Defining an Appraisal
As jewellery professionals, we provide a variety of valuation and evaluation services our clients may think of as appraisals. But are the really? We may provide a verbal estimate of how much an item might bring at auction. Perhaps the client needs to know how much value has been lost due to damage. It could be they are planning their estate and want to divide the property equally among their heirs, or they have inherited a shoebox full of baubles and need to know what is real. Maybe they just want to know if the diamond they purchased matches the grading report that came with it. And then there is the point of sale "insurance replacement document many clients expect to receive when they purchase jewellery.
So what is an appraisal? The precise definition depends on who you ask. The Canadian Jewellers Association (CJA) provides the following definition:" An expert unbiased opinion as to identify, composition, qualities and values usually embodied in a document which is the official record of the item. An appraisal should also include a detailed description of the item using recognized terminology and grading systems". AGS, USPAP and the GIA all have a different "opinion" of what an appraisal is.
Although there are common features in the definitions. In each instance, the appraiser is expected to be trained, competent and unbiased when providing an opinion of value. Yet, CJA seems to lower the bar when defining an appraisal for insurance: "A jewellery appraisal for insurance is a comprehensive description supporting an estimate of value to be used as the basis upon which insurance premiums will be set and should be the basis of establishing the value and limit of the claim settlement at the time of an insured loss." There is no requirement of competency, lack of bias or disinterest on the part of the valuer and no mention of recognized grading systems for the item description. AGS has a similar "insurance replacement document" that isn’t required to meet the rigorous standards of the true appraisal. And so the insurance appraisal is relegated to second-class status once again.
But does your client make the distinction between an 'appraisal' and an 'insurance appraisal?' Do they expect you to act competently, objectively, and independently? Do they expect you to meet the definition of an appraiser and your report complies with minimum appraisal standards? If you ask them, I suspect you'll get a resounding "Yes!" Ultimately, your clients' expectations are what really matter. Courts have held that if a jewellery professional holds him or herself out to the public as an appraiser, he or she is held to a higher standard of behavior. Do we really need to have our feet to the fire to act appropriately?
What's in an appraisal that makes it unique? Various appraisal and jewellery organizations have slightly different requirements for the process and the finished product, but the key ingredients are pretty straightforward. Researched value independently derived from the appropriate market is the foundation of any appraisal. That means the selling price from a single store isn’t sufficient to establish value (unless it’s the only place to obtain the item). If you sold the piece, your selling price is a good start to the market research, but it isn’t the end, at least not when you’re providing an appraisal. This puts the retailer in a sticky situation. Will your client be happy to discover they paid above market in your store? Will your competition willingly provide sales data? Thus the reasoning for allowing a variance from accepted appraisal standards for insurance replacement documents.
In all likelihood, your client will be satisfied with a non-appraisal document, as long as you’re clear about its limitations and it is acceptable to the insurer. It is generally considered ethical for the replacement cost on any such insurance document to match the selling price. When it doesn’t, an explanation is in order. This brings me to a fairly common myth.
Dispelling the myths
It’s an apparently widespread belief that providing exaggerated values is both acceptable and somehow a service to the customer. When done with the intention to help the client obtain a higher ‘cash-out’ from the insurer it may be interpreted as conspiracy to commit insurance fraud. When done in the belief that a higher valuation will convince the client they’ve received a ‘good deal’ by paying a lower price than the ‘appraised value’, it could be interpreted as just a plain fuzzy thinking (and a possible violation under the Competition Act or similar legislation in other jurisdictions.) In each case, such ‘puffed’ values provide the client no benefit and will cause them to pay needlessly higher insurance premiums. Most insurance contracts limit the insurer’s financial liability to the insurance company’s actual cost to repair or replace with an item of like kind and quality. It is the descriptive section of the document that defines what is like kind and quality, not the value. That means your client’s insurance contract rests entirely on the adequacy of your descriptions and market research. The CJA provides an excellent overview of the necessary components of a good description on their website under “Accredited Appraiser Program, Minimum Acceptable Standards.” In fact, the appraisal standards published there substantially match those of the AGS, International Society of Appraisers (ISA), and National Association of Jewelry Appraisers (NAJA), and could serve as an excellent model for any valuer.
Besides independently researched value and comprehensive descriptions, clear statements of limiting conditions, critical assumptions, and the scope of work undertaken are central to a credible appraisal. The ‘scope of work’ describes the methods used to establish the identity, authenticity, and qualities of the item and its components, as well as the market and market level that was researched and its intended purpose.
‘Assumptions’ statements tell the client and third parties what the valuer believed to be fact without further testing and with the understanding that if proven false, may change the value (i.e. the authenticity of hallmarks). ‘Limiting conditions’ declarations describe the limitations of the valuer’s ability to test or conduct research, such as the use of calculations to derive carat weights for mounted stones or time restrictions for research. These crucial parts of an appraisal are statements of the assignment’s realities and not disclaimers of liability, which brings me to another appraisal myth.
By the book
No disclaimer can or will absolve one of the responsibility to act competently. It seems all pre-printed ‘appraisal’ forms sold by supply houses include the phrase, “… the appraiser assumes no liability for any action taken as a result of this appraisal.” Wouldn’t it be grand if we could actually dodge our responsibility with a simple phrase or two? Sadly, the reality is appraisers have a legal responsibility to their clients and are, in fact, liable for actions they can reasonably anticipate their clients will take as a result of their appraisals.
Whether out of pride or fear, I strongly urge anyone who provides valuation services for insurance replacement or more complex issues to understand and follow established appraisal standards. Education and training are encouraged, but one needn’t belong to an appraisal organization or be an accredited CJA appraiser to adopt its guidelines. One need only to decide to offer the most professional appraisal service they are capable of providing. Your client expects – and deserves – nothing less.
