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In Response to One of Our Readers’ FAQ
Occasionally, as an editor of this site, you have the pleasure of writing an article that’s a direct response to our readers’ most common questions.
With the high volume of email questions we receive, it’s always helpful to have an already prepared article that addresses a reader’s question or at the very least enriches his or her understanding of the topic at hand.
The Simple Q&A
A common question we receive is often along the lines of, “I have a diamond a few years old that I need to sell. How can I get the best price possible? Is there any way I can turn a profit?”
Of course, the answer is almost always an emphatic “no,” and this article will address why.
Let’s start with the most likely scenario. Unfortunately, most people out there are still buying their diamond rings in bricks & mortar jewelry stores.
Let’s also assume the best case scenario within the subset of physical jewelry stores – the small independent (not part of a chain) jeweler that only sells GIA certified diamonds.
In this case, the best (ie, the lowest) profit percentage you’re likely to encounter is 25%. In other scenarios (ie, large chain jeweler, high-end luxury, EGL certified diamonds, etc.), you’re likely to face much higher profit margins.
A Technical Example
Please excuse me now while I get a bit technical. Let’s assume for the purposes of this exercise that the diamond ring cost the jewelry store 100 (currency isn’t relevant here – only relative values matter).
With a 25% profit percentage, that means the price you paid was 125. Let’s be generous and assume that diamond prices have risen 10% since the diamond was purchased.
So in theory, at this point, you’re only losing 12%. 125 (price you paid) less 110 (price you get for the stone) = 15 total loss divided by original price paid = 12%.
But here’s where the painful realizations begin to descend upon people who are looking to sell diamonds – whom do you turn to to sell a diamond at the current “market price?”
The answer is unfortunately nobody.
Let’s say you walk into a similar type of jewelry store to the one you bought the diamond. When they originally paid 100 for that stone, they most likely had that diamond on consignment (ie, they borrowed it from a wholesaler, so it cost them nothing).
This means that the true cost of that diamond was significantly less than the 100 they paid for it on paper.
If they buy your diamond, they buy it cheap.
For the store to actually make an investment in a diamond, and not just borrow one, it will have to justify it by buying at a very cheap price. Furthermore, relationships between suppliers and buyers in this business are extremely important.
For a jewelry store to use its capital to buy a diamond from you instead of using it as an opportunity to deepen a relationship with a supplier means that they need to justify that decision through buying your diamond on the cheap.
Additionally, just about anybody in the business who is faced with a private seller knows that this is a great opportunity to buy well below the market price.
Overall, it’s very unlikely.
Unless the diamond being offered is extremely rare for whatever reason (a situation I have yet to encounter), there’s simply no reason why a jeweler would be compelled to buy your diamond at the market price when he could buy an identical diamond at the same price from any one of hundreds of wholesalers (with better payment terms).
If you try to take it to a pawn shop, you’ll be hit even worse because their selling prices are already expected to be well below the market, so their costs must likewise be very low to justify their low prices.
You could always try to go direct to the consumer. Craigslist has its own risks. You could try selling it on eBay or other peer to peer selling sites, but no consumer is going to be motivated to pay you the same price you paid when they could just go and buy the same thing from a store that will offer warranties, packaging, etc.
In my opinion, in a best case scenario, after diamond prices have appreciated by 10%, you could maybe find someone to buy your diamond for 90, leaving you with a loss of 28% (125-90=35 total loss 35/125 = 28% loss).
If you try and sell your diamond immediately after purchasing it, then your best case would be selling your diamond for 80 or a loss of 36%. Again, this is in an absolute best-case scenario buying bricks & mortar.
What if you bought the same stone online? Well, as we explain here, that means you received far better value buying that diamond in the first place. This will help you mitigate your losses.
Take these diamonds for example. Here is a beautiful diamond from James Allen for $5,580 and a fantastic alternative from Blue Nile for $5,581. Both of these diamonds are phenomenal choices that would have cost you about $6,500 in a local store.
We reached out to some of our contacts and the best offer for those two diamonds were $3,600 and $3,900 respectively.
