Article By: Beyond 4Cs
Ever since Beyond4Cs.com was launched, I always receive questions related to diamond prices from readers who are worried about getting ripped off. Whether you are buying or selling a diamond, I’m pretty sure your budget is a huge consideration factor that drives your decision making.
And if you are like most people, you probably want the best value out of your money and avoid overpaying for an engagement ring purchase. Well today I’m going show you exactly how to perform price research in a few easy steps. This will ensure you are paying the correct price for any diamond purchase you intend to make.
Diamond Costs – How Are They Calculated In The Trade?
Before I delve deeper into the pricing mechanisms and variables, here’s an important concept you need to understand first. The cost of a diamond is calculated on a “price per carat” basis and utilizes the following formula:
Cost = Carat Weight x Diamond Price Per Carat
As an example, let’s assume that the price per carat for a 0.50 round brilliant diamond is $4,200. The calculated cost for the stone would be $2,100 (0.50 x $4,200). If the diamond price per carat for a 0.74 carat round brilliant cut is $7,100, the corresponding diamond cost would be $5,325.00 (0.74 x $7,100).
For most people, the theoretical concept behind calculating the cost of a diamond is just a simple math exercise.
Where Are The Numbers For “Price Per Carat” Derived From?
I know you are probably thinking: “How do I get hold of reliable price per carat figures?”. Well, the most widely used price sheets in the industry originate from Rapaport and IDEX. In the past, these information were exclusively available only to members of the trade but that has since changed. Today, there’s an option to purchase the current price list (weekly) at a one-off cost of $50.00 if you want to.
Now, you might assume that downloading the price list is all you need to do and you can easily calculate a diamond’s price from the data. However, things aren’t that straightforward in the real world.
Why Diamond Price Charts From Rapnet Aren’t Accurate Measures
From a consumer’s point of view, the values listed in the Rapaport report are totally useless because it represents the average of HIGH CASH asking prices when diamonds are traded. Depending on its unique characteristics, a diamond can be sold at significantly lower or higher prices indicated by its corresponding Rap value.
Unknown to many unsuspecting consumers, the Rap report does not take into account how well-cut the diamond is, the grading lab certifying the diamond, payment terms, grading accuracy, fluorescence and a ton of other factors which all result in price adjustments from the Rap value.
If you had been shopping at your local jewelry stores, you would probably come across dealers who showed you a printed copy of the Rapaport report as part of their sales presentations. Basically, these dealers are using the price sheet as a misleading sales tool to “prove” that they are giving you an “awesome deal“.
They will say stuff like: “Look… This is the insider’s industry pricing benchmark that I’m revealing to you now. You are actually paying for 15% below the wholesale diamond prices…” or even “I’m going to take a slight loss and give you a 20% discount below Rap pricing if you buy the diamond today…”
Again, I want to emphasize that the Rapaport report reflects the HIGH cash value of diamonds and this is a major pitfall for consumers who blindly believe what the jewelers say. If you intend to use the Rapaport report as a standalone tool to gauge prices or are foolish enough to make a purchase without knowing full details, you are asking to be ripped off.
My advice is: STAY AWAY from the Rapaport report unless you are extremely familiar with the premiums and discounts that are used to calculate a diamond’s market value.
So, How Do You Research Diamond Prices Correctly?
First of all, it is easier and more accurate to perform price comparisons by using online diamond retail listings. I personally recommend using websites like Blue Nile, James Allen and White Flash to help you establish a “base cost” for similar diamonds of certain specifications.
By inputting various parameters into the James Allen diamond selection tool, you can instantly get a rough idea of loose diamond prices. In the image above, the following variables were used: 1 carat, round cut, F color, VS2 clarity, no fluorescence, excellent polish and excellent symmetry.
Imagine if you were quoted a price of $13,200 for a similar loose diamond graded by GIA, you can easily see how much premiums you are paying. On the other hand, if someone offers you a loose diamond with identical specifications at a price of $7,000, you better put on your skepticism cap and find out why the price is so low.
Secondly, you need to ensure you are making “apples to apples” comparisons. When making comparisons, you need to eliminate as many differentiators as possible. i.e. In order to make fair comparisons, the 4Cs (cut, carat, clarity and color) of diamonds you select should all have identical qualities.
To further illustrate the point, a diamond graded as H color VS1 by EGL is NOT the same as a diamond graded by GIA as a H color VS1. Likewise, a diamond with carat weight of 1.09 shouldn’t be considered to be the same as a diamond with a weight of 1.10 carats.
A Case Study Of 1 Carat Diamond Prices
Once you have a common denominator to benchmark prices with, you will now have a good starting point to help you gauge whether deals are fair or not. And this is where things start to get a little tricky…
Remember that I told you things aren’t straightforward when it comes to establishing diamond prices in real life? On paper, diamonds can look similar based on numbers and information found in a grading report. Yet, they can vary wildly in actual retail prices.
Check out the following table of 1 carat diamond prices for three identical round brilliant cuts. For your convenience, you can view detailed information for each of the listings here: Diamond#1, Diamond#2 andDiamond#3.
