Third Party Grading, Visited

I was asked a very interesting and challenging question today by Steve T., a collector of certified U.S. coins and customer of ours for just over 2 years. First, Steve was disappointed because he had cracked an NGC MS61 gold piece out of its holder and submitted it PCGS -- and it graded AU58. We had originally sold him the coin and he wanted to know if we would allow him to return it. In other words, "would we guarantee the grade of the coin?" I responded that it simply is not possible for DLRC to guanantee the grades of certifed coins we sell once they are cracked out of the holder, for two reasons. First, we cannot be certain that a coin hasn't met with outside forces which may adversely affect it's current condition; but more to Steve's question... the fact is most coins will NOT grade the same if cracked out and resubmitted. Shocking, perhaps but definitely true. And we could be talking about PCGS to PCGS; NGC to NGC; DGS to DGS; or any cross submissions as well. Assigning a grade to a coin is very difficult and subjective in so many ways.

Many submitters expect a certain grade when submitting coins and when a coin doesn't reach that grade expectation, the coin is cracked out and submitted again. Someone may submit the same coin 4-5 times before the desired grade is awarded. (Not all coins are submitted in this fashion, but there is a cottage industry of "crack out" artists that mkae their living this way.) By this measure, economic theory dictates that the coins remaining in holders tend to be the coins that recevied the highest awarded grade after x-number of submissions; and the mature marketplace will ultimately be weighted in favor of coins that have been "maxed" out. As a buyer, if you then crack out a coin you run the distict possibility that you are regrading a coin that took x-tries to achieve its high grade.

All this being said, Steve was then concerned about the future of grading services in light of this grading variability. I know this can sound disconcerting, but it really shouldn't be. The certified coin market is a great hooby which has achieved a cross-over to investment-grade status for many people. It's a real marketplace in which hundreds (if not thousands) of dealers make individual (and independent!) spreads on coins and values are amazingly dependable year over year. Try buying a five-fiugre paiting and offering it blind to 10 national art dealers. You will find the margin of offers (if any at all) to be much larger and seemingly random. As coin dealers, we buy and sell over $2 million in coins every month. Without the solid repuations of PCGS and NGC, this would not be possible -- not even close.

A word on CAC: Collectors' Acceptance Corp has emerged as a "grader of the grading services". We are fielding a lot of questions about whether this is good for the industry and whether or not collectors should insist on CAC-stickered coins. First, I'll say that CAC'd coins sell faster than non-CAC coins. Becuase CAC has only been in operation a short time it's impossible to know the long-term impact, however, I can say that it will NEVER be a negative. CAC is quickly becoming known as a conservative arbiter of quality standards, and a CAC'd coin should give its buyer an added sense of security that it's grade is accurate. That said, I don't think that a non-CAC'd coin is a negative. Nor do the folks at CAC want you to think so. They've either not seen the coin or decided that it didn't make their standard for the grade. But just as some people like chocolate, and others vanilla, CAC will not always agree with us at DLRC (and our five-star coins, for example). Just use the service as another opinon. We also REALLY like the fact that CAC is putting money behind their stickers. They are making a two-way market in CAC stickered coins and their buy offers are STRONG. Stronger than retail in many cases. That's a great thing for the market. And we wish them much success.

A word on DGS: Dominion Grading Service, as many of my readers know is the new grading service that we started our own grading service. Not so much to compete with NGC and PCGS, but to supplement them. We are really enjoying the process of grading coins for our customers and it's really giving us a greater relationship with our customers AND the coins we grade. I started in the coin business as a child helping my father at coins shows when there was nosuch thing as third-party grading. EVERY coin dealer graded his own coins and reputations were won and lost based on the dealer's integrity from grade through pricing fairness. I see DGS as a way for us to get back to those roots -- especially on circulated collector-grade coins. And just like CAC, our business model is dependent on supporting this market. We WANT to buy DGS graded coins, becuase we know they are graded conservatively. Collectors have responded by buying our product from day 1, and support grows every day.

This 1807 half dollar is an ideal example. It graded DGS VF35 Lightly Cleaned and consigned by a client -- reserve at $421. It just closed in tonight's auction for $570 (+ 15% buyers premium) with bids from 4 different bidders.

That's all for now... back to Michael Phelps' gold-quest. Please respond with any questions.

Sincerely,
John