Market Levels - "That Depends"

I created the graphic above to explain why nearly identical objects can have vastly different values depending on the market in which they are offered for sale. The chart is a simplification designed to illustrate the reason that appraisers so often respond to a question of what an object is worth by saying, “That depends.”  A vexingly unsatisfying answer to be sure, but it’s the truth nevertheless.

    Why someone wants to learn the value of an object--or more accurately, the reason for the appraisal--dictates the market level where the value of comparable items will be researched and value will be determined.  Within each market level there are layers.  Think about the retail market.  Tiffany’s is a retail store, so is Macy’s, so is Wal-Mart, but they occupy different layers of the retail market level.  True also for auction houses.  Sotheby’s and Christie’s occupy a lofty layer, lots of good regional auction houses in the middle, and local auctions near the bottom.  

 The next time you settle in to watch Antiques Roadshow, listen closely when the expert reveals a value to the expectant guest.  When he or she says, “If I had this in my gallery in Manhattan, I would price it at...,” or “For insurance purposes I would recommend...,” then you know they’re describing a retail value, or what it would cost to go out and purchase a comparable item from a retail business.  If she says, “At a well advertised auction this would bring between...,” the expert is dispensing useful information for someone who might like to sell or donate their treasure--usually less than a retail value.

    In the illustration I include both orderly liquidation & forced liquidation value examples--the market level for tag sales and some garage sales.  When we buy things at this market level we expect to pay less than we would at a retail store that offers convenience and guarantees on condition and authenticity.   Similarly, at auction we expect to pay less than retail because there is not the same level of convenience or customer service.  The auction buyer is assumed to be knowledgeable, though there is some recourse if an item is misrepresented by the auction house.  

    Tag sales and garage sales do not offer any of the safeguards described above.  The garage sale buyer expects used and imperfect stuff in “as is” condition at a fraction of what it would cost to buy (new or used) from a retailer.   We may even hope that the sellers don’t know what they have and that we will find the next Roadshow treasure.  Sellers are happy to get other people to haul off all the stuff that’s junking up the garage and gather a few extra bucks as a nice bonus for a busy weekend. 

    While this description and illustration are simplifications, I hope they serve to make the appraisal process more transparent and understandable.  But, of course, that depends...