August 04, 2017

What is something worth when it doesn't sell?

This is a question I consider almost every day. This is also a question that affects all dealers and all collectors, in every type of collectible and in every specialty. What I'm going to say is merely opinion and I know others can and will disagree. Let's start with a live example and guess what it might sell for today.

The certificate shown came from the Gilpin Tramway. That line was a historic 24-inch narrow gauge operation that served a large number of gold mines around Central City, Colorado between 1887 and 1917.

Unless collectors tell me, I cannot possibly know what dealers currently ask for Gilpin Tramway certificates. Auction sales, however, have given me records of thirteen definite transactions since June, 1989. Sale prices have ranged from $61 in a 1989 Smythe sale in the U.S. to $594 in a 2006 FHW sale in Germany. The average sale price has been $216, and auction start prices have tended to cluster around $150 to $350. I have recorded nineteen serial numbers so far and assume there are probably twice that many in existence.

So what is the collectible value of this certificate? Based on actual sales, I currently estimate about $200. 

But what about the reader who yelps, "Wait a minute. I saw one sell on eBay for $99!"

True. That was in August, 2011. But so what? The certificate has appeared on eBay five times and it has sold there for an average of $198. That makes me wonder whether my $200 estimate might not be $25 to $50 low.

I have no choice but to estimate that collectors are CURRENTLY willingly pay at least $200 in auctions. Furthermore, I suspect most of those same collectors would not balk at a $250 to $275 price tag from U.S. dealers. Because of differences in the value of the Euro and collecting habits, I suspect $300 to $400 would be a fair offering price in Europe.

I am NOT saying that all sales – or any sales! – will take place in those ranges. If no one desires a Gilpin Tramway certificate at sale time, then those certificates are theoretically not "worth" $400 or $300 or even $200. Simple.

Yet, what is the price if professional dealers or auction houses won't lower prices below $200? Once again, the conclusion is quite simple. If anyone – collector, dealer or auctioneer – refuses to part with a collectible if it doesn't sell above $200, he, she or it is valuing the item like a collector. My price estimate must remain $200.

The point of all this is that whoever desires a collectible the most is the party who sets prices. In most cases that is the collector/buyer. But if an amateur seller or professional dealer is playing the role of collector, then their desires win. They set the price and that is that.

With all that groundwork out of the way, I'll go back to my first question. What is something worth, when it doesn't sell? 

Gilpin Tramway certificates and thousands of examples like them are easy. While there will always be disagreements over price, similar certificates are still collectibles that collectors want. In the case of known and established items, collectors perceive the pricing question as less risky because they have a "feeling" for rarity. Whether there are 19 certificates in existence or 38 doesn't matter. Collectors are reasonably certain that a thousand more are not going to suddenly appear from some long-lost safe.

On the other hand, collectors find one-twosy certificates (where only one or two are known) much harder to value. I don't know a single collector who doesn't desire unique or nearly-unique items. If a new variety suddenly appears, however, they cannot possibly know whether a thousand more are likely to follow. Can they safely spend a significant amount of money betting their one-of-a-kind item will stay that way? To a very large degree, their reluctance to buy is a judgement of risk, based on minimal information.

Now, let's say a seller genuinely wants to convert certificates into cash and has no desire to keep certificates for personal reasons. Let's imagine that the seller offers a certificate for $200 and no one buys. Then he offers it several more times with identical results. I have seen this scenario play out countless times. Is his certificate worth $200? 

There are a myriad of possibilities, but evidence is clear that:
  • with the information provided to potential buyers
  • the item is NOT worth $200
  • to any of the people the seller has reached so far
  • at this point in time.
It is equally clear that if the seller truly wants to sell, he must change one or more of those variables. The seller can:
  • change his offering price, either lower or higher
  • reach out to more or different potential buyers
  • offer the item at a different time
  • do something to decrease perceived risk of purchase.
Each of these potential strategies is a long discussion in itself. The world abounds with books and websites about marketing. Most marketing experts will testify that sometimes, very minor changes make large differences in sales. Like changing an offering from $200 to $199 or changing a single word in a write-up.

From a cataloger's point of view, I generally assume that if a $200 item goes unsold one or two times, it is probably still worth $200. If the same item is goes unsold three, four or five times, then it is crystal clear that potential buyers value the item less than the seller. 

How much less?

In the Gilpin Tramway example above, we see a 10x range in prices ($61 to $594) measured from low to high. With collectible stocks and bonds in the railroad specialty, I have conclusive proof that we should always expect a minimum 4x range in certificate sale prices. Lacking any special features or problems, I always expect to see price ranges from $50 to $200, or $200 to $800, for the very same type.

Looking at a failed $200 transaction objectively, we could assume that $200 was slightly above the high point of a typical 4x range. Maybe it would have sold for $175 within the real $45 to $175 range. It is also possible that the $200 offering was below the bottom of a $225 to $900 range. Maybe, potential buyers were scared and thought, "Wow, this certificate should be worth more than $200! What's wrong with it?"

Although I have definitely seen the second scenario play out in real life, students of capitalism generally suggest that the $200 offer price must be too high. Regardless of my own opinions about rarity, I must also agree. In such situations, I always lower estimates to $150 to $175 after about two failed $200 offerings. If sellers choose to lower prices and items still go unsold after three or four offerings, I will drop estimates further, even if I think items are scarce or rare. Scarce and rare don't sell. Desire does!

Sellers are always aware that collecting is emotional. All collectors have emotional needs to collect. No surprise there.

But how many sellers understand that collectors also view their hobby with an eye to the concept of risk? It is seldom talked about, but collectors always question whether their purchases are sensible. They are always estimating financial risk. And what affects the perception of financial risk? Rarity, condition and external circumstances.

Yes, desire is what attracts collectors in the first place. But evaluation of risk is what controls their wallets. If collectors have boundless wealth, concern over financial risk may be greatly minimized, but sellers should realize that the evaluation of financial risk never disappears.

It appears to me that it is crucial, perhaps more crucial than price, for sellers to diminish perceived risk. I believe they need to tell buyers everything they know about a collectible. If a certificate is one of five known, sellers should say so. If it is torn or a signature is smudged, sellers should say so. If sellers know nothing, then they should never pretend. They should never use words like "rare" or "scarce" without proof.

If a certificate is very attractive, sellers should say so, but they should avoid hyped words like "WOW!", "Unbelievable!" and "L@@K." They scream "amateur" and "pushy" so loudly that many intermediate and advanced collectors often perceive more risk, not less.

In conclusion, I reiterate that it is neither easy nor accurate to estimate prices for collectibles. While my estimates may be nothing more than educated guesses, I always try to use past prices to guide my estimates. If no previous prices are known, then I usually use the guesses of sellers unless they appear totally absurd. While eBay prices are part of price history, I NEVER use guesses of value from amateur eBay sellers. If I have used professional sellers' prices as guideposts for my estimates, and they fail to attract buyers after two attempts, I commonly lower my estimates 15% to 20%. 

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