We’ve written about how to find out what your diamond is worth in the past. In that post, We took an in-depth look at the 4 Cs of diamond grading, understanding the importance of the current market and fashion trends on the retail level, as well as the importance of having a diamond report from the GIA. But diamond quality is only one part of determining diamond value.
Today, we examine and understand the marketplaces that you can sell in and how time plays the biggest role in determining which is right for you.
Understanding various types of diamond value definitions
To understand the market you are selling in, we first have to understand diamond value definitions.
Defined by the American Association of Appraisers as, “The amount it would cost to replace an item with one of similar and like quality, purchased in the most appropriate marketplace within a limited amount of time.”
Replacement value is the value most commonly used in insurance appraisals. In most cases, it is a high retail value.
“The price realized in a sale situation under forced or limited conditions and under time constraints.”
Fair Market Value:
“What a knowledgeable, willing, and unpressured buyer would pay to a knowledgeable, willing, and unpressured seller in the market.”
Fair market value is a gross value and may include sales commissions and buyers premiums.
“Value that an individual may place on an item based on their own preferences and circumstances.”
Looking closer at types of diamond value
If you have an insurance appraisal on your diamond, the value stated is the item’s Replacement Value. These values are very different from an appraisal that you may receive on your home, car, or fine art. It is not an indication of what a buyer should pay. It is a price that you can obtain that item for in the quickest and easiest way. If you lose or have a jewelry item stolen, you expect the insurance company to replace it as quickly as possible. This means paying full retail in order to settle your claim in a timely manner. In fact, if you check your insurance replacement appraisal it is often around 20% more than you actually paid when you originally purchased the item.
While your insurance appraisal may not be good for helping you determine what price to ask for your item, it can be a good resource to help you determine the quality of your item. A high quality appraisal will state each of the diamonds qualities within the 4 C’s, as well as the presence of fluorescence and the diamonds length, width, and depth measurements. If you do not have an appraisal and are considering obtaining one before selling, there are a few important aspects to consider.
- Be sure the appraisal is being written by an independent appraiser and not a jewelry store or dealer who also buys and sells. Buying and selling items that you appraise is an obvious conflict of interest. You are looking for a completely honest and unbiased opinion of quality.
- Ask for a “Fair Market Value” report, making it clear to the appraiser that you do not want an appraisal for insurance purposes. While the value they give may or may not be what you will receive from a buyer, it will be much closer than the value given on an insurance replacement valuation.
- Finally, remember that this report is for you to obtain information on your diamond in order to negotiate from a position of strength. The buyer will ultimately determine whether or not they Know agree with the quality. Because they are the ones writing the check for the item, their opinion is the only one that matters to them. Still, if they are on the fence on a particular quality it may help to put their decision in your favor. My advice would be to ask for the buyer’s opinion of quality before letting them know you have the appraisal. Find out how honest they are before you get too far along. While there may be a difference of opinion, anything off by more than one grade per category should be a red flag.
If you would like to locate an independent jewelry appraiser near you, visit the website of the National Association of Jewelry Appraisers. www.najaappraisers.com.
One of the most difficult things for a seller to come to terms with is that if you are interested in selling to a buyer within the industry for immediate payment, you are liquidating your item. Per the definition of liquidation, you are limiting your conditions by the number of potential buyers you are shopping and the available markets you are entering. Most importantly, you are working under time constraints. You are asking the buyer to take on all of the risk, so that you can be paid quickly. Because the buyer must now consider the time it will take to find the next buyer, he has no idea how long the money used in the investment will be tied up. Not only is that liquidity costing him the interest it would earn in the bank, but he must now spend additional money to insure and market the item.
Having a need to liquidate your diamond does not mean that you cannot find a fair price. It just means that it will be a fair liquidation price and certainly does not maximize the items total value.
Fair Market Value
However, if you are not working under tight time constraints, you can achieve your diamonds true, Fair Market Value. This should be the goal of any seller that is not in immediate need of the funds and is able to be patient. Because achieving fair market value is the goal, it is worth understanding fully. The most important thing to understand is that this value is based on the market you are selling in. Different levels will have different values. The diamond and jewelry industry has many different market levels. You have to understand which you are entering and which your potential buyer is a part of. Let’s look at the markets most available to you.
