Basic Rules: The Three Steps to Buying a Diamond
Before you get into pricing and what is a fair deal, you have to know what you want and how to be sure you are getting what you are paying for. You need to make sure you are following the process to ensure you aren’t getting scammed.
1) Certification – This is the most important step. It is an absolute must if you are spending more than $1,000 on a diamond. The purpose of buying a diamond with a certificate is to have peace of mind that you are getting what they claim. The only certificates that provide that are from the GIA and AGS laboratories. They are the gold standards for the diamond industry.
2) Quality – Now that we know which certificates to use, we need to understand all the qualities listed on the certificate and what we should do with that information. You may have heard of the four Cs of diamonds and we have articles on each of them: Color, Clarity, Cut and Carat.
I will use color as an example. If you decide to go with an elegant solitaire setting like this one or this one, you can focus on J+ to maximize value. But if you are going for a more elaborate halo setting like this one, you will need to stick with H+.
3) Pricing – We get into the deep background below, but the easiest way to figure out the price is the same way you do with anything else. Shop around. Blue Nile and James Allen are the industry leaders when it comes to diamonds (like Amazon is for many products). A store will always be more expensive than what you can find online, but figure out the right baseline and then you can decide if its worth paying premium “X” for the added value you feel you are getting from the store.
For example, we reviewed Shane Co and were offered a 1.01ct I VS2 cushion cut for $6,477. Firstly, had you gone through our education on quality, you would know that this was an undesirable diamond (cut a little too deep and better to avoid “I” color in cushion cuts. Next, we can do a quick price compare. Here is a superior diamond from James Allen (better cut, higher clarity) for $2,820 and a similar diamond from Blue Nile that is an even better deal coming in at $2,779. You don’t need me to tell you that the Shane Co diamond is horrifically priced.
Follow these three steps to ensure you are getting proper value. There are some other pitfalls you need to avoid as well (e.g. enhanced diamonds or fluorescence). We are happy to help you navigate the rocks and shoals of diamond buying. Just contact us and tell us what you are looking for. We’ll do our best to find you some great options (or to comment on the options you’ve already found on your own).
Delving Deeper into the Details
For all diamonds, there are a few basic universal rules.
First of all, diamonds are all priced per carat. So, lets say a 0.50 carat diamond has a price of $1400 per carat. That diamond’s price for the stone would be $1400 * 0.50, or $700. Secondly, diamond prices per carat increase as you jump up to higher weight categories.
Therefore, diamond prices increase exponentially with weight, since their prices increase both due to the increased weight and due to the higher price per carat for the increased weight category.
The Importance of Categories
I stress categories, because you might mistakenly believe that prices per carat increase continuously as weight is increased, but this is not the case.
Since diamonds are a retail product driven more by emotion than reason, a 0.99ct diamond is worth only about 1% more than a similar diamond weighing 0.98ct. But a 1.00ct diamond is worth about 20% more than a similar 0.99ct diamond. Why is that?
Maybe because now you can say it’s a “one carat diamond,” or maybe because now it’s three full digits. Who knows. But with diamonds, it’s all about feelings. This little quirk about the business is the sole reason there are so many poorly cut diamonds out there.
How Cutting Impacts Price
You could imagine very easily that if there’s a 20% price jump from a 0.99ct diamond to a 1.00ct diamond, the cutter who loses that 0.01ct trying to make a prettier stone will lose his job.
Perhaps with the nicer cut it will only be worth 15% less instead of 20%, but either way, it’s a big loss.This kind of price manipulation by maintaining weight categories has been taken to an extreme by many of the world’s largest diamond companies.
They will take rough diamonds with diameters that really should have only been used to make a 0.75ct-0.85ct diamond (with the proper cut to maximize brilliance), but instead will keep them over 0.96ct to sell them as 1ct diamonds to the major jewelry chains like Kay or Zales.
Even though they will have to sell these diamonds at steep discounts compared to well cut 1ct diamonds, they are still sold at a significant premium to well made 3/4ct diamonds.
See the chart below for a graphical representation of this price jumping phenomenon.
Diamond Prices from 0.08ct to 1.00ct
Diamond Prices from 0.08ct to 1.00ct
In terms of pricing, there are two basic categories of diamonds — those priced off of the Rapaport diamond price list and those that aren’t.
What is the Rapaport Price List?
According to Wikipedia, Martin Rapaport “began his work in diamonds as a cleaver and rough sorter in Antwerp, Belgium.
He began brokering rough and polished diamonds in New York City in 1975. In 1978, he created the Rapaport Prices List, which some say is not reflective of true prices.
He has since created many businesses relating to the diamond industry, eponymously bearing his name, including an electronic trading network for traders RapNet and INDEX, and diamond-related news in print and web formats.”
Understanding the Rap List
The Rapaport Diamond Report price list (“Rap List”) is released weekly on Fridays, however it does not necessarily change every week.
It is used as a baseline for pricing for basically all loose diamonds sold as single individual stones (as opposed to diamonds sold in parcels) generally SI3 or better in clarity and K or better in color (although the price list does offer prices for L and lower colors and I1 and lower clarities, they are rarely used in the industry).
Rarely will you see a diamond with an I1 clarity grade sold with a certificate. As I discussed in the Diamond Clarity article, it is no small matter that James Allen has decided to sell GIA certified I1 diamonds online. There are very few places that do this.
Why Companies Lose the Certificates
Intelligent companies in the industry never sell GIA certified I1 diamonds because they know they can sell them for more without the certificate (and therefore without using the Rapaport diamond price list as the baseline).
Whenever they receive an I1 clarity grade for a diamond which they had intended to receive an SI2, they will simply throw out the certificate and pretend it didn’t exist.
