Appraisal Value vs Selling Price

(Below is a reprint from a paper that I had written on appraisal practice as it relates to lower priced internet sales. Some of the terminology is geared toward industry professionals, however I believe there are items of interest in the paper  relevant to all consumers, particularly appraisal value vs selling price at low margin retailers. I hope you enjoy)

Engagement Ring

By: Richard J. Malerba, GG


Analysis of Internet Sales from Low Margin Discounters

The rapid expansion of internet jewelry sales over the past several years has had a broad impact on the way jewelry is bought and sold in today’s market. According to the 2013 annual shareholders report from Blue Nile Inc. , one of the largest diamond jewelry retailers on the web, the company saw total revenue jump from approximately 333 million dollars in fiscal year 2010 to approximately  450 million dollars in fiscal year 2013. The company also reported a gross profit of 21.6% in 2010 compared to a reduced profit of 18.6% in 2014.   The increase of roughly 35% in revenue indicates robust growth in that sector, however the numbers indicate that the growth came at a cost of nearly a 14% decrease in profit. This paper will discuss both the positive and negative aspects of the rise in internet sales as they relate to the consumer and industry. Secondly, an analysis of the challenges presented to the professional jewelry appraiser related to the rise of lower margin internet sales will be examined specifically with an emphasis on appraisal value vs selling price.   Increased competition from the growth of internet jewelry sales can be viewed as mostly a positive for consumers. Many larger online only sellers have cut their margins to win market share. This decrease in the price, particularly in the diamond sector, has lead to an increase in competitive pricing models across many traditional retailers. The competition is evident in some of the largest big box chain stores price matching the competitive pricing found on the web. This same phenomena is prevalent in other high dollar consumer products where the customer gathers information on the web but then actually makes the purchase at the more familiar retailer. This process can also work the other way to the detriment of the traditional retailer.  Some internet savvy consumers will look at actual products in a store only to find a better price online for the item they decide on. This challenge to the retailer has been dealt with in creative ways including increased prevalence of product branding as well as price matching.   Strong evidence for the  general health of the traditional retailer is showcased by Signet Jewelers Limited 2013 annual report. During the same reporting period as Blue Nile Inc., Signet (the largest specialty jewelry retailer in the world) posted revenue gain from approximately 3.27 billion dollars in 2010 to 3.98 billion dollars in 2013 for a gain of 21.7%. Perhaps even more interesting is that the gross profit rose from 32.6% to 38.6% while at the same time Blue Nile was loosing margin. It is important to note that these two examples, while showcasing some of the largest players in their space, do not bear out to all retailers. It does illustrate, however, that the traditional retailer can thrive and increase margin in the modern market place.   The prevalence of the online discount retailer has been both a boon and bane for the professional appraiser. The conundrum of assigning the most appropriate market is not completely new. Lower margin diamond “brokers” and jewelry “wholesalers” to the public are decades old. It is a common occurrence to see inflated appraisals issued by such retailers to underscore the “value” that has been afforded their customers. The complexity arises because of the scope of the internet retailer. No longer is the isolated and often high margin jeweler in small town USA immune from the reach of the diamond discounter.  The internet based jeweler is operating on the national level and in some cases beyond. Information about diamonds jewelry, vast selection and price comparisons are now at the fingertips of every consumer with internet access.   The problem as it concerns the professional appraiser is determining the appropriate market for researching value. It can be reasoned that because of the wide reach and product availability of internet based firms that it would be appropriate to consider this market level a universal standard. Conversely, researching the actual geographic location of the consumer to establish the valuation of an item readily sold in their locale has been the gold standard of appraisal methodology.  Each method described has merit and is appropriate for various situations. The issue becomes less clear when the item is actually purchased online for a competitive price and the client seeks an independent valuation to obtain insurance coverage. It would seem logical to use the same market to research the replacement cost. Situations do arise as many consumer will be disappointed if the  perceived “value” received by the online vendor was not verified by a higher replacement cost in the appraisal. The preferred course of action is to disclose this issue to the appraisal client during the initial client interview. The various market levels should be explained to the client along with the various replacement policies issued by insurers. Information regarding the differences between a typical replacement policy and the less common as agreed policy should by disclosed to the client. It is important to state that all policies are different and that the client should always seek clarity from their insurer. In my experience a majority of clients will want the higher value assigned to their item. The problem is then one of ethics. Is it reasonable to assign a higher value to an item knowing that it was purchased at a lower market level. In this situation I would argue that it is. It is not only ethical but preferred.   The argument for choosing local pricing over the internet price that was paid is supported by several appraisal principals. When deciding where to replace an item that is under claim it is reasonable for the client to opt for an “arms length” transaction. In other words,  a purchase made in person at a traditional retailer. Even when the original purchase was made at an online retailer the argument can be made in the case of a replacement that the item in question needs to be viewed and agreed upon by the client to assure that they are receiving comparable merchandise and made whole to their satisfaction.   It is also a common and accepted practice to seek the modal retail value for an insurance replacement appraisal in the clients locale. This argument is strengthened by the actual numbers. The largest internet resellers of jewelry are still only a fraction of the overall market share of jewelry sold in the US.  According to a De Beers  study cited in JCK magazine on June 12, 2014 only 18% of all diamond jewelry sales are made on the web. It is also reasonable to conclude that some of those online sales are from the websites of traditional jewelers indicating that less than 18% of all diamond jewelry is sold by lower margin web only retailers. It is highly improbable that a modal value could be found mathematically if the number of total sales is disproportionately lower. This second point to the modal argument is ancillary to the greater point of finding the proper value for the client in their geographic area, however it is a logically sound proof.


