Buyer beware: Diamond grading reports based on subjective judgments in an unregulated industry

Diamond grading reports impact prices of stones

DENVER - Buying a diamond is a large investment, but the cost is influenced by the subjective judgments of industry gemologists. As a result, two diamond grading reports may find one stone has vastly different values. 

Neil Beaty, a certified Independent Gem Appraiser in Denver, tells 7NEWS the discrepancies in reports from multiple labs could mean thousands of dollars for consumers.

"What the lab is driving is the money, not the stone," said Beaty.

7NEWS reviewed several diamond grading reports shared by Beaty for the exact same diamonds. He said consumers rarely see multiple reports side by side in the store.

In the case of a one carat round brilliant diamond, grading reports from two different labs contained large differences.

"The difference is (worth) thousands of dollars," Beaty explained.

The Gemological Institute of America, known as GIA, is the industry standard when it comes to diamond grading. It operates as an independent non-profit organization, but there are dozens of for-profit competitors running their own laboratories who perform their own grading.

GIA graded the one carat stone as near colorless, given the designation "J" on their scale. Clarity was graded at I1, meaning inclusions or blemishes are within the stone and obvious under magnification. GIA listed the diamond's cut as poor, which is its lowest cut grade. 

Based on GIA's report, Beaty explained the diamond's retail price would be around $3,200.

The second report we reviewed for that exact same one carat round brilliant stone was produced by the European Geological Laboratory, International, abbreviated as EGL International.

Based on that report, Beaty said the retail price would nearly double to $6,000.

-- At 10 p.m. Tuesday: 7NEWS goes undercover into jewelry stores to compare diamonds and sales policies --

EGL International graded the diamond's color two levels higher as near colorless at level "H." Clarity also improved to SI2, meaning inclusions or blemishes were only slightly visible under magnification.

EGL International's report also did not list a cut for the diamond, which GIA had rated poor. 

7NEWS has learned in this case and many others, customers are often not made aware of the fact that other industry labs have analyzed and provided jewelers with a different -- often less appealing -- grading report for the same diamond.

"Shoppers are not shown both certs [certifications] when examples like this come about," explained Beaty.

Beaty blames the problem on a lack of accountability for labs.

"It's a completely unregulated industry, some are big some are little, some of these competitors are giant, like EGL [International]," said Beaty.

A diamond's value is based on an international diamond grading system that was first established by GIA in 1940. As an independent non-profit, GIA is also a leader in gemological research and operates a college for aspiring gemologists. Beaty is a graduate of the school.

The grading system invented by GIA is based on four aspects, known as the 4Cs, cut, clarity, color and carat weight. According to literature posted on GIA’s website, “The 4Cs provide a way to objectively compare and evaluate diamonds.”

GIA defines the 4Cs as:

Cut: graded by analyzing proportions that determine a diamond’s fire, sparkle and brilliance.

GIA Cut Scale: Excellent, Very Good, Fair, Poor

Carat: a diamond or gemstones size weighted in metric carats. One carat is equal to 0.2 grams.

Clarity: absence of internal inclusions or external blemishes visible under 10x magnification.

GIA Clarity Scale:

- Flawless (FL) - No inclusions or blemishes are visible to a skilled grader using 10× magnification

- Internally Flawless (IF) - No inclusions and only blemishes are visible to a skilled grader using 10× magnification

- Very, Very Slightly Included (VVS1 and VVS2) - Inclusions are difficult for a skilled grader to see under 10× magnification

- Very Slightly Included (VS1 and VS2) - Inclusions are minor and range from difficult to somewhat easy for a skilled grader to see under 10x magnification

- Slightly Included (SI1 and SI2) - Inclusions are noticeable to a skilled grader under 10x magnification

- Included (I1, I2, and I3) - Inclusions are obvious under 10× magnification and may affect transparency and brilliance

Color:  ranges from light brown to yellow. A diamonds value is determined by how closely they approach colorless - the less color, the higher their value

GIA Color Scale: the scale begins with the letter D, representing colorless, and continues with increasing presence of color to the letter Z, or light yellow or brown

*Source: http://www.gia.edu/gia-about*

According to EGL International's website, the company's mission is to "leave no doubt about the true value of your diamond." EGL International also analyzes diamonds, but instead of providing what GIA calls "diamond grading reports", EGL International produces "diamond certificates." The report still includes information about the quality of a diamond based on the 4Cs. However, EGL International's standards are slightly different than GIA's.

The biggest difference in the two standards involves the way the two labs assign a diamonds clarity. EGL International adds an additional grading scale that GIA does not recognize or issue on its reports.

GIA uses "SI1" and "SI2" to describe diamonds with slight inclusions or blemishes that are noticeable to a skilled grader under magnification. EGL International assigns three grading levels "SI1" "SI2" and "SI3" to diamonds with slightly included inclusions.

Beaty tells 7NEWS EGL International is also well-known in the industry for assigning higher grades to diamonds than GIA -- just as we found with the one carat round brilliant stone that was analyzed by both labs.

The price a jeweler could charge for that same one carat diamond was nearly doubled if they used EGL International's report instead of the one provided by GIA.

“I’ve seen these examples of EGL [International], GIA, hundreds of times. I have never seen one where the margin flips in the other direction That GIA called it a higher scale than EGL [International] even on these borderlines. It theoretically could happen. But I’ve never seen it," said Beaty.

7NEWS found stores and retailers often send a diamond to several labs for different reasons. Although, according to Beaty the most common reason normally involves the price retailers can charge for a diamond.

"The usual reason to choose a lab is because it produces the most money for a stone," explained Beaty.

Learn more about grading reports: http://ch7ne.ws/1dyqHWc

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