I know someone who recently lost the diamond in her engagement ring. After about eight hot seconds of looking — the phrase needle in a haystack seems apt here — she declared the stone lost forever and her life over. Her husband (the nicest guy in the world, btw) was going to beat her like Chris Brown after losing at an awards show. Topical!

This did not happen, of course. Instead he bought her a gigantic new engagement ring to symbolize their more secure financial status. The ring cost $2,500 on sale at some jewelry store. She loved it so buddy forked over the cash. Hopefully he got laid that night.

One of the major selling points for this ring was the jeweler’s appraisal that came with it. According to this IRON-CLAD CONTRACT, this ring had $6,100 worth of gold and diamonds on it. Confident they were getting a deal, our story’s heroes emerged from that jewelry store with the assumption they were somehow richer from the experience. What a fantastic marketing job by this store. I want to buy them all medals.

Anyway, here’s why that appraisal (and every other jewelry appraisal) is a giant scam.

The business of jewelry

Buying jewelry is kind of like buying underwear. Very few people are going to buy it used no matter what the deal is.

Which is a real shame, really. 50% of marriages end in divorce. Even some happily married couples are forced to hock the family jewels for pennies on the dollar to make rent money or buy diapers for their whiny offspring. Nobody can argue jewelry is a necessity, meaning it’s the first thing sold when the going gets tough. Put all of these factors together and the conclusion is obvious — there’s a lot of supply out there. Demand? Not so much.

Who exactly is going to pay appraised value for a diamond? Nobody. If you’re one of the few women who would ever wear second-hand jewelry, you want a reason to do so. It’s only logical. If you can’t save significant cash buying used, why even bother? It’s the entire reason anyone buys anything used.

Think back to the original story for a second. If that ring was really worth $6,100, why was it on sale for $2,500? Why wouldn’t the jeweler sell it for much closer to appraised value? Why wouldn’t they take the stones off and use them in other pieces?

FWIW, my guess is that piece was purchased, returned, and then the store blew it out. The ring looked brand new and the people buying it never thought to ask whether it was used or not. It’s probably better not to ask.

The true test of value

Let’s look at the bigger picture here for a second. What exactly determines the value of an object, house. investment, or your body? Don’t answer that last one. Financial Uproar is a 100% hooker free space and we’d like to keep it that way, thanks.

$20.

Come on, Italics Man. Even you can do better.

I don’t even exist, you moron. 

What determines the value of anything is pretty simple, really. Something is worth what someone will pay and not a nickel more.

In theory, this is a fine hypothesis. Things get a little trickier in the real world though. Say you’re selling your house. Your Realtor comes by and says the place is worth $500,000. Congrats, baller. The market seems pretty efficient, so you accept this explanation.

But what if there was a non-zero percent chance you could convince somebody to pay $525,000? Or $550,000? Would it be worth it to price your house accordingly? These are the kinds of questions every home owner struggles with at some point. After all, it takes just one person to pay a wildly inflated price to make it worthwhile. And if one person would pay $550,000, what are the odds of that person finding your listing and slapping down the cash?

The opposite can happen, too. An impatient seller takes $450,000 because they want out now, dammit. Is the house worth $500 large still? Or has the value magically dropped to $450,000? I certainly don’t think so; this is why I increased the value of my house on my net worth statement a full 14 seconds after buying it. An efficient market often takes time, especially in big ticket items like houses.

The bottom line

Appraisals are just some guy’s opinion of value. Take them all with a grain of salt. Jewelry appraisals are especially suspect. No, you’re not selling your ring for more than what you paid for it.

 

Tell everyone, yo!