Guide to Lab Created Diamonds: Valuation and Appraisal

Taking the chaos out of lab diamond appraisal

The ability to identify lab created diamonds has become fairly easy for even the most basic gemological labs. However, the valuation and appraisal of jewelry made with lab created diamonds has become a serious challenge due to the very volatile nature of the market values. This challenge is mirrored by the insurance companies that write policies to cover the lab created diamond jewelry. Today, I hope to bring clarification to this issue to help both appraisers and insurance companies alike.

We will start with the problems of the grading reports from the International Gemological Institute.

The Problems with IGI Grading Reports

As an appraiser, the first problem you will run into is so many lab created diamonds being sold on the Internet come with a grading report from the International Gemological Institute. The most obvious problem is that sellers call these diamonds “Certified by the IGI.” Of course, there is not a lab in the world that actually certifies gemstones. They only issue grading reports. However, beyond this there are two important issues with the IGI grading report that everyone should be aware of.

The first is the Limitations and Restrictions section of the report. The small print on the report states

“This report is neither a guarantee, valuation, nor appraisal of the gemstones described herein. Please review the limitations and restrictions set forth online for additional information, important limitations and disclaimers please go to www.igi.org/terms.html.”

The problem is that page does not exist.

Searching today for that link I came up with a 404-error code that the page does not exist, meaning that anyone wanting to look up the Limitations and Restrictions of this IGI grading report will find nothing. That is the first major issue.

The other problem is IGI does not support their grading reports in case there is a dispute or litigation that involves their report. This comes from my direct experience as expert witness in the case of Bailey v. Frantz, in which the IGI was subpoenaed by the court to produce information about one of their reports. The IGI completely ignored the subpoena and refused to cooperate. The result was the IGI grading report was considered hearsay and thrown out as evidence.

The obvious problem for the local jewelry appraiser is that if you rely on the IGI certificate and include that in your appraisal documents, should there be a dispute or a problem arises, you will be the one having to defend that IGI grading report because they will not be there for you. Appraisers and consumers should keep this in mind.

Valuation of Lab Created Diamonds

The most perplexing problem for appraisers issuing appraisals for lab created diamond jewelry is establishing value. The market is highly volatile due to the increasing supply of lab created diamonds with the result of driving down prices. Likewise, a search of the various lab created diamond dealers on the Internet will produce a wide variety of price ranges for a diamond of the very same description, quality, and size.

To resolve this issue, appraisers need to talk to your client and find out as much information as possible about their lab created diamond jewelry item. If possible, you should ask for a sales receipt if it is a new purchase because that will include important information about where they purchased the diamond and how much they paid. It is perfectly acceptable to ask these questions. It is important information that you need to know to offer the most accurate appraisal.

The other issue is if you know the source of the diamond, which will give you a good idea about where to find the value because you can always reference back for a replacement from that same source. For instance, if the diamond is from Blue Nile. Blue Nile’s prices are higher than another place like Brilliant Earth. Therefore, if someone purchased the stone from Blue Nile, Blue Nile sets the standard for the replacement. Lacking information about the provenance of the piece, or any kind of information regarding purchase value, I recommend that you use the Brilliant Earth website to research prices. Overall, they seem to be the most fair, the most properly represented, and the most mainstream as far as lab created diamond prices go.

The Statement of Limiting Conditions

The other important issue is including a statement of limiting conditions regarding lab diamonds in your appraisal’s Narrative. I have received many requests for information about this because of concern regarding the volatility of the lab diamond market. A proper statement of Limiting Conditions regarding the value that you are placing on this lab created diamond will help protect you in case there are disputes over appraised values. Below is an example of a limiting condition statement that I have drawn up as a suggestion. The purpose is to protect the insured and the appraiser in the event of a dispute as a result of that market volatility.

Conclusion

The lack of uniform standards and oversight of the jewelry appraisal industry leaves appraisers on their own to determine what is proper when it comes to issuing a jewelry appraisal on a lab created diamond. The insurance industry is at the mercy of the jewelry appraisal industry because they cannot require defined standards for jewelry appraisers. If they did, there would not be enough appraisers that would meet those standards.

Therefore, insurance companies have to deal with what they get as far as appraisal documents. It is for this reason that I urge insurance companies to look for members of the National Association of Jewelry Appraisers. The NAJA is the only organization dedicated strictly to jewelry appraisal with very high uniform standards and oversight of their members.

To assist with this, the Global Claims Associates established the International School of Gemology to provide an education platform that allows people to get into the jewelry appraisal field and be able to move up to the NAJA membership. 

Visit our ISG Registered Gemologist Appraiser program to learn more.

Robert James FGA, GG