             Internet based jewelry sales have been growing robustly and will most likely continue to grow well into the future. Many savvy traditional retailers have risen to the challenge by embracing technology and social media while strengthening their strongest asset, the innate advantages of the more intimate personal sale. Those retailers who continue to adapt will find themselves caught in the rising tide of the overall increasing market awareness the internet has brought to bear.   The web has provided the professional appraiser with a very powerful research tool which has the dual effect of simultaneously making our jobs both easier and more difficult . The ease at which auction results, designer pricing and general research can be performed was not obtainable just a few short years ago. The difficulties lie in the proliferation of “value” based retailers who are often legitimate but sometimes not. The professional appraiser is now tasked with not only verifying the merchandise’s authenticity but also determining yet another market level to fit into the hierarchy. It is my opinion that appraisal assignments should begin with a  thorough interview. It is by this process that the needs of the client are determined, often with the knowledgeable insights of the appraiser to help inform them. In the case of determining the proper market for deeply discounted jewelry’s replacement cost it is ultimately up to the client. Once they are informed a proper appraisal can be written to fit their needs. It is my position that the value for the replacement of the merchandise in question should by default be the modal value as found in the clients locale.  Clients will appreciate the appropriate higher value  in most cases. Exceptions to this position can be used when circumstances call for it. Some collectors that have a watchful eye on ever rising premiums may wish to have a more conservative approach taken. This can easily be accommodated for and noted in the appraisal when this less common situation arises.

Are Diamonds, Gold and Jewelry A Good Investment ?

(I published this article several years ago, but its prevalence today still make it an important read. )

The uncertainty of current economic times has pushed many consumers and investors into purchasing hard assets such as fine jewelry, precious metals and gems. Many clients are asking me if this is a good idea. I have always been of the opinion that jewelry is wearable art and its primary purpose is to bring enjoyment to it’s owner with a secondary benefit of having long term value. I am sensitive to the fact that gold & gems have been objects of value for millennia. I want to present in this article some information regarding the jewelry market as a whole and let you, the reader, make your own decision about the investment component of jewelry, gems and precious metals.

Due to the impossible nature of predicting the future of any market, I turn to the past as my guide. What is happening in the precious metals market and potentially in the diamond and gem market is similar to the situation in the early 80’s. In Jan 1980 gold was up over $850oz. and diamonds were being touted as investment vehicles by newly formed diamond grading labs and investment companies. Weather or not it is a good idea for the individual investor to jump in now is a hotly contested subject. Looking at historic metal pricing yields some interesting trends. In Jan. 1979 gold was around $230 oz., after it’s run up to $850 it was down again to $390 in Jan. 1981. The 80’s continued to see ups and downs in the precious metal market never reaching its previous high. By 1990 stability set in, and for over a decade gold hovered between $300oz and $400oz. Now that gold is back up near record highs.  many people, including some financial advisors, feel it is still undervalued. Keep in mind that adjusted for inflation the $850 price in 1980 would be well over $2000 today. The counter argument would advise against buying high and risking a return to post run up pricing for an extended period of time making it impossible to recoup you losses even over the longer term.