- Second Hand Market
- Liquidation (Below wholesale)
Do not get fair market value confused with retail value. Retail value, in almost all cases, can only be obtained by a retailer. This is because even if you were seeking out the end user of the diamond, a friend, someone found on a platform such as Craigslist or Ebay, Fair Market Value is what a “willing and educated buyer would be willing to pay”. Educated is the key word. They are aware that the diamond is pre-owned and if they wanted to pay retail, they would go to a retailer who offers credit, guarantees, trade in policies, etc. Buyers of a second hand diamond are looking for a deal, and retail is not a deal.
This would be considered the second hand market and it is the best way to realize the highest price for your diamond. It is also the most difficult and time consuming. Locating the buyer is only the first challenge. Using third party sites such as Craigslist can be both frustrating and scary, trying to navigate the scam artist, crooks, and low ballers. Then comes the dilemma of safety when meeting the potential buyer and collecting payment, especially on high valued items. Still, if you are willing to overcome the hurdles involved, it will almost certainly bring you a higher value.
So if it is nearly impossible to obtain a retail price and the second-hand market is filled with too many obstacles, wholesale is the obvious market to shoot for. Sounds easy enough right? Unfortunately, this is also a very difficult market for a seller who is not a professional in the diamond industry to enter.
Don’t worry, we are going to show you how to not only sell in this market, but succeed in it. First, we need to understand why buyers won’t pay you wholesale by understanding how the diamond and jewelry industries work.
The Diamond Industry and Diamond Value
When you walk into most jewelry stores, chances are, they do not own the majority of merchandise you see, especially the loose diamonds. It would simply be too expensive to purchase and stock that amount of diamonds. Because of this, the industry works on “memo” or consignment. The diamonds are actually owned by much larger diamond wholesalers and manufacturers and simply placed in the stores on consignment. Want to purchase a particular diamond that your jeweler does not have? No problem. They will simply call their supplier and have the stone sent in to show you. They tack on their profit and if you purchase, send payment to the supplier. If it doesn’t sell, they box it up and ship it back. Nothing lost. If a store does choose to purchase and stock their inventory, suppliers will often offer prices discounted from the memo price between 10%-15% or more and even offer interest-free payment terms.
So let’s say a jeweler is willing to make an offer to purchase your diamond. They are willing to take the risk of investing in and stocking a diamond that they could simply call their supplier on and have sent in at wholesale. Further, if they wanted to purchase and stock that diamond they could do so from the same supplier at a 15% discount, with payment terms!
The simple fact is, selling to a store or typical diamond buyer is to sell at a liquidation value. They have to pay you less than they could get it from their normal supplier, which means below wholesale. This is the reason that many stores do not even offer to purchase from clients. A jeweler’s worst nightmare is offering you 20% or 30% of what you paid to purchase a diamond from them just a year or two prior. They told you what an incredible deal you were getting when you purchased and now they are putting their foot in their mouth because they just exposed how much money they really made.
A seller’s solution for realizing diamond value
By this point in this article, you’re informed on how the industry works and how to navigate the selling process. You are also probably feeling a bit discouraged. For some reason that I have never quite understood, people tend to place jewelry and diamonds in an investment category. They assume that they will hold their value over time. The reality is, it is just like any other product. Once you purchase it at retail and walk out of the store, the value drops immediately and significantly.
So how do you maximize what you can get paid? How do you sell for true fair market value at the wholesale level or even above? The answer, become the supplier. By keeping the risk yourself you are simply asking for a partner to help sell the stone, one that is already in the retail and wholesale markets.
In this case, you have a few options:
Seeking Diamond Value Through Consignment
Finding a diamond professional that is willing to take your diamond on consignment can be the best way to reach the highest possible value in the least amount of time. It allows you to enter a market that was previously not available to you. It removes the risks and therefore the need for the consignor to work on such large margins, leaving more money for you.
So who do you choose to partner with you in the selling of your diamond? Let’s examine who you’re looking for and why.
