Clarity is a complex and problematic issue when it comes to defining loan value and I will write at least 2 blog posts on it. Much of the difficulty lies with the SI3 clarity grade but I will deal with that next time.
For now, let’s go back again to the 1.50 carat round diamond I have been using as an example. It was an SI1 clarity, G color diamond and had a loan value of $5700. A 2 grade increase in the clarity grade to VS1 raises the loan value to $6840, an increase of $1140. A 2 grade decrease in the clarity grade to SI3 decreases loan value to $3840, a decrease of $1860. Another one grade drop to an I1 clarity grade further decreases loan value to $2940, a $900 decrease from the SI3 loan value and a $2760 decrease from the SI1 loan value.
You can see how important it is to get the clarity grade correct. There are big jumps and drops in loan value. And it can be difficult to get the grade correct because I am grading the stone in the mounting the vast majority of the time and diamonds are often set to hide the stone’s inclusions. If I call it an SI1 and there are inclusions under a prong that make it an SI3, I will have more loaned out on the diamond than the dealers will pay if the customer abandons the loan and I need to sell it
This is part of the risk in my business and the pressure on me when doing the appraisal is always to call it the highest grade I can in order to both lend the most (I earn more then) and to be a financial solution to my potential new customer. If I let that pressure induce me to make a wrong call, I will then have hundreds or even thousands of dollars too much invested in the diamond.