Friday, August 06, 2010

Insider's Guide to Buying and Selling Coins

Buying and Selling Coins via Auction

Learn how to never pay seller's fees again!

If you are like many coin collectors who feel that the best way to avoid getting fleeced is to buy and sell their coins at auction, then please read my article "Insider Tips to Buying and Selling Coins at Auction."

Buying and Selling High Value Rare Coins via Private Treaty

Learn why some dealer's commissions are much lower than others!

Finally, there is one area that is not often talked about and that is the sale of very rare and high value coins via private treaty.

For every rare 1856-O $20 gold double eagle that sells at auction, there is probably 3 or 4 others that have sold behind the scenes through private treaty sales. Most of my collection has been put together via private treaty sales.

Private treaty sales are a common way to sell high value assets where the market is limited. What makes this type of sale different from that with your local coin dealer is that there is no wholesaler involved, and many times the dealer doesn't risk any of their own capital since the buyer and the seller are determined ahead of time. Sometimes, the dealer may provide financing to the buyer for really high value coins not unlike getting a loan for a car or house. Like a local dealer, the difference in the purchase and selling price is the dealer's profit or commission.

The Tale of Two 1856-O Double Eagles

But not all dealers are the same and neither are their commissions. To give an idea of how great this disparity can be, I'll use the actual sales of two 1856-O double eagles both graded AU-55 as examples.

Near the end of 2007, one dealer bought an 1856-O for $525,000 and turned around and sold it to his client for $542,000.  His profit on the sale was $17,000. While that may sound like a lot of money, it represents just a little over 3% of the dealer's purchase price.

A couple of years earlier another dealer bought an 1856-O double eagle in the same grade and similar in appearance for a little over $431,000. Within just a few minutes, the dealer turned around and sold that coin to their client for $483,000. The profit was almost $52,000 representing about 12% of the dealer's purchase price.

In both cases, I consider the dealers to be trustworthy and have done business with both. The dealer charging the 12% commission did not hide that fact from their client. They just weren't willing to do the deal for a smaller fee.

Levi's Jeans versus the Armani Suit

So what makes one dealer charge so much more for the same coin? 

I don't know the exact answer to this question, but I do have an observation to share.

Ironically, the two dealers involved in the previous examples actually co-wrote a coin book together. And while their names may both be on the cover of the same book, their business models are a world apart.

One dealer, who I like to call the rare coin "expert," operates a solo business. Although he may have one employee, I'm not sure if he even has an office outside of his home. He definitely keeps his expenses very low and therefore can pass some of those savings on to his clients.

The other dealer, who I consider to be the rare coin "mega-marketer," operates out of a multi-story office building in the wealthiest city in America (based on average household income and median home prices), and has many "brokers" making sales calls each and every day to clients. His company also advertises frequently on television. Their expenses are obviously much higher than the first dealer, and that is reflected in their higher fees.

Patience versus Instant Gratification

So which dealer should you use? 

Well, if you want to buy a rare 1856-O double eagle fairly quickly and are willing to pay a higher commission, then you go with the "marketer" in the Armani suit.  However, if you have the patience to wait for the right coin (possibly even years), and you want to feel that you are also getting a good deal, you go with the coin "expert" in jeans.

Although you may never find yourself considering a half million dollar coin, it may be worth your while to take a second look at your dealer anyway. Does he have a high profile shop in an expensive mall?  Or is it off the beaten path in a location not easy to find? Sometimes the best deals are where you can't easily see them.


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