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Old ejs
 
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Replacement value vs fair market value question?
Quote this post and reply to it Post#1 @ 03-29-06 , 03:04 AM


I know this is different for each piece of jewelry, but generally speaking, what percentage of the replacement value of an item is the fair market value? For example, if I have a ring appraised with a replacement value of $5000, what would be the expected range of its fair market value? 30% of the replacement value? 50%? 70%

Thanks!

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Re: replacement value vs fair market value question
Quote this post and reply to it Post#2 @ 03-29-06 , 03:48 AM


There are two parts to your question. First, how accurate is the replacement appraisal. Most are not.
Second part, depends on item. Fair market is the expectation of what the market will bring for the item. A used Rolex in great condition may sell for 70% of replacement value. A cocktail ring with poor workmanship and low quality diamonds may sell for 10% of replacement value.
When buying it is not a bad question to ask what the second hand market is like for your item if you should want or need to sell it.

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Re: replacement value vs fair market value question
Quote this post and reply to it Post#3 @ 03-29-06 , 03:49 PM


I don't understand the whole "replacement value" thing -- I just got a beautiful wedding band to match my e-ring, and on the paper with it, it says the "replacement value" is pretty much twice what we paid for it. Why should that be the case? Because if I had to replace it some time in the future (god forbid), that it would likely cost that much then?

Just trying to understand . . .

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value
Quote this post and reply to it Post#4 @ 03-29-06 , 03:58 PM


Consider your home. It has an appraisal for it's current market value based on size, area you live in, pool etc. The fair market value would be how much to sell it today. Usually about 10% less in homes.
With jewelry, consumers have gotten used to "replacement values" being falsely increased to make you feel good about the purchas price. Replacement value should represent the average market for the item. No the lowest place, not the highest. What does the majority of the stores sell that item for.
Maybe you got a great deal? If so that deal may not always be around if you have to replace it. If your "replacement value" is inflated, don't insure it for that amount. Get an appraisal from someone who is really an appraiser, not just someone who can sign a name at the bottom of a page. Hope that helps

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Re: Replacement value vs fair market value question?
Quote this post and reply to it Post#5 @ 04-03-06 , 08:55 AM


Replacement Value is a badly abused concept. Itís supposed to be a reasonable funding to allow your insurance company to replace it with another NEW item of like kind and quality in the case of a loss. In the case of unusual sorts of things that may require custom work to replace, this can be considerably higher than what you paid and in cases of Ďcatalogí type items it can be lower because the insurance company gets a discount. Replacement value does not generally account for depreciation or obsolescence so, for example, watches are generally valued at the expected cost to replace the watch with a new model, not at the price of a used watch on the secondary market, even though what you have is a used watch.

Jewelers have a reputation of providing documents that they call appraisals as part of the sales material along with your purchase and these often have extremely high values which they will usually call replacement value. They do this because customers like the feeling that they have evidence that they got a bargain. Itís doing you no favors and it will cost you money if you buy an insurance policy based on one of these.

I would add a clarification about Fair Market Value. This is a legal term and it means different things in different circumstances. In general, it means the price that you would generally expect to pay for the item in itís present condition, in the usual market place for this type of thing and under normal types of terms. This is generally not the same as what you could sell it for unless you happen to own a secondhand jewelry store.

Using Treasures example, the FMV of your home is what you should reasonably expect to pay if you were to buy it right now and in itís present condition. Replacement Value would be the expected cost to construct a new house in a similar location and with similar characteristics. These may be close or it may be quite different depending on the details of your home. Unfortunately, thereís no reasonable translation table.

Neil Beaty
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Re: Replacement value vs fair market value question?
Quote this post and reply to it Post#6 @ 04-03-06 , 10:01 AM


Aha, well that makes sense, since the band I just got was a custom item. It would be harder to replace than something out of a catalogue.

Thanks for the explanation.

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