Selling Diamonds To Jewelry Stores
Many retail jewelers will offer consignment. While this can often work out great for a seller, there are a few things to be aware of.
First, a successful brick and mortar jewelry store turns their inventory 1.3-1.5 times per year. Given an average inventory turn of 1.4 times, this means that a particular item is sold only once every 8 ½ months. So on average, you will wait 8 ½ months to see your money.
The second consideration is the market size that the store has available to them. Local jewelry stores are just that, local. They survive by servicing the community that they are located in. Their business model is to draw clients into their store. This means that the right buyer for your diamond must be in the area, be looking for a stone like yours, and find their way into that particular store.
Third, what is the key demographic for that store? Most jewelry stores have a target audience. Tiffany & Co. is not going after the same client as Zales. Consider your diamond’s quality and relative value. Then locate a consignment partner that services buyers of that type of stone.
The final consideration is, how many of that item does the jeweler already have in stock and at what cost to them? A jeweler is not going to leave money on the table. If they already have a diamond similar to yours and an interested buyer for that diamond, they are going to push to sell the one that will make them the most profit. Your only defense to this is to price yours cheaper to the jeweler. Again, this means cheaper than what their supplier has given it to them for, cheaper than wholesale.
Maximizing Value With A Diamond Broker
Using a reputable diamond broker is almost certainly the best option for anyone with a desire to sell their diamond. This is because a good broker is not passive in sitting and waiting for a buyer to come to them, they go find the buyer. A broker should already have an extensive list and network of qualified buyers. This eliminates that traditional thinking of time of inventory turn. While a retail store markets their brand, a good broker will market your diamond.
This also allows a broker to tailor the audience to the best potential buyers for your particular diamond. It takes the potential buyers from only those who may live locally and happen to walk in, to literally, the entire world. Aggressively offering your diamond through multiple channels to locate and sell your stone for the highest price in the least amount of time.
You also do not have to worry about competing with existing inventory that the broker may have. Brokers work on commission, much like your realtor does when selling your home. They are the experts to help you through the selling process. The more they sell your item for, the more you make and the more they make. If it doesn’t sell, they make nothing. What better motivation is there to do their job and do it well?
How to choose the diamond broker for you
Now that you understand why a diamond broker is the best option, how do you find the one that is right for you? If you live in or near a major city, the chances are you have a diamond broker that is local. If not, or if they simply do not seem like a good fit for you, many more can be found online. So what should you look for in your broker?
- Do they take their time in walking you through not only your diamonds expected selling price, but show you exactly how they arrived at that particular number? Providing you with information on the current market, recent sales, and current active listings of similar diamonds.
- How are their fees structured? Many brokers will simply offer you a guaranteed payout price with no indication of the actual final sales price. So you have no way of knowing if they made 15% or 200% on your stone.
- Seek transparency. You want a broker that will state their exact commission structure based on the final sales price.
- Make sure that the terms and conditions are clear and understood with no hidden fees.
- Inquire about their strategy to sell your diamond. How and where will they market your stone? How big is their buyer base?
- What is their standing in the industry? Are they accredited and in good standing with reputable organizations such as the Better Business Bureau and Jewelers Board of Trade?
- Ask for proof of adequate insurance coverage and inquire if their provider specializes in the diamond and jewelry industry.
- Is there any financial risk to you as the seller if the item does not sell? Are they willing to front the cost of things like shipping, marketing, or obtaining a GIA diamond certificate on your behalf? If they are not willing to put a stake in the game, what does that say about their confidence in their ability to sell your diamond?
- Finally, trust your own instinct. You are seeking a partner to help you in selling an expensive and often cherished item. You want a broker that understands and has genuine concern for you and your particular situation. One who will handle your transaction with care and concern, working diligently to get you the best possible price, just as they would for their own family member.
Selling your diamond does not have to be a scary process. Empower yourself by becoming as knowledgeable about your diamond as possible. Determine your pricing based on facts and market knowledge and not on intrinsic values. Most importantly, find the right partner. Someone you can trust. Someone with the desire to show you the way with complete transparency and can help you enter a market that would otherwise be unobtainable to you. It’s your diamond and you deserve to receive its fair market value. So be confident and go get it!