How to Read the Rapaport Diamond Report
If you click on the image of a sample “Rap List,” you will see four separate grids. Each one is for a different size category. The four categories shown on this sample are 0.90-0.99, 1.00-1.49, 1.50-1.99, and 2.00-2.99.
Each grid is a matrix of color against clarity. To find the “Rap Price” for a given diamond, you need three pieces of information: the size category, the color, and the clarity.
Prices listed are always in hundreds. Lets say, for example, that you have a 1.55ct H color SI1 clarity diamond. The “Rap Price” for that diamond would be $7,600 per carat. But finding the Rap Price for your diamond is only the beginning of pricing a diamond.
Discount and Premium Prices
The real art of diamond pricing is figuring out the discount or premium to the Rap Price. In the vast majority of situations, diamonds trade at a discount to the Rap Price. It is this figure that two diamond dealers will haggle over.
Lets stick with our 1.55 H color SI1 clarity diamond example.
Those three qualities (color, clarity, and weight) only bring you to the baseline. Now things become much more subjective. Factors that might come into play in determining the discount off of the Rap Price might include: Fluorescence, Cut, Inclusion quality, Luster of the diamond material, and Color Quality.
What is “20 Back” or “20 Below”?
If that diamond were an excellent cut and the SI1 was a beautiful SI1 that was way off on the side of the diamond and barely visible and the H color really looked like a G, and there was no fluorescence, then the diamond might trade at -20% or even -15% less than the Rap Price (in diamond jargon, this would be called “20 back” or “20 below”).
This is the figure that is argued over. So while a seller might try to sell this diamond at “15 back,” a buyer might only wish to buy it for “20 below.” To calculate the actual price, you need to reduce that percentage from the Rap Price.
In our example, “20 below” $7,600 per carat is $7,600 * (100%-20%), or $7,600 * 0.80, which comes to $6,080. Then you need to multiply that price by the weight to arrive at the final per diamond price ($6080 * 1.55 = $9,424).
Sweet Spots of Value
Now, take another look at the sample “Rap Sheet” from before. Take a close look. Notice anything odd? The differences between adjacent prices in each matrix are very far from being uniform.
For example, the difference between a 1ct G color VS2 clarity diamond and a 1ct H color VS2 clarity diamond is a full $1000. But the difference between the same G VS2 and a 1 ct F VS2 is only $500!
Don’t ask me why this is. The diamond business is rarely built on rhyme or reason. A skilled diamond dealer, though, can help you navigate these inconsistencies to find the sweet spots of value within this pricing grid.
In our case, for example, it’s clearly not worth it to upgrade from an H color VS2 clarity to a G color VS2 clarity since it costs so unreasonably much to make that upgrade. And anyway, as I mentioned in the Color article, color upgrades are rarely worth the money.
Color and Clarity
One interesting outcome of the entire business being based on the Rap List is that far too much weight is given to color and clarity in determining price.
Objectively speaking, and G color SI1 clarity that is an ideal cut with a pleasantly laid out inclusion will be a prettier diamond than a G color VS2 clarity with an average cut. And a G SI1 super-ideal stone (like a Brian Gavin Signature stone) will be all the more beautiful.
If we continue with this case, lets say for a 1 ct diamond, a G SI1 that was an ideal cut (and everything else was fine), the price would be approximately “25 back,” or $6100*0.75 = $4575 per carat. But a G VS2 with an average cut might go for “35 back,” or $7200*0.65 = $4680.
By all accounts, the “25 back” SI1 is a much much prettier diamond than a “35 back” VS2, yet the VS2 is still more expensive.
This is why it is so crucial to have someone helping you along the way specifically regarding how to value the different factors that go into pricing a diamond. If someone knows what they are doing, they can really find tremendous value out there.
Alternatives to the Rap List
Over the years, there have been several attempts to create alternatives to the Rapaport price list in the industry. There is much to criticize about the Rap List.
Nobody knows what his methodology is and Martin Rapaport himself has financial interests in diamonds, so there’s a very clear conflict of interest. One of the most valiant recent efforts to create a new industry pricing standard came from the IDEX company.
Similar to Rapaport, IDEX offers an online B2B industry diamond exchange in addition to publishing industry analysis. Unlike the Rap List, however, their diamond pricing tool, called the IDEX Diamond Price Report, is completely transparent about its methodology.
Their price list has gained the support of some major diamond dealers, but so far it has been met with much resistance in the broader market.
Diamond Retail Benchmark
In addition to the Diamond Price Report, IDEX publishes another consumer focused price list called the Diamond Retail Benchmark. Like the Rap list, the DRB offers a high-level standard price off of which should be applied a “discount” to arrive at the final consumer price.
The list is available here, but without knowing what “discount” should be applied in your specific case, it will be challenging to extract any usable information.
What about diamonds priced without the Rapaport Price List?
Just about all other diamonds that are not certified, and therefore not sold as single diamonds, are sold according to a “parcel price.” This is a price per carat for the weight of diamonds purchased, irrespective of the number of diamonds selected.
Since there is no list dictating baseline prices, understanding these prices is far more nuanced and therefore requires years of experience to truly understand a parcel’s value.
Relying on Experts
In fact, at Leo Schachter, there were no employees who were experts in all shapes and sizes. Parcel diamond pricing is so complex and demanding of experience, that the company was broken up by size and shape to allow managers to become experts in their limited field.
There was a manager for princess and emerald cuts, round cuts 0.90ct and above, round cuts below 0.90ct, and other fancy shapes.
This is not so relevant for most of you, since you are better off buying a certified diamond unless you have someone you can trust completely who can sell you an uncertified diamond.
If you still feel hesitant navigating the diamond buying process on your own, feel free to contact us and we’d be happy to give you some more personal advice.