Tuesday, April 21, 2020

The victimless crime: inflated valuation scam

The glory days of this scam were the 1970's and 80's. The scam is known as ‘inflated jewellery valuations.’ What is fascinating to me is that the scam was pulled off by three parties working in harmony defrauding each other, while each participant in the scheme considered themselves the perfect example of honesty and professionalism.

Participant 1: jewellery owner. A typical profile: mature lady who has never worked a day in her life (doctor's widow).
Participant 2: a 'reputable' jeweller who prepares the insurance valuation.
Participant 3: Insurance company.

The well-off widow takes her ring to a 'family jeweller' for periodic valuation. The relationship between the two is candid and ongoing. "Oh, I still miss Henry, he was such a gentleman."
"Oh yes, such a gentleman. He never forgot an anniversary, and we always had a special piece for him".
"He had such refined taste. This blood red sapphire ring is so special to me that I never leave the house without it"
"Such a rare gem. Worth a fortune!"
"Well last time you valued it at $15,000. I wonder, how much is it worth today?"
"Leave it with us, we'll do a proper valuation, give it a clean and polish and will call you when it's done".

The ring is revalued to $20,000. The jeweller charges Mrs Doctor's Widow a percentage of the freshly inflated value. Of course, the more the ring is 'worth', the more he charges for a valuation. The ring owner is happy: while the valuation is pricey, she can afford it. It's certainly worth the peace of mind:  in case it gets stolen or is lost, she gets a nice pile of cash.

The insurance company is over the moon: a new, higher valuation means an increase in her premium. They love enthusiastic jewellers and widows who look after their rings.

So, have you figured out why this seemingly innocent fraud works so well? It is for one reason only: jewellers charging a percentage of the ring valuation.

Imagine the alternative scenario: a flat charge and honest appraisal. "Your ring is worth the same as it did five years ago. You don't need a new valuation". But what kind of valuer would say that and risk ruining a relationship with the customer, and deprive himself of easy money? He knows too well that if he does not inflate the valuation, the old lady will take the ring to his competition.

Over the years I have seen a piles and piles of over inflated valuations not only on jewellery, but on gold watches as well.  Back in the 1980's they were so prevalent that almost every inquiry that started with “I've found my grandma's gold watch valued at $25,000" required pointing out the obvious: a $25K gold ladies watch is extremely rare. Time to curb your enthusiasm!

And in the majority of cases, those gold ladies watches, as pretty as they are, are due for an overhaul, restoration, or at least polishing before they can be sold. Beautifully crafted, they are never considered of any collectable value. They are what they are: a piece of jewellery, a token of love, a romantic memory, an anniversary present, invaluable to the recipient, but of very little resale value - neither back then, and even less today.

As cruel and heartbreaking as it may sound: a large majority of ladies’ gold watches are worth their weight in gold, at scrap metal value, and a few hundred dollars on top for the mechanism. To a watchmaker, tiny diamonds and precious stones have no value, nor do they have much value to jewellers. Most painfully of all, even with the prettiest gold watches: finding a ladies wrist that would match the size of that of a 1950's gold bracelet is next to impossible - bracelets are always either too large or too tight, too narrow or too wide.

So, if your 'family jeweller' still charges a percentage of the value on an item to be valued, refuse to be a sheep to be sheared. His job is to determine and assign a realistic value, and that piece of expertise has nothing to do with the value of the item itself - it is based on the amount of research work required - that's all.

We do not do jewellery valuations, only watch valuations of two types: a standard one at a fixed price of $100. That would include almost any 'easy to research' watch like a modern Rolex, Omega or Breitling. The second category: vintage watches like 1960's-70 Rolex sports models which may require partial disassembly, additional sets of photos and a water resistance test. Such valuation could take a couple of hours to prepare and we charge $200.                          

No comments: