ESSAY ON THE PRICING OF NUMISMATIC MATERIAL

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The following essay entitled "A Question of Price" was written by Scott Semans, a highly-respected and extremely experienced American dealer in world coins. Although it was written with coins in mind the comments and conclusions apply equally well to paper money. There are some very valuable points made in this essay and it's well worth reading (bold highlighting is mine).

A QUESTION OF PRICE by Scott Semans (http://www.coincoin.com/directory.htm)

      "This essay was run in my List 56, a discount list issued 3/91. The internet has changed the market since then. Fewer dealers issue printed price lists; more coins are now sold, often anonymously, through websites and online auctions. Price researching has changed accordingly. While more information is now easily at hand, that information is also more ephemeral: a sold item will disappear from a website or its price will be removed, and the archives of online auctions are limited to a few weeks. Prices for common items have dropped as collectors, who need not value their time as do dealers, sell off unwanted items one by one on eBay until finally there is no market for them. Another change is more personal: I no longer have time to collate large numbers of dealer price lists, so now rely more on my own past experience, the lists or websites of a few knowledgeable specialists, and what information and extrapolations I can make quickly from current eBay auctions. Even so, I think the following can provide some perspective to collectors who have never engaged in any serious dealing themselves.

      I think many collectors are curious about how dealers set their prices but few inquire, fearing perhaps that it would be impolite or would imply criticism. I would like to offer some of my own answers to the question in hopes of persuading collectors to be more sophisticated in deciding what price they will pay.

      Dealers will very often say that their selling price is based on what they paid. This is indeed the determining factor for some categories of world coins, including new-issue proofs, crowns, and gold, exclusive-distributor items, bullion pieces, and import items where an active home market rules. But most dealers get their coins from collectors and other dealers in their own country, and even when the source is a new-issue distributor or a market-wise seller abroad, they are rarely passive agents taking everything that is offered, at offer price, and adding a fixed markup. In fact, the question every dealer asks himself when deciding what to pay or whether to take a coin at a fixed offer price is: What can I sell the coin for? In other words, what will the market bear? Once that is answered, considerations such as desired markup, other competing purchases, marketing strategy, and particular customer wants come into play. But the crux of either a buying or selling decision is almost always the "proper" retail price - the point at which demand meets supply.

      Thus the question becomes: How does a dealer determine the price at which a coin well sell? There are three sources of information: experience, price research, and catalog prices. Experience is obviously the best guide. When a dealer has handled a given type, or date, or even a similar item and it sold or left unfilled orders, he will price it at the same level or higher. If he had to cut his price or take a loss on that type in the past, he will either avoid buying it or price it below his last price. Knowledge of market trends - what's hot and what's not - and customer requests are experiential factors also.

      Lacking direct experience, a dealer may research a price. This can include asking other dealers and specialists how many of a given type they have seen, or what prices they have seen, checking how other dealers price the items at shows, or searching it out in auction catalogs or fixed price lists, especially those of specialists, larger dealers, or dealers who are themselves good researchers. Learning the historical or numismatic importance of a coin or its theme is also research, and can affect the price.

      The final source of price information is the priced catalog. I use "final" both in the sense of last resort - which it should be - and determining - which it too often is. Among dealers, catalog prices are relied upon most heavily by novices and by specialists working outside their own areas. Why do I consider catalog prices such poor sources of market information? There are several reasons. Specialized catalogs are usually put out by scholars or collectors, whose main interest is the coins themselves, not their values. The price section may be an afterthought, or the idea of the publisher, and represents one person's ideas of value. The prices are then strongly affected by the catalog's publication. Dealers with the greatest amount of experience and pricing savvy seldom contribute such information to either specialized or general catalogs, as that would mean placing it in the hands of a competitor for just the price of a book. Some knowledgeable dealers will take the time and effort to share their expertise, but others will deliberately underprice rarities so they can buy them and overprice common items so they can sell them, though a good editor will correct such distortions.

