A gem or gemstone is a non-metallic material used in the making of jewelry. Gems may be precious or semi-precious, which is merely a classification system wherein diamonds, rubies, sapphires and emeralds are deemed precious and any other type of gem is semi-precious. Semi-precious gemstones also include rocks like lapis lazuli. Although common, this classification system is misleading as a high-quality semi-precious gem may be significantly higher in value than a low-quality precious gem.
The grade, or quality, of a gemstone directly impacts its value. Unfortunately, no uniform system of grading gems exists. Instead, each major gemological institution promulgates its own grading system. Some methods use the naked eye while others use a magnification system. Most methods make use of a system known as the “4 Cs,” which are color, cut, clarity and carats. Each gem variety has an optimal color or lack thereof. Expert cuts bring out the full sparkle and shine, or “water,” of a gem, and an inexpert cut lessens the value. Clarity involves the lack of inclusions, or flaws. Carats are the measure by which gems are weighed.
Diamond valuation is generally determined using a method developed by the Gemological Institute of America (GIA) involving 10x magnification as the standard for judging clarity. All grading services issue certificates of their findings for the person requesting the grade of the gem. When buying a gemstone, it is necessary to ensure that this certificate was indeed issued by the organization in question and matches the gem on offer.
Grade is a starting point for all appraisal and valuation, but acceptable valuation methods differ according to circumstance. For example, an appraisal for the purpose of purchasing insurance on the gem will value the gem at its highest value. This is because the insurance company is assessing its risk should it have to replace the gem. In contrast, an appraisal for a probate estate would value the gem as if it were to be sold at a forced sale, because estates must be liquidated quickly even though optimum prices are not achieved. In the middle we find the fair market value appraisal, which by definition is what willing diamond buyers would pay a willing seller, both appraised of all relevant facts and under no duress or legal disability such as incompetence.