OThe practice of selling diamonds with laboratory grading reports hatched when customers became more aware of the Four Cs - even adding a fifth C called "Certificate."Later, as internet sales became commonplace, a sixth C was added, namely, "Cost."

Let's face it - most diamonds are sold based on a laboratory report. Ask the appraisal customer if they were told the color and clarity grade (and sometimes the cut grade), were based on the report. The answer is most likely to be affirmative. Online sales list certificates and often have facsimiles of the reports available for viewing. The so-called brick-and-mortar retailers as well as second story discounters display diamonds with reports in their showcases. Encountering a diamond accompanied with a laboratory grading report is routine. Are all of these laboratory reports comparable and does it matter? As the GIA stated, "Using the same color grading terms does not constitute adhering to the conditions or methodology of the GIA system." This point is critical tounderstanding the issue before us here.

        Cert Censorship

Should a professional appraiser discard the report and render the value as well as the description based on their opinions? Or should they embrace the cert and use it as a basis for valuation and descriptions? Or is the best approach to discard a certificate that is not coveted and only rely on the one that is highly regarded as accurate?

Appraisers definitely are divided as to the approach. Valuators realize that some "certs," as they are nicknamed, are not reliable and some reports are coveted as almost gospel. Ask any appraiser and he or she can tell you which reports are reliable and which ones are not. Indeed, the wholesale prices of diamonds are often discounted when accompanied by a certificate with less authority. It is obvious that dealers, not just appraisers, recognize the hierarchy of laboratory reports.

On the other hand, retail consumers do not realize that there are trade-coveted as well as unpopular certificates for diamonds. They view the certificate as an absolute confirmation of the grades represented, trusting that all labs are created equal.

Where does this leave the appraiser? Maybe as professional appraisers we need to define our role.

A professionally rendered appraisal is a disinterested and impartial value conclusion determined by using an accepted value definition that is executed with an understanding in market analysis and research, appraisement methodology, and the personal property and evaluation therein involved; and has a specific assigned use; and has a judicial public interest obligation; and has been rendered by a qualified appraiser; and has an adequately detailed property description as of a specific date; and has a rendered value that is supported by the presentation and analysis of relevant market information.¹

Our ethical obligations require us to be disinterested and impartial. Are there any other obligations not within the above definition? Yes. The insurance industry has a maxim called indemnity. It is a principle that cannot be ignored. Because of its clear and distinct public interest - the principle extends to appraisers rendering reports intended for obtaining insurance.

        Indemnity is the Maximum

Basically, indemnity requires the insurer to make the insured whole again, in terms of money or a duplicate replacement. The insured is not to sustain any loss or profit when compensated. When you are signing the appraisal, you must ask yourself, "Will my description and value conclusion achieve indemnity if a full casualty loss occurred right now?"²

Most people regard modern art as mass hypnotism. You know the type - one that looks like a plank from a fence at a paintball park. It is difficult to believe that someone paid thousands of dollars for a painting that some would think has little or no value. Personal feelings aside, what is it worth? It is worth what was paid for it. Value is market driven. It has nothing to do with how ugly it is. Value is based on transactions in a market. Clearly, this principle applies equally to any of the number of copyrighted jewelry and gemstones selling in the marketplace. You may think the gem is ugly, but if the item is selling, it is worth what it is selling for. Copyrights are an additional C in the Four Cs lineup.

        ©, ®, and ™

"When copyrighted pieces are insured and a casualty loss occurs," clarifies Anne Blumer, GG., ISA., an independent appraiser specializing in insurance methodology, "indemnity mandates the replacement procedure." She adds precision by explaining that an insurer has to base the replacement on what authorized sellers of the copyrighted item sell it for and not for a substitute.

Breathe easy because copyrighted items are the easiest to value. A copyright holder or their designated agents are the only ones who can legally sell or reproduce a copyrighted item. From an indemnity perspective, replacement requires that a copyrighted item be replaced with the same copyrighted item.

What about brands? An item can have a brand and not be copyrighted. She explained that if the brand has marketable provenance, then it is handled like a copyrighted item. Thus, you cannot value a silver floating heart marked with the trademark of Tiffany® as one sold in the jewelry counters of local department stores even though it does not have a copyright. All you have to do is research those stores authorized to sell Tiffany items and use their selling prices. Items that hold a valid patent are to be handled like copyrighted items.

When asked about the problem of mentioning or not mentioning a "cert" in an appraisal, Anne counsels appraisers who do not mention the certificate that the insurer can not possibly provide a certified diamond matching the customers' if the appraisal does not mention the report. That same lack of indemnity, she quickly adds, occurs if the appraiser mentions the certificate in the item's description but does not use the certificate for the valuation.

        Wrapping it Up

The task of the appraiser is to render a proper description and value that does not undermine indemnity. Diamond grading reports, regardless of what you may think of their reliability, provide marketable provenance and ensure indemnity. It is recommended that the appraiser reference the information from the report as well as the laboratory that issued it. Replacement with a similarly graded item from the same laboratory would ultimately be the objective.

The value conclusion is based on all the information and the provenance of the lab that issued the report is absolutely considered in that value conclusion. As previously stated, not all labs are created equal and the market clearly shows that difference in what those diamonds sell for.

Always adhere to the principle of indemnity when describing an item, include all value elements, and render a value conclusion that achieves indemnity as well.

Written by Bill Hoefer

<sup>1. Advanced Personal Property Appraisal (APPA) course of the American Gem Society (AGS) and the Jewelers' Educational Foundation (JEF), Part I, Lesson 13, page I-123.    Back to Text ↑ ↑ ↑
2. Technically, the effective date of value is at the time of the inspection and not when you sign the report.    Back to Text ↑ ↑ ↑
3. Published in Gem Guide, July-August 2009.
4. Illustrations - IStock.com.
5. Illustration - Antique post card owned by author.</sup>