORIGINAL, THEY MAY BE LOST!
No one ever does, of course. I have said it numerous times and it is ignored. It is a symptom of the following malaise:
Americanitis – a common mental deficiency in Americans, one that either prevents them from reading a legal contract, or causes them to believe only what they choose to about that contract, before it is signed.
Sound harsh? Good, it’s supposed to. Read your personal articles policy application forms and policies. Insurance policies are legal contracts and you are bound to their terms and conditions. It is simple and is all spelled out. Almost all are the same and I will give you the wording off of one major insurance company’s personal articles application and policy, to better understand the coverage that you probably have on your “scheduled” jewelry. *NOTE: Again get a copy of your policy that pertains to your scheduled jewelry, read it and understand how you are covered.
Application form
The important part of this form,
which is located in the signature block section reads:
I am applying for the insurance indicated, and the information on this application is correct.
I understand that the premium shown above must comply with insurance company name rules and rates and may be revised.
I also understand that insurance company name has the option of repairing or replacing any lost or damaged property. In the event of a cash settlement, I will be paid no more than insurance company’s name cost to replace the item.
Here it is. Here is where you contractually agree that you will be limited to actual cash value, which is the insurance company’s cost to replace the item, and not the appraised value. Remember, if the appraisal is out of date and the cost to replace is greater than the policy limit they will only pay out up to the policy limit. Also note that fraudulent misrepresentation of a material fact can null and void your policy at any time, including during a claim.
1. Non-covered Perils:
2. Conditions:
Insurable interest
For most consumers, the first item of jewelry they insure is a diamond engagement
ring. Technically an engagement ring is a betrothal (promissory) item.
This means that it is the property of “giver” but is possessed
and worn by the “receiver.” If the two people do not reside
together, there is an important issue that you must be aware of and address
with your insurer. Insurable interest. Even though the “giver” has
title, the “receiver” has the insurable interest. In other
words, if a man gives a ring to his fiancé and they do not reside
together, and it is insured under his policy and it is lost while in her
possession, then it may not be covered. You must ask your agent if your
policy will cover this situation. If they do not, the ring would have to
be insured under the receiver’s insurance policy.
Conclusion
This article pertains to jewelry
insurance appraisals only, but it is important to understand
that the same philosophies apply to all types of jewelry appraisals.
There are many types of appraisals, including estate, charitable
contribution, equitable distribution and comparison for purchase,
just to name a few. It is important the appraiser has the training,
knowledge of markets and value definitions to handle these.
While I have only addressed jewelry insurance appraisals, you
may have antiques and collectibles, fine art, or machinery
and equipment that you need appraised for insurance. The appraisal
training levels pertain to these fields as well.
About the author: Charles Ellias is on the board of directors of the International Society of Appraisers (ISA). He is also a consultant for gem artists, lapidaries, wholesale diamond and gemstone dealers, insurance companies, retail jewelers, personal property appraisers, attorneys, independent adjusters, and consumers. He has taught courses on manufacturing arts, appraisal sciences, consumer courses on jewelry and gemstones, was a technical editor for Section III of the American Gem Society’s Advanced Personal Property Appraisal Course, along with instructing insurance companies and appraisers on jewelry appraisals and appraisal review. Mr. Ellias has authored numerous articles on appraisal issues, and has been the recipient of many awards for his dedication to the appraisal profession. With 20 years of professional experience, Mr. Ellias is an advocate for appraisal ethics, education and reform. For more information, see his North American Lapidary Laboratory website.