Valuing Collectibles: Auction Price Versus Insurance Value

We have had our share of conversations with clients who are trying to determine the value of their collectibles. For good reason, value is often the most important factor that determines whether collectibles get passed on, sold, or discarded. As such, questions about how to properly value collectibles are pretty common.

If you’ve seen Antiques Roadshow on PBS, you’re probably familiar with auction prices and insurance values. Both represent different ways to value a collectible. Knowing the difference is important if you are relying on value to decide what to do with your collectibles.

Auction Price

When an appraiser offers a valuation represented as an auction price, he or she is essentially saying that you could expect to sell your collectible for that amount if it were put up for auction at the current time. An auction price of $5,000 on your artwork collection suggests that a typical auction house could get about that much in the current market.

The difficulty with auction prices is that they are just estimates based on the appraiser’s knowledge of the market at that time. And as you know, markets can fluctuate wildly. An art collection worth $5,000 today could be worth only $500 next month. As such, auction price has to be taken with a grain of salt.

If you are considering passing collectibles on to your children, do not assume that the auction price you were given last week will remain stable. Don’t assume it will be higher 20 years from now. It could be that your collectibles will be worthless years after you pass on. We say this because it is not uncommon for people to pass on collectibles to family members by representing them as investments. They may not be worth anything should the recipients ever decide to sell them.

Insurance Value

When an appraiser offers an insurance value, it tends to be higher than the auction price. There is a good reason for this. Insurance value doesn’t just cover the amount of money it would take to purchase a replacement. It also takes into account any expenses that would be incurred as a result of having to replace the item.

Let’s say you owned an extremely rare first issue baseball card worth $1,000 at auction. If that card is lost or stolen, you are probably going to spend more than $1,000 to replace it. There will be expenses involved in searching for a new card, getting the card authenticated and appraised, and then actually buying it. As such, the insurance value of that $1,000 card may be upwards of $1,500.

Insurance value tends to be a more accurate representation of the true value of a collectible. But again, insurance value is still just an estimate. The actual replacement cost of the item itself can go up or down depending on market conditions.

Insuring Your Collectibles

The benefits of an insurance value appraisal comes into play should you actually decide to insure your collectibles. If you buy a policy that pays out $1,500 for your baseball card in the event it is lost, stolen or damaged, you will get that amount regardless of current market conditions.

Now that you know the difference between auction price and insurance value, remember this: whatever collectibles you own probably have more value to you than anyone else. Try not to take it personally if family members are not interested in your collectibles. Even if a collectible has a fairly high insurance value, it may have no sentimental value to children or grandchildren.

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