Establishing Value

This guide is lengthy, and written in the context of my area of specialty - US Coinage. Nonetheless, it provides important insight into how value is established for all items.

The value of an item is not necessarily the seller's asking price or the buyer's offer. Usually, after some negotiation, it is a price settled upon between those two extremes. The price is determined chiefly by how knowledgeable the buyer and seller are regarding that particular item, and upon their awareness of the availability of other comparable specimens.

If the seller knows how available the item is and how much demand there is for it, and the buyer does not, the buyer is at a disadvantage. This does not mean the item will necessarily be overpriced - most sellers want repeat business and will not take unfair advantage of buyers. It does mean, however, that the buyer may be unaware of the resale value of the item, and might later be disappointed. Conversely, buyers who are more knowledgeable than sellers have the upper hand and may profit handsomely as a result.

Intrinsic value - It's almost a waste of space to write that no legal tender coin is worth less than its face value or the material contained within it, although it is worth addressing the common misconception that coinage is necessarily worth the metal which it contains. The reason that this is not true is because there is a cost to refining out the alloying metal to purify the base metal. The lack of correlation between spot silver price and the trading price of 90% silver is a prime example.

A few months back, when spot silver traded at $8.57/oz, 90% silver bid at 5.9 times face value. At this writing, spot is $10.97/oz and 90% silver bid at 7.2 times face. In that 7 month span, spot price has gone up 28% while that of 90% silver has increased only 22%. It should also be noted that there may be a premuim attached to the larger coins versus smaller ones when trading in 90% silver.

The discounting of a coin to the value of the metal it contains only applies to common coins or particularly undesirable examples for which no more demand exists than for the metal content itself. If the coin is not going to be "scrapped" because it is at least remotely collectible, then it should not be discounted as low as the metal value alone.

Condition - The "look" of an item usually determines whether or not it will please the buyer. This depends on several factors - design detail, quality of the surfaces, toning or the lack thereof, and luster (if present).

Worn coins will exhibit little design detail, while uncirculated items will possess more, although the amount of detail can vary widely with the quality of the strike. The more uniform the wear, the better, so as not to leave certain areas of the coin lacking more detail than other areas. This is especially true for very low grade coins where the central design elements easily merge with the rims. Some uncirculated coins are very poorly struck and might possess less design detail than XF or even VF examples of the same design - a few notable examples are the 1926-D Buffalo nickel, 1919-D Walking Liberty half dollar and 1928-S Peace dollar

The quality of the surfaces refers to the lack of hard contact marks, abrasions, mishandling, cleaning or the presence of spots or corrosion. Widespread disagreement exists over how much the value is affected by such impairments. In particular, many collectors and even dealers feel that extremely light hairlines, so light that the coin must be tipped at just the right angle to see them, should not be considered as detrimental as the purists feel that they are. In this regard, I side with the purists - not because I can't enjoy looking at the coin with the hairlines on it, but because assigning a lower value to coins that have been tinkered with discourages others from doing the same to other coins in the future. This promotes maintenance of the coins in their highest state of preservation.

As for toning, some buyers look for strictly original items, while others search for those without any patina at all. While I buy and sell both, I prefer original toning. This is because, absent the use of Intercept Shield or other intervention, all items will eventually tone anyway, so at least I already have a better sense for what the item will ultimately look like. Besides, I have to question whether a predisposition to ugly toned colors or patterns is the reason that the untoned item being considered looks unnaturally white after so many years.

Unusually beautiful toning can, from the right buyers, bring seemingly obscene prices. I have owned some truly exceptional colored coins and, because I enjoyed looking at them as much as I did, the buyers typically had to part with good money to separate them from me. There are many others which are pleasing, but not wonder coins, and still bring a premium, but not the same ridiculous levels. Always remember that beauty is in the eye of the beholder.

On the subject of luster, uncirculated coins should always display luster throughout, although it need not be "full". The loss of luster, whether due to the number of marks, abrasions, hairlines, cleaning or the amount of wear on a coin is always regarded as a loss in value.

Items which are average in all of the above categories should bring a price in line with published guidelines (wholesale dealer to dealer and retail from dealer to collector). Those being exceptional in one or more of the preceding areas may bring a premium price, particularly if the exceptional attribute is well beyond the norm for the date. Substandard items are almost always marked down. However, there are many items in the market which, lacking in one area and making up for it in another area, still trade at published levels. While it is unusual, I have offered more money for an exceptional VF coin than for a substandard XF coin of the same date.

