How convenient it is to use a price guide to retrieve prices for diamonds and colored stones. Merely adding a markup to determine a value seems too easy. Some gurus of valuation theory are emphatic that price guides should be banned. Other experts embrace price guides as a key part of the process.
So, can you use a price guide or not? Well first, we need to review some basics.
Comes in Threes
Fundamental appraisal theory offers three basic value approaches, namely the market data approach, the cost approach and lastly the income approach. Regarding the latter, unless one rents jewelry or gemstones, the income approach will not be a method considered by you. On the other hand, the market data approach, which has been renamed the sales comparison approach, is a method that appraisers are more familiar with. Or are they?
The sales comparison approach sounds great but then again appears limited to only actual sales. This may have led some valuation makersand- shakers as well as some leading appraisal societies to teach that value is strictly limited to reliance on accomplished transactions or the prices of items for sale.1 And, by default, everything else is the cost approach.
You will learn…that may not be the case. One of the drawbacks with relying solely on actual transactions or price tags occurs when you depend on price guides or call wholesale dealers for estimates. Rather than redefine established…