The Coin Dealing Business - A Brief OverviewThere are two major categories of coin dealers - the wholesaler and the retailer. The wholesaler aggressively seeks to bring new material into the marketplace, and often attends coin shows, local auctions, and runs advertising offering to buy coins. Most of this material is then sold in bulk lots to retail-based dealers.
The retail coin dealer gets most of his stock from the wholesalers. Although he, too, may attend coin shows and buy locally, most of his business income is from servicing a clientele of single-coin buyers. A dealer of this type is more likely to pay you higher prices for your coins, since they don't have to pass through two sets of hands before being sold, but local dealers are also often the worst of the cheats! This is because the larger dealers are more likely to belong to organizations that require them to subscribe to a Code of Ethics, such as the American Numismatic Association or the Professional Numismatists Guild. The number one consideration that anybody who buys or sells coins must consider is recourse. What kind of recourse do you have if things go bad?
Wholesale Coin PricesOne of the best ways to arm yourself against the savvy coin dealer is knowing the wholesale prices he pays for his coins. A very widely-used standard in U.S. coins is the "Grey Sheet," sometimes referred to as the "CDN." This is the Coin Dealer Newsletter, which is printed on grey paper stock, and comes out weekly. Most serious coin dealers subscribe to this publication, which lists the "bid" and "ask" values for every major type of U.S. coin, plus mint sets, slabbed coins, and banknotes (called the "green sheet.") "Bid" prices are the prices that dealers are paying if another dealer brings the coins to them. "Ask" prices are the prices for coins a dealers asks to buy. For example, if I call and ask to buy 100 common date Silver Eagles, I'll be quoted the "ask," or selling price. But if I want to sell the 100 Silver Eagles, I'll be quoted the "bid" or buying price. The difference between the two prices is the profit margin. It is quite thin for most coins.
An important concept to remember when discussing Grey Sheet prices is that we are talking about the wholesale market. Two things characterize this market: (1) Deals are usually done in bulk numbers, so the prices don't refer to single coins, in general, and (2) Deals are minimal service transactions. You can't go up to a coin dealer who has to appraise and grade your collection for you, and expect him to pay Grey Sheet "bid" prices. However, the Grey Sheet should give you a good idea of what your coins are worth in a general sense, so you don't sell a $1,000 coin for $200.
Coin Dealer Profit MarginsAs a general rule, the more common a coin is, and the lower grade the coin is, the higher the profit margin (expressed as a percentage of the selling price) for the dealer must be. The reason for this is that low-grade, common coins are harder to sell. Another reason for this difference is dollar value. If a dealer buys a common date, heavily circulated 1940 Wheat Cent from you, he might pay you 2 cents for the coin and sell it for 5 cents, making a greater than 100% profit (but still only 3 cents!) But if he buys a key date, heavily circulated coin, such as a 1931-S Wheat Cent in Good (G-4 grade), he might be able to pay you $50 for it, even though he will make only a 20% profit when he sells it for $60. The difference here is that the 1931-S is likely to sell much faster than the 1940 Cent, plus the dollar value involved in measurable.
Another general rule of wholesale coin pricing is that the more valuable the coin is, the smaller the profit margin needs to be, percentage-wise. If a coin will sell for $15,000, a dealer can make a nice profit if he buys the coin for $14,000, but he might have this coin in is inventory (and his investment in it tied up) for a long time before someone who can afford $15,000 a pop for coins comes along.
All told, the profit margins for coins are primarily determined by these three factors:
A. How quickly the coin can be resold (market demand)
B. How high the dollar value is (capital outlay)
C. The condition of the coin market overall (market dynamics)
Coin dealers must strike a balance between these factors to remain profitable.
Coin Dealers and Common JunkOne of the reasons there is such a disparity between what the average consumer expects, and what the coin dealer actually delivers when it comes to buying coins from the public is that coin dealers see vast amounts of common "junk." By "junk" I mean common date wheat pennies, circulated Buffalo Nickels and Mercury Dimes, worn Washington Quarters and circulated Franklin and Kennedy Halves. Coin dealers are offered so much of this type of material that many of them get tired of seeing it. They give such material the cursory once-over and offer low-ball prices for it based on long experience. Usually people have already pulled out the more valuable coins, leaving the "junk," (or at least the the dealer must assume so.)
The customer, however, feels that his coins haven't been given a fair appraisal. What if the dealer overlooked something rare? Shouldn't he look each coin up to be certain? (continued on the next page.)