Most importantly, damage generally has an extreme effect on value. Damage includes, but is not limited to dents, bends, holes, corrosion, scratches and engraving. Some exceedingly rare items may be less affected than more common ones, simply because they are rarely available at all, let alone in pleasing condition. Nontheless, no seriously damaged coin warrants the same kind of money as an undamaged example of the same grade. 

Supply/demand - For an item to have collectible value, there needs to be more demand for it than there is supply. Otherwise, people would simply give away that which they couldn't be bothered with. If demand far outstrips the supply for a given item, the value will be much greater than for an item with relatively low demand. Consider examples of 2 coins, both with similar mintages, which illustrate this relationship.

• An XF40 1859 dime, of which there were 430,000 minted, which has a retail value of $65.00 ;
• An XF40 1909-S VDB cent, having a mintage of 484,000, having a retail value of $1,200.00 .

The dime is both older and of lower population, yet, because Lincoln cents are much more widely collected than seated dimes, there is far more demand for the cent and the price reflects that. Seated dimes are more likely to be collected as a type coin than for date sets and, as a type coin, there are far more dates available to satisfy that collector base than merely the 1859 Philadelphia coin. Thus, the market will not support nearly the same price for the dime as for the cent.

Mintage/Original Population - Many people make the mistake of basing their price senstivity largely on the mintage of the coin being considered. The mintage figures are indicative of the original population of a given coin, however they usually do not reflect the value of a coin in the marketplace today. Let's look at a few examples:

• A coin circulating when the value of the metal in it exceeded its face value often found its way into the melting pot. Most readers will think back to 1979/1980 when Bunker Hunt ran up the price of silver, but there were far more copper and silver coins removed from the market and melted in the 1800s, and those coins are the one we miss the most. There are many under-recognized scarcities and even rarities in U.S coinage because of this removal from circulation. One should not assume that, simply because a coin has a very high mintage, it is necessarily common.
• Speculators, recognizing that they might be able to corner the market on a coin with a low mintage, might hoard a large number to drive the price upward, before selling them off to take a large profit. Here is a case where current pricing may be unjustifiably high.
• Coins intentionally made in suppressed quantities, and advertised as such, normally receive advance recognition of their scarcity. It is unlikely that their populations will ever dwindle significantly, and their highest-inflation adjusted value probably is realized within the first year in the market. The likelihood of realizing a real appreciation-related gain from such items (after the initial release) is qute remote, but pleasure can still be derived from completing a set requiring that item.  I have always referred to these as contrived rarities, and place little emphasis on these items. They are analogous to IPO's in the stock market.

Market Fundamentals - Like so many other collectables, coins derive their value from the desire to complete a logical assemblage of a greater number of coins by date or type. If there are 10 total items required to complete a set and the first 8 can be found with relative ease, but the last 2 require a great deal more effort, then clearly the last 2 should command a much higher price than the first 8. This is, of course, unless one or more of the common 8 has/have been made artificially difficult to locate by a speculator taking a large number off of the market. When this happens, the value of a common item rises to levels higher than are justifiable. That quantity of items could be put back in the market any time the owner chooses, thus driving the value back down again.

This illustrates how market knowledge is a lot more than just owning a copy of the Grey Sheet and/or a population report. If, in the numismatic literature, you can only find only limited and recent reference to the rarity of a given item, it would be wise to do additional research before deciding to pay more than you would for a common date.

Recent price trends - If an item's price is "on the move", whether moving up or down, there is momentum which points in the direction of the next likely price change. This should be considered when deciding not only what price to pay, but also whether to buy at all. 

Prices for common items composed of materials for which the cost is volatile, might also be volatile. Good examples of this would be circulated common date silver dollars or large common date gold pieces. If however, the value of material in the item is minimal compared with its overall value, the price is less likely to move with that of the material itself, and should be viewed as more stable. You should formulate your value for these items based on the value of the metal at the time the prices were published and any movement in the price of the metal since that time.

Summary - Establishing the value of an item involves the multiple considerations covered above, and can be complicated. While it is much easier to rely upon the price guides published for the type of item you collect, it is important to remember that those guides are nothing more than a starting point for determining the price at which the transaction should take place. If you pay less than the going price for an average piece, you've probably made out well. On the flip side, if you decide not to pay a premium for a better than average piece, you may later regret it.

Good hunting,

ToughCOINS