Spotting a Bogus Appraisal
How can you tell if a diamond certificate or appraisal is reliable? Is there any way to know whether a valuation is reasonable?
It’s becoming more and more common for retailers to supply documentation attesting to the value of the jewelry they sell. Usually such documents specifically state that they are “for insurance purposes,” but this shouldn’t cause the insurer to let down his guard. As discussed in the last month's issue, these are sales tools designed to encourage the purchase. They usually do not serve the insurer’s interests.
There are also documents prepared by independent jewelry retailers that are not complete enough to serve as useful appraisals.
Here are some guidelines for distinguishing reliable from unreliable appraisals and certificates.
For diamond certificates, Gemological Institute of America (GIA) is the most respected authority. GIA established the internationally accepted standard in diamond grading. For details on GIA diamond reports, see March 2002 IM News.
The American Gemological Society (AGS), also highly regarded, is discussed in April 2002 IM News.
When insuring quality diamond jewelry, you should have on file one of these reliable certificates as well as an appraisal signed by a gemologist who examined the exact stone(s). This appraisal should describe the mounting and the stone(s) in detail and should give a valuation. Ideally, it should be submitted on ACORD 78/79 and prepared by a Certified Insurance Appraiser (CIA™).
(For the difference between a diamond certificate and an appraisal — and the importance of having both — see March 2002 IM News.)
Any appraisal or certificate supplied by the seller is suspect. If the document carries a valuation, ask the policyholder for the sales slip.
An appraisal or certificate that carries a valuation significantly higher than the selling price can only be serving the interests of the seller. Retailers often supply inflated valuations as a service to their customers, a mere formality, since it’s “only for insurance.”
An appraisal not signed by an appraiser who has examined the stone is unacceptable. Large retailers, such as Zales or Costco (see February 2003 newsletter), work with a lab. The retailer might say, “We have 1000 diamond rings of such-and-such quality that need certificates,” and the lab will supply them.
A store-supplied appraisal or certificate may state that the document is based on a GIA report on the diamond. That is, the person assigning the valuation has not seen the stone, he has seen only the GIA description. While GIA’s diamond certificates are highly respected, the buyer (or the insurer) has no way of knowing whether the diamond that was purchased is the same as the diamond that was certified.
You may see certificates from various labs. Here are some examples of untrustworthy certificates: diamond ring selling for $6,999 but appraised for $12,955. (description and certificate); 3.06 carat diamond ring selling for $31,699.99, appraised for $61,480 (description and certificate); and a $21,999.99 diamond ring appraised for $44,745. (description and certificate). The names of the labs may sound authoritative and the paperwork may look very official, but they are not creditable. Do not trust either their grading or their valuations.
Appraisals that have incomplete details are not useful. The value of a diamond depends far more on details of color, clarity and especially cut, than on carat weight. If the appraisal in question is not on ACORD 78/79, check its completeness by using ACORD 18, Jewelry Underwriting and Claim Evaluation.
Appraisals signed by an appraiser who is not a Graduate Gemologist (GG) and a Certified Insurance Appraiser (CIA™). If an appraiser does not have the proper training, he may not know how to accurately evaluate gems.
Even a diamond report from GIA or AGS can be a problem. There are counterfeit certificates and there are some retailers who provide a certificate for a different diamond than the one the insured purchased. Obviously the purchaser has no way of knowing whether the gem that was certified is the one that was purchased. The consumer can protect themselves by getting an independent evaluation.
FOR AGENTS & UNDERWRITING
If the policyholder supplies an appraisal that is incomplete, or a document from a suspect lab, or an appraisal with a valuation far higher than the selling price, or a diamond report supplied by the seller, ask for an appraisal on ACORD 78/79.
If the valuation on a certificate is much higher than the purchase price, the valuation is probably inflated.
Certification labs used by large retailers supply documents with titles such as “summation of appraisal” or “appraisal report” or “identification report.” The valuations are typically exaggerated to impress the customer. They look similar to reputable diamond certificates, but they carry valuations. Do not trust these valuations.
In pricing a replacement, use descriptive information from the certificate or appraisal to get competitive bids. Do not automatically turn to the seller for replacement, especially if it is a large retailer.
Some large retailers operate under several names, so getting competitive bids can be tricky. You may think you are comparison shopping, while you are actually in a closed loop of a single business.
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