Appraise the Stone, Not the Paper

By August Monteleone, ISA

The end of this article contains a response by grader, Paul Cassarino, ISA CAPP

In the diamond industry, there is an often-repeated adage, “Buy the stone, not the paper.” This refers to the fact that a diamond grading report does not tell you everything you need to know about a stone. More important, though, is the fact that some labs are more lenient on grading than others; to the point that consumers have filed several lawsuits against diamond sellers, citing deceptive practices.

One lab in question is EGL International whose reports have been de-listed by the Rapaport Diamond Network and Polygon Wholesale Jewelry Trading Network, two of the largest dealer-to-dealer diamond trading platforms (Rapaport also de-listed EGL-USA, a separate entity from EGL International, but Polygon did not). The major problem with the lax grading from some labs is the fact that they all use the terminology of the Gemological Institute of America (GIA).

When Talking about GIA terminology, what I’m referring to is the four C’s, as well as other information, like polish, symmetry and florescence. All of the reports use the GIA terms for color (or the D-Z scale), clarity - Flawless (FL) – Included 3 (I3). Though some include the clarity of Slightly Included 3 (SI3) – the GIA does not use this term. The Carat scale is the standard for weight then the cut (Only on rounds for GIA since about 2006), Polish and symmetry are communicated on a scale from Excellent to Poor and florescence is graded from None to Very Strong.

Since all of these labs use this terminology, you would think that a diamond graded as a D color by EGL International would be the same as a GIA graded stone when, in fact, that very same diamond was graded a G color by the GIA. *This example was taken from a 10 stone survey conducted by Rapaport news published in a June 2013 Article Grading the Graders by Avi Krawitz. In that survey, there were differences in every category listed above except for Carat weight, with variances of several grades on some samples.

The lawsuits that brought this issue to the public’s attention are against Genesis Diamonds in Tennessee. One case in particular involves the accompanying appraisal (though I use the term “appraisal” very loosely). In that case, the Plaintiff paid $21,293.00 for a ring ($3500.00 for setting and $17793.00 for the diamond) with an EGL International Graded 2.06ct. G color VS2 clarity diamond that was appraised by the seller for $27,500.00 (setting and diamond). The diamond was later graded by GIA and came back with a J color and SI2 clarity. This suit was settled out of court and records of the settlement are undisclosed.

These kinds of discrepancies from grading labs must be taken into account when doing an appraisal on diamond jewelry. Personally, I do not currently appraise diamonds or gemstones, even though I deal in them on a daily basis and have the competency to do so. The reason I do not appraise these items is because I have not yet finished my GIA classes. Until I obtain those credentials, I believe it leaves too much room for my valuations to be contested, which would be a disservice to my clients. The ISA has many competent and experienced jewelry appraisers among its membership. These professionals have spent countless hours and dollars on education and equipment in order to accurately appraise jewelry items. I strongly urge non-jewelry professionals to consult them when encountering fine jewelry in an appraisal assignment.

Sources and further reading:

• Polygon Trading Network – Announcements and forum discussions
• Jewelers' Circular Keystone JCK:
• http://www.jckonline.com/2014/09/09/rapnet-bans-egl-reports-from-trading-network
• http://www.jckonline.com/2014/09/15/polygon-bans-egl-intl-reports-from-network
• http://www.jckonline.com/blogs/cutting-remarks/2014/09/09/carrying-lenient-diamond-grading-reports-actionable-talk-genesis-nemesis
• http://www.jckonline.com/2014/10/03/lawsuit-over-grading-reports-settled
• Rapaport News: http://www.diamonds.net/News/NewsItem.aspx?ArticleID=43417
• Rapaport Magazine: November 2014 Cover story, Honest Grading by Martin Rapaport.

Response from Paul Cassarino, ISA CAPP, and grader

The article is accurate. The additional information I would provide to appraisers reading this would be to not disregard the active market for EGL-graded diamonds. They are bought and sold every day.

If presented a diamond for appraisal that is accompanied by a diamond grading report from EGL, then the value research MUST be based on sales of EGL-graded diamonds. Because EGL labs are franchised, research MUST be done on diamonds graded by the very same franchise. Some franchises are regarded more positively than others. The diamond industry heavily discounts diamonds with EGL reports because of the widespread understanding of their often mis-use of the GIA grading standards. It is a serious mistake to value a diamond with EGL papers by research of GIA-graded diamonds. In the absence of adequate data for sales of diamonds graded by the same franchise, it is the appraiser's responsibility to grade the diamond according to their training and do their research based on those findings. (Just as they would if there were no documentation provided by the client.) They MUST disclose their findings within the report and explain their value methodology. Without being libelous, the appraiser can accurately reflect their methodology...their research of the EGL-graded diamond was based on the sales of (or price in the store of...) a similarly documented diamond i.e., diamonds graded by the same lab franchise.