A Companion to Rare Coin Collecting
By Ray Wyman, Jr.
Sooner or later, you'll want to sell your rare coins. Hopefully, a number of years will have passed since your purchase, placing you in a good position to take maximum advantage of the long-term upward forces in the market. Several alternatives for liquidation exist, each with their own advantages and disadvantages, depending upon your needs.
The first, and most obvious place to contact, is the dealer who originally sold you the coins; provided, he or she is still in business. Turnover in the rare coin industry is relatively high, particularly among the smaller dealers. The larger companies typically are more stable, with a number of them having now been in business for over twenty years. In any event, you are most likely to get sound advice and assistance from your original source. The guarantees under which you purchased the coins will only be applicable here and reputable dealers are generally committed to the long-term satisfaction of their customers.
There are an almost infinite number of guarantees in the business, and virtually all insure authenticity, accurate grading, and offer a limited return privilege. In order to be of any practical use, however, the guarantee must have some provision for your liquidation. Several types of guarantees exist which do offer some real benefits in this area, but all contain pitfalls or potential weaknesses, as well.
- "Repurchase at same grade as originally sold." While this guarantee reads fairly well, and seems to insure against the changing standards that have plagued grading over the past decade, its reference to a specific price guide for determination of value is absent. In other words, the dealer will repurchase your coins, but at any price he wishes to pay. The price may be quite fair, or it may be far less than you would expect from reading the price guides.
- "Repurchase at Coin Dealer Newsletter bid, or an in-house, regularly published price guide." This guarantee, while somewhat superior to the one previously discussed, is completely dependent upon the financial health and solvency of the issuing dealer. Dealers who offer this type of guarantee must initially sell their product at absolute top dollar and, given a continually rising market, can operate this system quite comfortably. It can be a very profitable system for the dealer, especially if the "bid" prices are at artificially high levels. The problem comes when the market cycle turns around, and prices begin to fall or, worse yet, when grading standards toughen while published prices remain the same. Unless the dealer has the financial resources to absorb all the merchandise he is sent for repurchase, the real possibility of insolvency exists. At the very least, he will have to lower his bid/ask range into alignment with the true market. The customer is in a particularly poor position at this point, since the acquisition price of his coins was initially inflated to allow for the guarantee.
An exception to this situation are coins graded by the PCGS While they are often quoted, sight unseen in regularly published price guides, the large number of participating dealers add considerable validity to the published prices, since a large pool of money is available to back up these offers. Not all PCGS dealers make offers on all segments of the market, but in the more common series, numerous bidders exist, all within a fairly tight range. Most importantly, the problem of changing standards is virtually eliminated, since PCGS coins do not carry a "date of grading" notation. The rules governing PCGS dealers preclude a buyer from refusing to purchase a coin because of a disagreement with the grade. Hence, liquidating PCGS coins should be particularly appealing to those whose interest in numismatics is primarily as an investment.
- "Placed in auction at same grade as sold." Like the first guarantee, this one also lacks a direct link to value. While you are insured with some liquidity even in a poor market, there is no rule that states that coins sold at auction will realize full published market prices. However, the public offering to a large group of dealers and collectors generally provides wide exposure for your material, and produces results that are usually satisfactory, even in a slow market.
- "Repurchase at a fixed percentage of increase per year." Remember the old axiom how if it sounds too good to be true, it probably is too good to be true? Here is a living example. Not only does this "guarantee" probably violate federal and state securities' laws, it violates common sense, unless the fixed percentage is below the risk-free interest rate. At that point, you are far better off with a FDIC insured bank. Despite the aforementioned warnings, a reputable dealer will make a genuine effort to provide satisfaction at the time you liquidate the coins purchased from him. His ability to do that hinges on market conditions at the time, the resources he has at his disposal and the length of time you have held the coins. A serious deficiency in any of the above three factors will impact your ability to realize a profit through that dealer.
If your original dealer is out of the business, or you simply wish to pursue other alternatives, the following options are open to you:
- Direct sale to another dealer. The chances of success with this method vary considerably from dealer to dealer. In general, the third party bias discussed earlier is most prevalent with the small, local dealers. Their ability to pay top dollar for coins is hampered by their limited financial resources and their unfamiliarity with the market. In addition, they usually prefer to "wait for the kill," and purchase items over the counter at fractions of their market value from people who are unfamiliar with rare coins. At a coin show, some of the problems are alleviated, due to the instant accessibility of competition. The larger the show, the more likely you are to realize a fair market price for your material. However, large national shows can be intimidating and require travel, unless you live in a very large metropolitan area. Finally, you can send your coins to a major dealer via registered mail. You will be offered a wholesale price, based upon what the dealer is able to purchase coins of similar quality elsewhere. Again, this is often below the published price guides for many of the more common issues, but more than you are likely to get from a small, local dealer.
- The other major liquidation option is public auction. If the dealer from whom you purchased your coins has an auction subsidiary, so much the better. Depending upon the size of the consignment, you may be able to get a reduction in the seller's commission rate. In most cases, you can also be assured that your coins will be cataloged at the same grade at which they were purchased. Advantages of selling through public auction include a wide market exposure, and the likelihood of receiving a higher price than if you sold directly to a dealer. For great rarities, liquidation through auction is especially favorable, and the majority of coins worth in excess of $10,000 are sold through auction.
The primary disadvantage of public auction is the approximate four month interval between consignment and final settlement. An advance of up to 50% of the estimated value is usually available, but interest is often charged, and the estimates of realized prices are ordinarily conservative to insulate the dealer from the uncertainties of the market. Other minor drawbacks to auction are the commissions, which are split between the buyer and seller. As mentioned earlier, the seller's commission is negotiable in the 5% to 10% range, depending upon the size and quality of your consignment. The buyer's commission is a flat 10%. Finally, most numismatic auctions are unreserved, meaning that there is no minimum price you can set on your coins. You can, of course, bid on them yourself and buy them back. This practice is discouraged by most auction houses, and you will be charged both the seller's and buyer's commissions.
A final liquidation option is consignment to a dealer for an eventual retail or wholesale sale. This is fairly rare, and many dealers will not be interested in this arrangement, unless the commission for this service is substantial.