Buying online obviously makes selling a diamond much easier. Your cost basis is lower (so it will be easier to recoup your money if you need to sell on the open market) and the retailers give you options for returning and upgrading (so you retain full value for the ring).
Upgrading your diamond through a typical retailer usually does not give you the value you would expect. We dig into that a bit more in our trade-in article.
We recently did a secret test that of the major online options for selling your diamond. We purchased a diamond ring from Tiffany & Co for other purposes (making videos and keeping our reviews current) and used this as an opportunity to see what the other side of the business is like. Here are the results.
The ring we used was a 0.53ct round diamond in a classic Tiffany solitaire setting. We originally purchased it for $4,500. Obviously, we expected to lose a lot of money on the transaction. The question was, how much?
Please note that we used a Tiffany ring for this test. Tiffany diamond rings are insanely expensive and very poor bang for your buck. That is the reason there was such a large gap between the amount we paid and the amount we were able to sell it for.
White Pine: Bringing up the rear. This was the lowest offer by far. After reaching out to them via their website, I received a pithy estimate of $900-1,000. I responded mentioning that it was brand new and had all the Tiffany paperwork. The door was slammed shut by Mark who said there is no way they would go higher than that. Given the other offers we had, it was a waste of our time to send it to them.
Worthy: The middle of the pack. This one wasn’t too bad unless you dig a little deeper. Worthy has a different business model. They do not actually buy the ring, rather they auction it off to diamond wholesalers and retailers. We are not fans of this model as we explain in our review.
After a couple of weeks (time to send the ring, get it inspected by GIA and auctioned) the highest bid was $1,458. That was BEFORE they took their commission. After the commission, the offer would have been somewhere around $1,200.
Abe Mor: The hands-down winner. After sending them a message with the details we were given an estimate within 24-hours. Being as this was a Tiffany ring, there was little ambiguity as to the quality (unlike some other retailers or independent certificates, Tiffany’s grading and quality control is legendarily good).
The offer from Abe Mor was $1,850. No hassle of an auction. Just straight cash.
Offers on 1/2ct Tiffany & Co Classic Solitaire
|ABE MOR||WORTHY||WHITE PINE|
I should mention here that at some point we have given all three of these companies an opportunity to work with our readers (by referring people who contacted us directly). The number of satisfied sellers who worked with Abe Mor was exponentially higher than it was for Worthy or White Pine. The difference was so pronounced that we don’t bother recommending either Worthy or White Pine anymore.
As this article hammers home, many people are in for a rude awakening when they try to sell their diamond. As this test showed, the offers we received were 78%, 73% and 59% BELOW what we paid for.
Please keep in mind that this test was done with a Tiffany & Co ring. Tiffany has an incredibly high markup for their rings. A ring like that in white gold from Blue Nile would cost about $1,350. A diamond ring like that would get you a better return. For example, Abe Mor said they would buy that one for about $800. That would mean a net loss of only 39%.
I’ve used this term a few times in this article, but the truth is, there really is no clear definition of what this means. Already in this article, you can see that there’s a difference between a consignment price, a cash price, or a price with generous payment terms.
There are also “call prices” (the price a store will pay when they “call” a dealer with a specific request to sell to a customer who is ready to buy this particular item) and “business prices” (a lower price negotiated when many diamonds are bought together).
Different Market Prices and Risks
So you see, in reality, a diamond has many different “market prices.” The lowest of these is, of course, the “cash price”—the price a store will be willing to pay immediately to acquire a diamond without a customer presently requesting this diamond.
The reason this price is the lowest is because it requires an immediate outlay of capital in exchange for only the hope of a future sale. This involves taking on risk, and risk needs to be rewarded with a higher potential profit—otherwise, it’s not worth the cost of taking the risk.
So if your diamond is a less popular cut, or has an ugly inclusion, or is a difficult item for a store to sell for whatever reason, expect to take a much bigger hit when trying to sell it.
Cash prices are all about the risk of having your diamond sit in the store shelves for years ahead—the more likely that is to happen, the less a store is going to be willing to pay for it.
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