Diamonds are a somewhat different story. Most of the rough diamonds are sold at sites by DeBeers Central Selling Organization. The supply side is effectively controlled to weather financial crisis and even out diamond pricing.  The historic appreciation rate of diamonds has on average just slightly outpaced inflation. In the early 80’s the diamond investing phenomena drove prices way up  for about a year. Diamonds were no longer just luxury items but investment vehicles for everyone. Unsustainable rapid price increases fueled demand. Within a year the bubble broke and diamonds were down to pre ’79 pricing. If this trend emerges again  I would approach it with caution and skepticism. This is not to say that in the long run diamonds can’t be good investments.

I believe, like any other investment, when and how you buy is a critical aspect that leads to ultimate profitability. Let’s say that you purchase three diamond rings all the same size and quality with similar certifications and documentation. One ring is from a well known local independent jeweler and the price is $50,000. The second ring is purchased from a very “In” designer with a price tag to match of $85,000. The final ring is purchased at a reputable auction house and the price paid is $30,000. Which one of these is the best investment? All of these rings will depreciate or appreciate at somewhat varying rates. The ring bought from the independent retailer is automatically depreciated as an asset because if you were to turn it back into cash by selling it on the secondary market you would realized a much smaller figure than the one you recently paid. The jewelers overhead and profit instantly eat at you investment. If you were to make the leap to financial parlance you could view the premium as a huge front end load. The designer piece with typically an even higher mark up and overhead may seem like the worst choice, however as long as that designer remains “In” then that ring may not deflate by such a large percentage initially because of demand and future appreciation could be brisk. The hard part is knowing who will remain in and who will be on the outs. I was in shock when I heard the recent news that Henry Dunay Design filed for chapter 11 in NY recently. How can such a venerable high end jeweler end up in that position. It is a sign of the times. Fortunately they may emerge from this crisis and even if they do not the effect for Dunay designs on the secondary market would be uncertain. It could boom or bust, it is speculative at best to predict.

The last example,  the ring purchased at auction, would typically be the option that allows the shortest amount of time in the red. In other words it would be like buying a small load or no load investment.  The nature of the auction means that if you purchased a piece that received a good amount of bids around the price you paid that it is reasonable to assume that you could recoup that money if you wanted to sell in a short period of time. The buyers premium of course does add to this timeframe. Unfortunately it is not so clear cut as simply waiting a prescribed period of time to recoup fees before you are in the black. If you bought the piece on a good day (from the auction house’s and seller’s perspective) and sell it on a bad day than obviously your investment has lost its luster. Of course the opposite could happen and you could be well into profit immediately after the purchase. The auction market is complex and equally as difficult to predict as the stock market, but like the stock market desirable items show strong and steady growth over the long term. Historic appreciation rates of diamonds on the retail as well as secondary markets will allow your investment’s secondary market value to surpass the original purchase price given enough time. The amount of time it takes varies on how the diamond is purchased as exemplified above, and also on the quality of the diamond.

Over the past twenty years diamonds of the highest color (D,E,F) and clarity (Flawless, VVS, VS) have appreciated at significantly higher rates that their more common cousins. Looking at auction results as well as wholesale and retail pricing will clearly show this. A current example is the lackluster performance at recent auction with regard to the more mainstream jewelry and gems. The bright spots, however, are to be found among the best of the best. The major auction houses have been breaking all records in recent years. The highest amount per carat as well as overall for high quality and fancy diamonds has recently been realized.

In summary, the jewelry metals and gem market is as hard to predict as any market, but it is good to bear in mind the common principals of buying right and pursuing quality. In many cases the yield on a piece of jewelry purchased at retail may be relatively small. Although if this piece is being worn then the dividends that the joy of ownership brings are not so easily measurable.


Dear Guest,

Thank You for visiting the American Jewelry Institute’s website and blog. Here we will be posting pertinent information regarding the world of diamonds, gemstones, jewelry and timepieces.  I wanted to first let you know a bit about me.

My name is Richard Malerba and I am the principal and senior staff appraiser for the American Jewelry Institute, LLC. I am a third generation jewelry professional with over 25 years of related experience. My areas of expertise include gemological & appraisal services, consulting, publishing, teaching, designing and manufacturing. I have well established working relationships with many professionals affiliated with the most prestigious global jewelry and jewelry related institutions. I consults with large and small clients alike assisting them in determining their valuation needs for insurance, estate planning, collecting, liquidating and other purposes.  In this regard I have personally appraised and evaluated over one billion dollars of client’s jewelry related assets, with single items valuing well into the millions.

It is my hope in this forum to provide some insights to the public at large to assist you in making informed decisions regarding all types of Jewelry and Gems, whether you own a piece or wish to acquire it.  Thank You again for visiting.