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Where to Buy Coins: Auction Houses vs Reputable Dealers?

Originally published on June 24 2017

Since there is no prepared content for this morning's Blog, I might as well say a "few" words on the topic of purchasing coins from auction houses or from reputable dealers or both...

The Internet has dramatically changed the numismatic market during the past 30 years. Prior to the 1990s, a serious numismatist would typically travel to major shows to make purchases from bourse dealers and at auction. Otherwise, these individuals would rely on dealer relationships to acquire semi-key or key dates for their sets. Collecting was a slow methodical process with lots of luck involved; being at the right place at the right thing towards acquiring scarce dates in gem condition. The "thrill of the hunt" was so apparent before the 1990s. But the Internet changed how we buy coins with benefits and risks. Shopping for coins, in the comfort of our homes, was enabled by the Internet. Rare dates became more available since every example can be simultaneously marketed on Collectors Corner or other websites. Case in point is the "rare" 1893-S Morgan dollar. If one attends a large national show and shopped on the Internet at the same time, it would not be difficult to amass 20-30 pieces over a two-day period. But I'm digressing from the core topic...

Buying coins from auction houses and online dealers carry risks and please allow me to explain those risks.

Auction House Sourcing

The major auction houses are in the business of handling large volumes of numismatic products. They have substantial infrastructure and operation costs and need a constant stream of coins to remain financially viable. Their 17.5% buyer's fee pays for those costs along with other wholesale activities that many collectors do not see. Auction houses must build a large customer base by leveraging Internet sales. Coin photography and Third-Party Grading are paramount for this business model. Yes, auction houses remain active at major shows with auction lot previewing as a substantial portion of their customer base are coin dealers. But the regular collector market segment has shifted to online bidding and purchases. For the latter group, buyer beware is in order.

If buying coins from an auction house, then one must understand where the houses source their coins. It is no different than buying a used car, right? All coins are pre-owned. Here are some of the sources of coins for auction houses. To be frank, I don't often purchase coins from auction houses for GFRC inventory. My first rule is to never buy an auctioned coin without seeing in hand. Auction previews have taught me that bidding strong money on coins with only images is a risky business. Coin photography is variable and, in some cases, does not illustrate subtle defects or old cleanings. Auction houses default to TPG certification and we know that TPG certification is not an absolute guarantee of a quality coin as many net graded and market acceptable coins lurk in TPG holders. Then there are the crack out dealers and coin doctors that use auction houses to sell their handy work. In many cases, auction lot descriptions are written by contractors from coin images and not the actual coins; just think about that for a moment when viewing online auction house images and reading descriptions...

Bottom line, I would not recommend buying coins from an auction house without in hand inspection. That is the core issue. One must see the product in hand and study with a loop before purchasing.

Large, Medium and Small Sized Dealer Sourcing

There are many large, medium and small sized coins dealers in the United States. The larger the dealer, the more overhead and operating costs with the need to sell a substantial amount of coins to recover costs and make a profit. This point brings up a fundamental issue; there are a limited number of choice original coins in the market, at any one time, with the balance being average followed by inferior pieces. Large dealers, due to their business model, must buy and sell coins whether choice or below average to generate sales revenues and profit. Staffing may rotate through the business depending on the firm's success and stability. Now comes the dilemma for coin collectors; how to sort through the large dealer's inventory to locate choice coins that are offered at a fair price. Consistent photography quality is paramount for purchase decisions along with a solid return policy. Making a phone call and speaking with an unknown individual for a coin evaluation must be carefully considered when their primary goal is to make a sale.

Medium and small sized coin dealers operate with lower cost structures. In many cases, smaller dealers also are niche market players and will specialize in certain designs and denominations where their expertise lie. The key to working with smaller dealers is relationship building and clarity of product descriptions. Working with a smaller dealer also brings a subtle education component after a relationship is established. Buying coins for the same person, year on year, should mean consistency in product photography and evaluations. If that dealer has a long-term perspective and is committed to help customer achieve their collecting goals, he will also buy back the coins that he sells. Buying coins from specialty dealers also means securing first access to coins without having to compete for those important items at auction houses.

So where does GFRC fit into this equation? Honestly, I'm still a small specialty dealer with a collector's heart and a long-term business strategy. Helping collectors to achieve their set construction goals is paramount for me and the basis for my survival in a very competitive market. I'm also a strong believer in education as witnessed by the past week at ANA Summer Seminar and the constant writings in the Daily Blog. Working as a coin dealer is probably the best job in the world, but longevity is dictated by treating customer with respect coupled with fair deals on a continuing basis.