2

Here's the scenario:

you decide to invest in a rare gem and you approach a registered diamond broker to do the sourcing for you. The firm duly comes back and says that they have found something within your price range- say $20k.

If you agree to invest with them and buy this stone, they will send you the diamond and all the formal paperwork proving that it is what it says it is and that the value is $20k as stated.

Alternatively, they will store it in a secure vault for you free of charge. If you use the broker for the resale, they will take a 5% cut of the final price.

You duly go ahead with the deal and purchase the diamond. You then hold onto this gem for 3 years and sell it privately at a price significantly higher than you originally bought it.

In all of this, what was 'in it' for the diamond broker? Where did they make their money???

8

They made their money one of two ways. Either they got a commission from the original owner (similar to how a buyer's agent in a real estate transaction gets a commission from the original owner of the house and/or a share of the seller's agent's commission), or they actually participated in the transaction directly (buying from the original owner, selling to you at a higher price).

Storing it in the vault free of charge of course has an expectation that a certain percentage of those who do so will use that broker to complete the eventual sale.

  • Well answered, Joe. Upvote from me. – Daniel Anderson Aug 12 '16 at 1:19
  • Cheers, guys. Glad to see that I was thinking along the right lines. The scenario of buying at a lower price than what they sell it to you for is interesting though, as the valuation is supposed to be accurate. I guess this means that they acquire their stones under market value. – Chris Jones Aug 14 '16 at 6:10

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