This is just one of the stories from our “I’ve Always Wondered” series, where we tackle all of your questions about the world of business, no matter how big or small. Ever wondered if recycling is worth it? Or how store brands stack up against name brands? Check out more from the series here.

Reader Chris from Maryland asks:

I've always wondered about this: What's the deal with diamond sellers and the bit where most will say something like, "We guarantee your diamond/ring/stone will appraise for double what you paid for it." My experience was in NYC some years ago and that seemed to be standard for stores in the jewelry district. Is this related to insurance valuations or something? I always wanted to ask them if they would buy the diamond for the value they appraised it at. Then comes the question of whether your insurance would pay you the appraised value if it was lost or stolen. 

Buyer beware: the appraised value of your diamond ring might not reflect what its true value is. It’s not a guarantee that you’ll be able to sell it for that amount, nor is it a guarantee that your insurer will pay you that amount if it gets stolen. 

“Some appraisers are not legitimate. They want to inflate the appraisal to make their clients feel like they got a bargain. Because they sold it to them for $6,000, they're going to appraise it for $10,000, but the appraisal of $10,000 has nothing to do with reality,” said Ira J. Rose, the owner of Cottage Jewelry in Illinois. 

Insurance companies insure the jewelry item, not the appraisal, said Robert James, president of the International School of Gemology. 

“If lost, the insurer will only pay their cost to replace it, which will most likely be far less than the original purchase price. So, the inflated appraisals are nothing more than sales tools,” James said. 

On top of that, customers will have to pay higher insurance premiums based on the inflated appraisal, James said.  

There are some policies out there that might honor the appraised value, but the insurer will want to compare it with the actual sales price of the item, James said. 

Rose said that if a customer buys a diamond ring at Cottage Jewelry and wants to insure it, the company’s board-certified gemologist will do what’s called a “fair replacement value” and appraise that item for close to the retail cost — plus a bit more to help out the customer since an insurer might try to devalue the item. 

So if that diamond ring sold for $6,000, Cottage Jewelry’s gemologist might set the appraisal value at about $6,500 to $7,000.

If someone wants to sell an item to Cottage Jewelry, the company will buy it for a price that’s lower than what it would cost them to craft the item. The resale price is not based on the appraised amount. 

“If it's something we really like, we'll pay up for it. If it's nothing special, we want to buy it for half below our cost or more, because a lot of things that people bring in aren't qualified to go in our case. They're what we call scrap gold or scrap silver,” Rose explained. 

Some brand-name jewelers are also able to charge a 400% markup thanks to their cachet, which means customers think they deserve more than what a jeweler is willing to pay. 

If a strand of pearls costs these companies $5,000, then they’re going to sell it for $20,000 to $25,000, Rose said. 

“But if you’re going to sell that, they're still the same strand of pearls that I get,” Rose said. “The only difference is it's in that little blue box from Tiffany.” 

If you want to know whether the appraisal value of your diamond ring is inflated, it helps to look at the prices for other rings. 

“It’s like shopping for real estate. You have to do comparisons,” Rose said.