How Do Pawn Shops Determine Value of Jewelry

Jewelry has been one of the most popular pawn items for decades.

Because of the simplicity of the process and the significant price of jewelry made from precious and very soft metal like gold, pawning jewelry can bring you some good money quickly.

Regulated by federal laws, jewelry pawning runs on the evaluation of pieces based on the current market price rather than their current appraised value.

Pawn shops buy other items like musical instruments, furniture, antiques, etc, however, jewelry makes the most money out of them. For certain items, there are easy ways to decide the real value. Most items are evaluated by referring to the prices on eBay for similar things or by referring to blue books. The loan amount is decided on the basis of the evaluation of the items and the prices of gold in the current market.

The biggest question that arises when it comes to jewelry is, how do pawn shops determine value? As most jewelry made from gold and silver look expensive, many believe that they will get good money for it. But as they try pawning it or even selling it, they realize that the market value is a lot less than what they had paid to the store as a buyer. This leads them to accuse pawnshops to be scamming people. But what they don\’t realize is the fact that there is a stark difference between evaluations and appraisals of the items that are being pawned. Evaluations of jeweled pieces can lead to a lower price for various reasons.

Here in the blog, we will learn more about it.

What\’s the difference between an evaluation and appraisal?

Pawnshops are frequently accused of ripping people off as they ‘evaluate’ the jewelry rather than appraising it. However, it is not a very justified accusation to make. The difference between an evaluation and appraisal is so significant that the whole trope of pawnshops scamming people just becomes a myth. 

The process of evaluation is carried out by referring to the true market value of a piece of jewelry. On the other hand, appraisals are essentially used for insurance purposes. It is calculated on the basis of the approximate replacement cost of the piece of jewelry. 

Example;

If you buy a piece of jewelry worth $1000, it will be appraised at $1000 or even more by your insurance company. But if you try to sell it, the market value of the jewelry won’t be more than $200 as most jewelers don’t buy jewelry from the public. As the resale value is low for jewelry, the evaluation cost done by pawnshops also reduces for good reasons. Be it brand new or used, the replacement value or appraisal will always be drastically higher than the evaluation value of the specific piece of jewelry. 

Are pawnshops actually scamming people?

The most interesting thing in this scenario is the fact that the jewelry that the retailers have sold you for $1000 or maybe at a discounted price of $800 doesn’t actually cost that much. Many retailers buy such jewelry at prices as low as $200 or even less; which tends to be the actual market value of the piece. This is exactly why some retailers make money even after giving special discounts up to 50-60%. 

Just like any other business, pawnshops too want the best for their customers, so that they visit them again and again. They make their profit through the interest paid for the loan acquired in exchange for the pawned item. Thus, it is better to expect that the evaluation of your piece might result in a lower price as the trope of pawn shops scamming people is just a myth.

But how can a piece of jewelry look so expensive and not actually be that valuable?

Most pieces of jewelry, like an engagement ring, necklaces, small pendants, etc, look very expensive. Even when made from precious metals like gold, silver, platinum, etc, the piece of jewelry in itself can be not as valuable as the retailers claim; even when the piece has a diamond on it. This is why the resale value becomes low. So how do pawn shops determine value?

There are certain factors that can make the jewelry less valuable than the metal it is made from. Thus, while evaluating the jewelry, most pawn shops check for certain characteristics of the piece. Here are some such characteristics that a pawn shop owner might use to evaluate jewelry;

Ensuring it is real 

Most pawnshop owners start the evaluation by ensuring that the piece of jewelry that is being pawned is real. The simplest test that they might run to determine if it\’s real or not is the \’magnet test\’. By holding jewelry made from metals like gold, silver, or platinum close to a magnet, they determine if it\’s actually made from those metals. If the jewelry is attracted to the magnet, it clearly means that it is costume jewelry as precious metals do not have magnetic properties.

Checking for the purity of the jewelry

After determining if the piece is real or not, the next step is for the shop to determine its purity. A magnet test might tell you that the piece is not fake but checking the purity ensures that it is indeed worthy of a good deal. Usually, the proof of purity for a piece is stamped on it in very small fonts. For gold, the purity is measured in \’Karats\’ which is symbolized \’K\’; for example, 24K, 18K, 9K, etc. If it was made outside of the US or Canada, the K might be stamped as \’ct\’. Meanwhile, European jewelry comes with stamped numbers that denote a specific purity. Other than gold, silver is also marked with sterling or \’ster\’ accompanied by .925. For diamonds, purity is not a concern as the purity of diamonds cannot be altered.

While looking at these stamps may be helpful, there are also antiques that do not come with such hallmarks. People with malicious intentions have also started stamping fake pieces with hallmarks. This is why an experienced pawn broker might take a metal test to determine the extent of purity of the piece.

Measuring the weight 

Lastly, shops decide the value of the piece by weighing it. After determining how pure the piece is, weighing can help pawn shops decide the actual price more accurately. While small businesses might use a small scale, reputed pawn shops have extra sensitive scales that can measure the weight of the piece with incredible accuracy. Ideally, pawn shops should keep their scales in the finest working condition to make sure that the value is accurately calculated. Thus, the whole process of pawning becomes more transparent.

Value of Gold 

Gold simply has value because it is gold. However, gold jewelry might not be as valuable always. Gold, being a soft metal cannot be used in its pure form to make jewelry. Just like any other precious metal, gold has to be mixed with other metals to make gold jewelry out of it. This can change the purity of the piece that is marked by the measurement, Karat. The karat count plays a major role when pawning or selling gold. For a piece like a ring, any gemstone, such as a diamond is taken out of the ring to measure the weight accurately.

Value of Diamond

Pawning a diamond is a whole different thing as diamonds have no intrinsic value like gold. The value of diamonds depends on the color, clarity, cut, and carat size. Pawning or selling diamonds is especially a difficult matter as buyers don\’t buy diamonds from the public. Unlike gold jewelry, which can be bought even in poor condition, diamonds, once they are sold, can rarely be re-sold and have no real value other than the sentimental value attached to them.

Conclusion

While pawning, it is important to remember that the price you paid while buying the item is irrelevant. Rather, the demand for the item in the market and the price it can be sold at is way more important. Knowing how pawn shops decide the value of a piece can help you put your expectations at the right place while making the most out of the pawn.

Pawn shops may not be able to give you the same price for a piece as they are businesses and need profits to stay afloat. Having said that, most of the shops understand that people don\’t pawn jewelry unless they really need to, and make sure that you get as much cash as possible for the jeweled item you have pawned.

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935 thoughts on “How Do Pawn Shops Determine Value of Jewelry”

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