Coping with diamond-grading discrepancies: What the H?!

by charlene_voisin | August 1, 2012 9:00 am

By Mark T. Cartwright

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Does any of this sound familiar?

• “What do you mean J-colour, I-1 clarity?! The lab report says H-colour, SI-1!!”
• “But when I bought it, the jeweller said it was two grades higher and worth way more than your appraisal!”
• ”$10,000? You’re crazy. The guy across town has a diamond with a cert for $6500.”

As an independent appraiser who neither buys nor sells diamonds, I often have to explain why my grades are substantially different from those provided by a client’s grading report from one of the many laboratories. Inevitably, the client wants to know how something like this can happen. Come to think of it, aren’t we all a bit curious?

Recent and not-so-recent grading scandals at well-respected laboratories might cause the more cynical among us to assume the worst. I think it’s important to recognize that for the vast majority of the hundreds of thousands of diamonds passing through labs each year, a variance of a single grade rarely results in a significant difference in value. However, the same cynics may also believe deceitful practices are in play when some grading services reports are perceived to be consistently ‘optimistic’ in their grades.

I’ve always believed it’s really fairly easy to explain the root causes for most of the confusion, anger, and frustration felt by many trade members and a growing population of consumers over apparent discrepancies in diamond grades. Solutions are a bit more perplexing. In my opinion, the primary issue is a basic misunderstanding of what a ‘grade’ actually is. This misapprehension is exacerbated by the second problem of a shared terminology without a shared set of standards, grade boundaries, and methodology.

For the current discussion, we’ll limit ourselves to diamond colour grading, but it applies equally to clarity grading.

To gain a bit of perspective, maybe a little history is in order. The colour grading system, and its D ““ Z terminology as we know it today, was introduced to the jewellery trade by the Gemological Institute of America (GIA) in 1953 and integrated into its gemmological curriculum in 1954. It has undergone a few ‘tweaks’ over the intervening years, but is essentially unchanged. GIA initiated the clarity grading system at the same time, although it was referred to as ‘imperfection grading’ when introduced; the lab added the grades of ‘internally flawless’ and ‘I-3’ in the 1970s. Perhaps hoping to create a ‘universal language’ for diamond grading, GIA made no attempt to protect its intellectual property through patents, copyrights, or trademarks. While it has succeeded in establishing the ‘language of diamond grading’ beyond Richard Liddicoat’s wildest dreams, each laboratory appears to use a different dictionary to define the words we share.

The process

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So how does any laboratory determine diamond grades and why does it matter to us? First, it’s important to recognize that a grade, unlike a physical measurement, is not a fact. It is a subjective opinion based on specific criteria using repeatable methodology in a specified environment. It’s not the same as determining the table percentage or pavilion angle. An exploration of the various labs’ websites indicates the basic process is essentially the same for every grading service. A diamond is submitted and enters the system where the factual data such as weight and measurements of the exterior are recorded. It then goes to a grader for evaluation of a specific attribute, colour for instance. They record their opinion of the colour and the stone moves to a second grader who does the same. This process continues until a ‘consensus opinion’ of the grade is determined, and that is what ends up in the report. The same procedure is used to arrive at the clarity grade. This tells us in no uncertain terms that every grading report simply represents a set of opinions arrived at by a majority of graders on that day. One important thing to keep in mind is human perception of colour is not consistent through time or between individuals—the other graders weren’t ‘wrong,’ they were just outvoted.

In years prior to digitized databases, it was possible the same lab might issue several different grading reports for the same diamond because of ‘grading by consensus.’ Now consider that each lab has a slightly different set of grading standards and a different set of grade boundaries. This makes it far more likely that reports from different labs will disagree, rather than agree, on the grades for any specific stone. Given the possibility of multiple grades for the same stone, can we really say which one is ‘right?’ Oddly, I believe they all are. Facts can be right or wrong; opinions simply differ. Grades are not facts—they are considered opinions of the grader.

I’m not saying a grade can’t be wrong. I am, however, suggesting it would only happen if there were a misapplication of the methodology or grade definitions of that specific system, whether intentional or inadvertent. Is it any wonder that we, as independent gemmologists, sometimes disagree with a grading report or each other? Maybe we simply represent another voice for the minority opinion, or perhaps we’re comparing oranges and tangerines.

There is only one

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In spite of not legally protecting its grading system, the truth is that only the GIA Gem Trade Laboratory (GIA GTL) can or actually does provide ‘GIA grades.’ I am a graduate gemmologist (GIA) and possess a set of GIA-graded master colour comparison diamonds. I believe I follow prescribed grading procedures and that I can accurately delineate the GIA grade boundaries. However, all I really provide my client is an opinion of what I believe would be the grades assigned by the GIA GTL if it were to grade the stone.

