APPRAISAL TERMINOLOGY
Before I start, I want to clarify a few terms that are commonly taught and used in the appraisal arena that I use and define differently. If you have taken an appraisal course, read a book, attended a seminar, lecture or speech, or are following some guru sitting in a yoga pose in front a computerized Valhalla - you probably use the phrase "sales comparison approach." It is from the real property appraisal arena which has listings of properties for sale and properties that recently sold. We in the jewelry arena have no such resource. However, if you state in your appraisal or on a witness stand that you used the sales comparison approach, there must have been accomplished sales involved in your determination of value. Say out loud "sales comparison approach" and note that it states "sales." It does not say "wholesale plus markup to retail," "price tags," it does not say "wholesale catalogs," nor does it say "price guides." Thus, I use "Market Activity" instead. More on this later.
Next, I often encounter appraisers who call the "wholesale plus markup" to determine retail as the "cost approach." I think that maybe it is from the "cost" in "wholesale cost" that this came about. I see and teach the "cost approach" as making the item - reproduction or reconstruction.
Value for a "new" item is simple. You have two choices, namely "duplication" and "substitution."
"Duplication" involves seeking the market activity of a duplicate new item. Yes, you can add the word prevailing in front of market activity. You will encounter several prices for the same item depending on which stores are researched. More on that later in this post.
"Substitution" involves seeking the market activity of an equally good substitute item because the one being valued is not available in the market.
Now, you will get varying prices. Do not average them nor seek the middle (medium) number in a list from high to low. That does not eliminate the extremes. Instead, seek the prevailing number. This is called the mode in most appraisal courses. However, mathematically, to have a mode one must have at least three numbers, two of which match. I prefer to say "prevailing" instead.
$9.00
$4.25
$4.23
$4.23
$4.23
$4.23
$4.10
$4.09
$3.23
$3.01
$3.00
$2.94
$0.90
Average would be $3.7261538462
Medium would be $4.10
Mode would be $4.23
Value is $4.23!
Written by Bill Hoefer
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1. Illustrations - IStock.com.
2. Illustration - Antique post card owned by author.