Technical Grading, Value Grading and Net Grading . . . What are they and why are they necessary?

In the field of collectibles, the condition of an item determines how desirable it is, and therefore its worth compared to others of its type. Since all items start out new, and degrade to a lesser state through wear, neglect, or mishandling, the value assignable to that item is variable. It is not unusual for the value of an item in brand new condition to be many times more than the same item in only slightly lesser condition.

Collectors, in the lengthy pursuit of desirable examples of an item, develop an almost natural feel for the value of the item in different conditions. Investors, however, are generally less inclined to learn the underlying reasons for the value of a given item. Therefore, grading has become an important element in protecting those individuals from predatory sales tactics and / or from their own greed. Said differently, a grading system instills in the less experienced a greater confidence that they can purchase collectibles with less financial risk.

When the item is perceived to be a store of value or even an investment it may attract an increased buying audience, often composed of buyers focused only on its value and not on understanding the nuances determininng its value. Ignorant buyers (those choosing to ignore the opportunity to learn about the subject matter), interested in acquiring the item purely as an appreciable asset rather than for enjoyment, will want to be certain that they are not paying too much.

Some collectors take the position that increased financial risk is the price investors pay for their short-sighted approach. While true, many businesses depend on investor participation in the collectibles market, and encourage them to invest using standards of the hobby as reasonable assurance that their risk is minimal. Along with pricing guidelines, grading standards are a necessary component in providing such assurance.

What is technical grading?

Standardized grading criteria are based upon quantifiable core attributes of the item which, in the case of coins, covers traits such as the amount of detail, luster, and the number, size and location of marks. Because these attributes are more easily characterized than some others, they make up the core criteria upon which a technical grade will be based.

Additionally, there are certain threshold requirements for the assignment of strike-related grade designations, such as Full Bands (FB), Full Head (FH) and Full Bell Lines (FBL). If the strike falls short of these threshold requirements, even by the smallest amount, the designation does not apply.

Supplementary criteria, such as eye appeal, and most particularly toning, are generally not accounted for in technical grading.

What is value grading?

Value grading is the conscious assignment of other than the pure technical grade of an item to indicate a value that reflects the sum total of all attributes of the item, or to partially bridge a large pricing gap for a coin falling between between 2 grades. Examples of value grading follow:

• A spotted or ugly toned Buffalo Nickel technically grading MS64 might be graded MS63 to adjust the value of the coin for the lack of eye appeal;
• A PR66 Franklin Half that just misses the CAMEO designation might be bumped up to PR67 to make up for some of the price spread between PR66 and PR66 CAMEO. Likewise, that same coin might be graded PR65 CAMEO to achieve the same result;
• A Standing Liberty Quarter in MS64 that just misses true full head requirements might be bumped up to MS65 without full head in order to compensate the owner for being a premium coin without being worth the same as another in the MS64FH grade. Conversely, graders might award the FH designation to this coin at a lower grade if the market price seems to fit the coin's value;

What is net grading?

Net grading is used to adjust the value of an item downward to compensate for cleaning or slight damage. An uncirculated coin which has been expertly cleaned, for example, will almost always be dropped a grade to AU unless the cleaning is harsh, in which case the grade may be dropped even further to imply a more realistic value.

Not all damaged coins are net graded however. Coins that are permanently damaged, such as holed, bent or badly corroded coins, are more likely to be labeled as culls, and have no recognizable market price. Values of those coins are usually negotiated on a case-by-case basis.

Why is grading so much more refined for coins than for most other collectibles?

Coin collecting has long enjoyed one of the broadest collector bases of all hobbies. Given the large scale of participation in this hobby, the effort required to establish standard systems for describing and valuing coins was justifiable. This has become even more true with forays of the investment community into numismatics.

For these reasons, and others I've doubtless overlooked, the practices of technical grading, value grading and net grading were developed.

If you have comments or can recommend additional content, I welcome them at strummer289 @ metrocast.net

My apologies for eBay ratings not showing up on this guide . . . I don't know why, but it's always been this way.

 - Mike at ToughCOINS