This reality is understood and clearly stated by every other major grading laboratory, a fact that is confirmed by the disclosures on the backs of their reports. Each lab states the reported grades are based on their own standards and methods in existence at the time the stone was graded. The evidence suggests the specific definitions and grade boundaries are somewhat idiosyncratic to each organization. In spite of a shared vocabulary and some apparent grade-range overlap, none of the other labs claim to provide GIA grades. They’re telling us the truth; why won’t we hear them?

We would never fault an orange for being a pathetic tangerine, and yet that is precisely what we’re doing if we belittle the grades reported from one lab for not being identical to those of a different lab. Rather than proclaiming that a grading service is ‘loose’ when grading colour or ‘strict’ on clarity, maybe we could simply recognize there are differences in grade boundaries and appearance just as the market seems to have done. Research of the wholesale diamond market suggests diamonds are typically discounted to account for differences between labs’ grading. When I appraise a diamond with a Brand-X grading report stating ‘H colour, SI-2 clarity’ and my own grading is ‘J-colour, I-1 clarity,’ more often than not, I find the wholesale cost for stones with those Brand-X grades is remarkably consistent with stones agreeing with my estimation of the GIA grades. That means the consumer got what they paid for value-wise, but not what they thought they were buying grade-wise, and they’re rarely happy about it.

Some retailers have chosen to avoid the whole issue by creating proprietary grading systems. While I support this concept for the major laboratories, I believe it simply muddies the water and ultimately creates more confusion among consumers. It’s a return to the problem GIA hoped to resolve in 1953.

When confronted with confused consumers, maybe a more elegant solution would be to begin the conversation with “Oh, I thought we were talking about diamonds graded by GIA GTL. I’d be happy to locate/provide/show you stones graded by Brand-X if that’s what you really want. They wouldn’t look the same, but they would probably cost less.” This gives the retailer an opportunity to gain credibility and trust in the newly opened eyes of the potential buyer.

Tangerines cost more than oranges

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How does a professional appraiser reconcile the current situation with its sometimes significant grading differences in a way that is credible and faithful to our obligation to avoid bias? It isn’t difficult, but it may require a shift in how we think about grades and how we report our findings. First, be clear that the grades we provide are simply our opinions based on our training, limiting conditions, and the comparators we have at hand. They aren’t facts and they aren’t ‘GIA grades.’ Point out there can be legitimate differences in opinion between competent graders. Try to explain each lab has its own criteria for a given grade and they aren’t always comparable to another lab’s or to your own.

Second, trust the markets to make important distinctions. Diamonds with no grading reports usually sell for less than stones that have them. The ‘pedigree’ of each laboratory is reflected in the pricing differences for diamonds accompanied by reports. Even consumers researching online can see the price disparities for diamonds that seem to have the ‘same grades,’ but from different laboratories. Finally, always provide enough information in your appraisal to allow users to understand the grades and the value. My appraisals of any diamonds accompanied by reports always include my grade opinions alongside those of the laboratory’s. I disclose the basis of my grades (e.g. GIA training and master stones, etc) and the fact the value is based on market activity for diamonds with grading reports from that specific laboratory.

No more ostriches

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As an industry, we can’t ignore the confusion created by the current state of affairs. Pointing fingers, complaining, and hoping it will go away are counterproductive and ineffectual reactions. It would be economic suicide for any major grading laboratory to suddenly stop using the D ““ Z colour grading nomenclature and attempt to market its own proprietary grades. If we’re honest about it, there is a lot of money being made at every level of the industry specifically because of the way things have evolved.

I suggested that solutions to the problem were difficult; perhaps difficult to enact would be more accurate. One elegant solution I’ve read about involved development of a common set of methods and standards enforced by the International Organization for Standardization (ISO). Getting all the labs and other concerned parties onboard has proven virtually impossible. My own feeble-minded ideas are for all trade members to preface every grade with a descriptor such as ‘Brand-X H-SI-2,’ or perhaps for the preeminent force who created the system to reclaim it, maybe by altering its reports by adding ‘GIA’ as a prefix, for instance ‘GIA-H.’ Regardless of how it happens, the change toward greater transparency will undoubtedly be slow and difficult, but in my opinion necessary, if we’re to retain the public’s trust.

I’m just one person with a very small business, yet I make it a point to share my understanding of the idiosyncratic nature of diamond grades and grading reports with every consumer with whom I interact. If each of us did the same, the markets might eventually reflect a different reality and we would have fewer confused and irate clients. Hey, a guy can dream,
can’t he?

[6]Mark T. Cartwright, ISA CAPP, ICGA, CSM-NAJA, GG (GIA) is president of The Gem Lab, I.C.G.A., an independent American Gem Society (AGS)-accredited gem laboratory. He has been a jewellery designer, goldsmith, gemmologist, and appraiser for more than a quarter century. Cartwright can be contacted via e-mail at gemlab@cox-internet.com[7].

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