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Using Auction Prices Realized For Error Coins

Auction results show the price that multiple individuals bidding against each other decided a coin is worth. It's the free market at work, with demand dictating what something's value is, and the resulting high bid being the coin's value... or is it? It would be nice if it were as simple as that, but auction results can be both useful as well as misleading. Here are some points to consider when reviewing prices realized.

Was the Auction "Rigged?"
Was the bidding “rigged” by the owners of the coin? Sometimes (and I've seen this happen) dealers or collectors will bid on their own coins, artificially driving the price up. This results in a false-high bid value, and would be a "price realized" that did not reflect true market value. Some dealers will even do this in order to have a high prices realized "on the books," so that in the future, collectors or dealers who reference this auction will incorrectly be under the impression that a coin is worth more than it actually is.

Thin Markets V.S. Thick Markets
Some errors have "thin markets" and some have "thick markets" (I'm not sure if those are the correct terms, but they work for me.)

"Thick Market" coins have a high demand are much more likely to bring what they should. This is because there are so many people interested in the coin, that on any given day, there are likely to be multiple people at that auction who will want to buy the coin, and so will bid against each other and drive the price up. The result is that the coin likely will achieve a fair value or even a ridiculously high value. We have all seen this happen on eBay, and all it takes for it to happen is for 2 bidders who do not understand a coin's value, to bid against each other until one of them drops out. The result can be a price realized which is many multiples of what the coin is actually worth on any other day of the year.

"Thin Market" coins are coins which may be very desirable, but the problem is that they only have a tiny collecting base with few people looking for them. It doesn’t mean that the coin isn't worth X amount of dollars, but in an auction setting, the coin likely will fall well short of what it should have sold for. There may be 4 people actively looking for a rare error coin which there are only 2 known of. At an auction, it’s very possible that only 1 (if that) of those 4 collectors will be there to actively bid on that coin. The other people bidding on the coin would have no idea how rare or desirable that coin is, so they throw in a few small bids and the coins sells for "nothing" to that very happy 1 collector. If on the other hand 2 or 3 of the interested collectors had been at the auction, the coin would likely bring a very high price.

"Thin Market" coins often are difficult to price based on auction prices realized, and a knowledgeable dealer or collector would have to price the coin based on other data, such as what the coin has brought in non-auction sales, or what similarly rare errors with a similar number of collectors are typically willing to pay for the coin.

Auction V.S. Dealers Prices
A generic error coin type may have sold at auction for $550, $700, and $475 over a period of 5 years, and currently a coin dealer is offering the coin for $800. Is the coin worth $800, or should the collector wait for an auction to buy the coin? This depends. Sometimes a dealer is simply overpriced, and you are better off finding the coin yourself since it's a common error, and is readily available on the market. On the other hand, sometimes there are things you do not understand about those 3 prices realized, and why the dealer’s price may be a good value.

The $550 coin had a scratch (many slabbed errors do) and some slightly odd toning which was a bit unsightly, and reduced the value.

The $475 coin was stuck in a small auction in mid-july (when many collectors and dealers are busy with other things, and not doing coins as much) and it somehow "slipped by" everyone and went to some lucky bidder—yes you might be able to find a coin that cheap in the future, but odds are you wont for that particular coin.

The $700 coin is the coin which your dealer probably purchased in the auction himself, and is now offering for $800. It's a nice coin, a respectable grade, and has good eye-appeal. Should you buy it? If you trust your dealer’s advice, and the dealer says it’s worth $800, it could very likely be worth that price. You might could find one on your own over the next 5 years, but by then prices may have gone up, or you may make a mistake and buy a coin which has some problem or characteristic which hurts the value, and you end up buying an inferior coin.

Interpreting Prices Realized
Generally speaking, the more examples of an error coin you can find that have sold, and over as long a period of time as possible, the more you can trust that that is what the coin is worth.

The thing to remember is that coins with thin markets will usually sell for less than they "should" at auction, and coins with "thick markets" are more likely to sell for what they’re actually worth.

You should always ignore the coins which went for extraordinarily high or low prices since they do not reflect the market for generic examples of the error type you’re looking at. Why those coins sold for high or low prices are impossible to say most of the time, and they really do not tell you anything useful most of the time, and you shouldn’t expect to sell or purchase a coin at either of those lows or highs.

If you see a trend over the last year, for example, where the error has shot up in value over what it has traditionally sold for for the last 8 years, there may be a legitimate reason for this. A new book being published, a dealer may be promoting the series and so generating increased interest, or perhaps the random event of 5 new serious collectors getting into the series at the same time all could account for much higher than average prices. The old prices of the last 8 years may no longer be relevant, and the "new prices" of the last year may be the norm for years to come.


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