Notice how one diamond is about 20% more expensive than the other 2 options? If you blindly follow the values found in the Rap report, all 3 diamonds should theoretically be priced the same but they aren’t. Why? The reasons become clearer once you start looking at details…
he more expensive diamond is eye-clean while the 2 cheaper options aren’t. Believe it or not, this is just the tip of the iceberg. Many times, factors that cause price adjustments aren’t obvious and don’t show up on grading reports. That’s why I’m going to reveal these factors in the next section below…
Price Adjustment Factors For Diamonds With Identical 4Cs
1) Is there a presence of fluorescence? In general, blue fluorescence lowers the value of colorless (D-F) diamonds. In near-colorless (G-J) diamonds, medium to strong blue fluorescence can actually add a slight premium to the stones. Other colors of fluorescence like yellow or green will cause the diamond to trade at a discounted price. Likewise, if the fluorescence effect causes the diamond to take up a milky appearance, the diamond’s overall value takes a hit too.
2) What are the polish and symmetry grades? Obviously, a diamond with “excellent” ratings would cost more than a similar diamond with “very good” ratings.
3) How precise was the diamond cut? I’m not talking about the Symmetry rating found in the grading report. Instead, I’m referring to the diamond’s optical symmetry (hearts and arrows patterning) which is a level higher than the typical Symmetry grading performed by GIA/AGS.
A hearts and arrows diamond (commonly called a superideal) requires an extreme cut precision for each individual facet and their relative alignments to each other. To achieve this, it involves higher labor costs for skilled polishers and more weight loss from the rough during manufacturing. Logically, these diamonds sell at a slightly higher premium.
4) Is the diamond eye-clean? If inclusions are visible to the naked eye, it is going to affect its marketability and ultimately, its price.
5) What is the nature of the diamond’s inclusions? Do the clouds cause haziness in the diamond? Are the feather inclusions surface reaching? Do inclusions like cavities or indented naturals pose a significant risk to durability? Are the inclusions colored or translucent? The list of examples can go on for pages but I think you get the idea…
6) Does the diamond has a culet? Even though stones with culets are a thing of the past, you may occasionally come across modern day diamonds with culets.
7) What’s the girdle thickness of the diamond? The girdle has a direct impact on a diamond’s spread and durability. If it is too thick, the weight of the stone gets trapped in the side profile and the diamond faces up smaller. If the girdle is too thin, it makes the diamond susceptible to chipping.
8) What’s the color tint/hue of the diamond? GIA will only indicate the diamond’s tint in their reports at color grades lower than K. Although the tint isn’t listed for higher colored diamonds, the stone’s value can be significantly affected. For example, in G colored diamonds, brownish and greyish hues are less desirable than yellowish tints. You can find more details about this phenomenon here.
9) Are the grading reports from reliable labs like GIA/AGS or unreliable labs like EGL/IGI? Grading labs are not made equal and you shouldn’t believe anyone who tells you otherwise.
Non-Diamond Related Price Adjustment Factors
1) What are the kind of policies or warranties the jeweler offers? Do they offer buy-back or trade up policies? Do they offer free repairs, ring resizing or jewelry warranties? These value-added services cost businesses time and money and are usually factored into the markup of the goods sold.
For example, Enchanted Diamonds offers a lifetime warranty where they offer free repairs to your jewelry even in the event of incidental damage (which is unheard of in the industry). Interestingly, they also offer the most competitive prices you can find anywhere despite offering some of the best policies in the industry.
2) Where are you based at? Different countries/states will have different laws and sales taxes applicable for consumer goods. For example, prices of diamonds are generally higher in the UK than US due to VAT. When you calculate prices, make sure you factor in any duty fees and taxes that are payable.
3) What are the kind of markups the jeweler charges? Prices can vary wildly depending on where you purchase them. In general, you can expect to pay 2 times more for a similar diamond at big brand stores like Tiffany and Co. or Cartier.
For local jewelers and chain stores, I tend to see premiums ranging from 10% – 100% above Internet prices. Basically, the additional premiums you are paying for are due to additional overheads like rental, salary, inventory and marketing costs. As a guideline, if a retail store lists their diamonds at more than 10-15% of a similar stone you can find online, you know are paying an excessive premium to buy from that jeweler.
For people who are looking for a magical mathematical formula to calculate prices, I’m sorry to tell you it doesn’t exist. The truth is, diamond pricing is a very complex subject which involves many variables.
As a consumer, the easiest way to size up a deal is to compare online diamond prices against numbers that were quoted to you. Don’t drink the Rapaport price sheet kool-aid that vendors throw at you because it is done for a self serving purpose which usually benefits the vendor. Instead, you can instantly look up prices on the Internet and verify if the sales person is legit or full of BS.
The next time you notice that a deal is too good to be true, look through the list of factors above carefully. I can assure you that one or more of the above scenarios will be applicable. Remember, when it comes to buying diamonds, great deals don’t exist but fair ones do.