It’s so easy
Why should anyone choose the market data approach to value over the cost method? Accuracy. Instead of making assumptions and using a best guess of the wholesale and shipping costs, overhead, and profit margins to estimate value, we can simply look at actual selling prices. “But Mark,” I hear you say. “I’ve got these nifty pricing guides so I don’t guess the wholesale costs. I know how much I pay for shipping and insurance and I know my own markup strategy. Besides, the cost approach is so much easier and faster.” First, it’s vital to understand that easier and faster are not criteria for choosing a valuation method, at least not if credibility matters. It’s also important to realize each of the pricing guides provides a ‘value,’ not a ‘cost.’ They are a compilation of market data from various sources that indicate market trends and the modal or average prices. If I were to call one of the dealers who provide the data to the price guides, then I would be working with a potential ‘cost’ for the stone, but I would still not know if retailers in my market were actually paying that amount. Similarly, if we assume a keystone or triple keystone or half-keystone markup, it is exactly that, an assumption.
The cost approach has its place and can produce credible results when properly utilized. The sales comparison approach is always based on market reality. There’s no need to assume or guess—simply analyze and report.
Mark T. Cartwright, ISA CAPP, ICGA, CSM-NAJA, GG (GIA) is president of The Gem Lab, I.C.G.A., an independent American Gem Society (AGS)-accredited gem laboratory. He has been a jewellery designer, goldsmith, gemmologist, and appraiser for more than a quarter century. Cartwright can be contacted via e-mail at firstname.lastname@example.org.