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Comparing the incomparable: Adjusting market data to estimate value

They’re not the same

Details of craftsmanship can help pinpoint the appropriate market/market level for sales comparison. In this case, lower retail is the correct choice based on poor setting technique and obvious tool marks in the final product.

A common misconception about the sales comparison method is that only identical or near-identical items can be accurately compared when looking for sales results. Obviously, we all hope that such straightforward comparisons are out there to be found, but often that’s not the case. What we should really be searching for is sales data that can be used for comparison, rather than sales of identical items. If we understand the ‘value elements’ of a piece of jewellery, it becomes much easier to recognize similar value elements in other pieces. Any characteristic of the item that distinguishes it from other similar pieces and creates a perception of value in the minds of buyers would be considered a value element. In a diamond, the well-known 4 Cs are widely recognized as the factors influencing how much a buyer will pay in comparison to another diamond. So, in conducting market research one would try to match as many of those characteristics as possible. However, what if we can’t find a close match?

If we consider the Cs of a diamond, it doesn’t require a great deal of research to discover there is a direct correlation between the carat weight breakpoints and the price per carat within both the wholesale and retail markets. If necessary or useful, it could be expressed as a percentage. For instance, if all other factors are equal, it might be noted that a two-carat diamond costs X per cent more than a one-carat diamond. Or one might look at the prices for round brilliants of fine make compared to well-made princess-cut diamonds. Establishing such correlations allow us to ‘adjust’ sales data based on market evidence, even though the items sold were dissimilar in some way. Within every market there are statistically relevant relationships between value elements, and it’s important to recognize these relationships vary with the specific market. To illustrate, in some regional markets, the carat weight of a diamond overrules the quality of the cutting, while in other markets, the opposite is true. As we begin to see the patterns, our ability to locate comparable properties from which to derive sales data becomes easier and our analysis becomes more accurate.

The attention to finish details and skilfully set stone are indicative of the upper market levels occupied by guild-type retailers and should be valued accordingly.

Just as important as recognizing what’s important to an item’s value is the ability to understand those characteristics that should be described, but which don’t contribute to its worth in a significant way. A trivial example is whether a diamond is mounted in a four-prong or six-prong setting. The difference between a 57 per cent table diameter and a 58 per cent table is equally insignificant in determining value. If we’re dealing with the truly rare, the number of legitimate value elements becomes very small indeed. Whenever demand far exceeds supply, buyers become far more willing to accept what might otherwise be considered a defect in a property. To illustrate the point, when appraising a three-carat fancy blue diamond, the range of cutting variables that would be acceptable to a buyer at a given price point is much greater than those same factors for a near-colourless three-carat diamond. Even the stone’s actual shape becomes much less relevant, as the colour and carat weight dominate most other considerations. I’m suggesting market research can help us understand what really matters to buyers and what is simply part of the description.

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