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     In fact, it is almost axiomatic that a priced catalog in any collectible field from coins to comics to cars will be high on common items and low on rare items. There are several reasons. Rarities, whether known or undiscovered, change hands too seldom to attract notice and thus remain at low prices. High prices on common items are self-reinforcing, since non-specialists handle them more often and price them by the catalog. Cataloguers are loath to offend dealers, their loudest critics, by lowering prices on common items, but nobody has an interest in raising prices of rarities - dealers can sell them regardless of catalog price. Finally, in a changing market, cataloguers will often raise and lower prices for a given category by the same factor, again working against rarities, which really ought to rise higher and fall less than common items. Collectors who buy coins because they are well below catalog price and ignore "overpriced" coins will in the long run build collections of common coins, a category least likely to hold value and hardest to resell."

      Since the 1970's the various volumes of the Standard Catalog of World Coins have become the dominant pricing references for world coin generalists and many specialists as well. Even the annual one-volume 20th Century editions contain an amazing amount of factual data. Maintaining and expanding all this, as well as the several other numismatic catalogs produced by Krause Publications, is the task of just a few people whose main and proper concern is the factual data, not the prices. For pricing, there is a heavy reliance on contributors, whose only pay is a mention in the book and a free copy. Most of these are dealers, but not necessarily the most active or price-knowledgeable dealers for a given area. Krause's market analyst, who works on the SCWC and other projects, stays alert for market changes and where necessary supplements contributor data by checking ads, price lists, and auction results. However, given the scope of the job, a less actively traded country or series will likely not come up for scrutiny and revision more than once every 5+ years unless it has a consistent, price-oriented contributor. For countries with an active home market, Krause prices may reflect that, the US market, or a compromise between the two. New issues, crowns, and proofs are now more actively traded in Europe than the US, so Krause prices on these are sometimes too low for the now secondary American market.

      The SCWC format itself affects price accuracy. An array of all known dates priced in four grades gives a false sense of expertise when in fact it often represents a single price, modified slightly by mintage figures, and processed mathematically for prices in four grades. Krause has never used italics for uncertain prices as Craig did, so a well-established price looks the same in print as a wild guess. The four-grade format leads to overly-great price spreads in lightly collected countries, with low-grade specimens too cheap and high-grades too high.

      If catalogs are such an uncertain source of price information, then how are you to decide whether you are getting a fair deal? The only answer is: compare. Subscribe to World Coin News (or Coin World) and write the advertisers for their price lists. If possible, attend the more important shows. Get lists from generalists as well as specialists, and compare one to another, not to the catalog. Buy from several dealers and compare their grading as well. Look for bargains on the lists of non-specialists and specialists outside your area - though these will often be already sold. Realize that dealers who price consistently under market probably have largely common material (in all price ranges) and you will likely have to go to a specialist or an auction to find the really uncommon pieces. Whether you bid or not, auction sales with prices realized are a good investment.

      I get lists and auction catalogs from more than forty dealers who either specialize in my areas or are price-savvy generalists, and spend around $1000/year in clerical time alone updating paste-up composites of their offerings by country, dynasty, etc. Where practical, I can do this on computer now as well. Certainly no collector needs to go to these lengths, and in time you will likely come to rely on a small number of dealers who have the material you collect, and can generally be trusted to price reasonably. However, by continually requesting lists from new dealers and keeping up on auctions you can maintain a pricing file of 25-50 judiciously chosen items which will yield enough data to double check a planned purchase or bid. Being active as a comparison shopper will keep you alert to new sources of supply and free you from any doubts about the value of your purchases.

      A final word: When a particular list or series does poorly, I am left wondering whether it is because there is little interest, because I simply haven't reached the important customers for the series, or because my prices are discouraging. Thus I am pleased when a customer points out prices of mine that seem too high for the market, and can back it up by referring to specific offers by other dealers, or auction results. This is invaluable research; it is reality testing. While I resist discounting popular material, or discounts due to dealer status, if your hesitation to buy is due to a feeling that you are paying too much, by all means bring this up. I may have reasons to maintain my price - doubts about the authenticity of a comparative offer, price set by consignor, etc. - but I will yield if the same logic that led me to my first price, augmented by new facts, yields a new conclusion."