What you need to know about Market Grading

[CTcollector]

What is Market Grading ?

 

Market grading is the attempt by the TPG's, or anyone for that matter, to subjectively assign a particular coin a higher grade, based on attributes (usually eye appeal), over and above the coin's actual technical merits. Market grading may also be referred to as "pricing or ranking" coins. Some people, mostly hobby traditionalists, flat out consider market grading "over grading" and would prefer TPG's to just grade coins versus ranking or pricing them.

 

What are examples of Market Grading ?

 

There are many aspects of Market Grading but one of the most obvious is assigning an attractive slightly circulated coin (AU-55/58) an uncirculated grade of (MS-60/61/62/63). Technically, a strict uncirculated coin should show no traces of wear or friction on its high points. When a coin that has wear or friction on the high points is purposely graded as uncirculated, it is deemed to be market graded. The logic behind assigning an otherwise eye appealing AU-58 (slider) a grade of MS-62 is a function of pricing. Typically, low end uncirculated grades of 60-62 tend to be unappealing and lifeless. One can argue that an eye appealing choice about uncirculated AU-58 coin should be worth as much, if not more than, a lifeless MS 62 of the same date. Often times the open market dictates that exact scenario. The grading services conveniently accomodate this scenario and today routinely bump eye appealing, but technically AU coins, into uncirculated holders. In my opinion, this is most prevalent in the bust series and rare date gold but I am sure it is pervasive across the entire hobby.

 

Another aspect of market grading is a coin recieving a "grade bump" for attractive color. An otherwise technical MS or PF-64/65 coin may be assigned a grade of 66/67 because it has awesome vibrant color. The same function of pricing that I mentioned above holds true here also. A beautiful attractively toned 65 can be worth as much as an average 66 or 67, particularly in today's turbo charged market. On the flip side, and I am very sad to say, coins (primarily proofs) with slightly heavier or darker original color may be assigned a higher grade only after conservation or dipping.

 

There are many more examples of market grading that maybe some other board members could give examples of. It is much more prevalent today than any other time I remember since the commencement of third party grading.

 

Market Grading Premium

 

What everyone should know about market graded coins is that the "Market Premium is already built into the assigned grade". To understand what that means lets look at some hypothetical price points for a given coin. Lets say a coin has a pricing structure as follows;

 

AU-50 $400

AU-55 $500

AU-58 $750

MS-60 $1000

MS-61 $1100

MS-62 $1200

MS-63 $1500

MS-64 $2500

MS-65 $5000

 

Now lets say we have a beautiful coin with some slight wear at the high points. The coin technically grades AU-58 but is truly beautiful and is heads and shoulders above any of its peers at the AU level. If graded AU, it would no doubt sell at a significant premium to other AU coins of the same date and type. The coin is submitted to a TPG and to no ones surprise it grades MS-63. The coin really possesses that much eye appeal. So in either scenario you are paying around $1500 for the coin - whether its 2X sheet for a fabulous AU-58 or 1X sheet for a market graded MS-63 slider. In this case where the pretty slider recieves the MS-63 grade, the TPG has market priced the coin and built the eye appeal premium into the assigned grade. The coin should sell in the open market as though it is a MS-63 coin or so the theory goes. What you want to avoid, or at a minimum be cognizant of, is a seller further hyping the coin as a PQ MS-63. Something to the effect; PQ MS-63 and I am asking $3000 for the coin as it is nicer than most 64's with gem eye appeal. In this case you will be paying the market premium twice - first in the bump from AU-58 to MS-63 and second in the seller's PQ price. Personally, If I really liked the coin and it was a difficult coin to find nice I would pay 63 money for the coin. It wouldn't matter to me whether it was in a technical AU-58 or market graded MS-63 holder. The price would be the same in or out of either holder. However, I would hesitate paying more than MS-63 money in this scenaraio as at that point I believe I would paying for hype versus coin. But thats just me. Others may say "no way Jose" the coin is a slider and I will never pay more than AU-58 money for it no matter what holder somebody negotiated it into. Yet others may say, that is the nicest coin of that date and type I have ever seen. I don't care that is technically AU. I want that coin even if I have to pay MS-64 or 65 money for it. The coin is that nice.

 

The important thing is to recognize when coins are market graded and to make your own informed purchasing decisions.

[michael]

 

superb thread this thread should be required reading for any newcomers to these boards

[Hoot]

This reminds me of an old thread:

 

What do you think of market grading?

 

Hoot

[Brotherman]

Correct me if I’m wrong here, but I thought that NGC implemented the star designation as an attempt to address this issue. Of course, it doesn't help if your are talking about other grading companies...

 

Hays

[EZ_E]

 

superb thread this thread should be required reading for any newcomers to these boards

 

This is the best summation of market grading that I have ever read! You nailed numerous points right on the head.

 

Market grading is much easier to accept when one realizes that TPGS's are actually more of a pricing service than a grading service.

[EZ_E]

This reminds me of an old thread:

 

What do you think of market grading?

 

Hoot

 

This thread, too, should be required reading.

 

There are merits to market grading, yet, like any system, it is subject to abuse. The coin's rarity should not contribute to market grading but I've seen plenty of abuse in this area. I've seen accurately graded PCGS Mercury dimes placed next to the same grade/slabbed 1916 D. The key date coin was so blatantly overgraded that it just boggles the mind. This is an unacceptable practice in my opinion and has its foundation in greed where the collector must foot the bill.

[TomB]

This is the beast that I have tackled many times when trying to tell people about the double premium that they are often saddled with when buying coins with nice toning.

[Morgannut]

The market grading issue causes two major problems for collectors. Those who overpay as MS65 for a super eye-appealing MS63 that's a technical AU58 because they can not grade. And second, darker toned original coins, that are dipped repeatedly to get a higher grade--but since they're made white, they don't even resemble 19th Century coins.

[IGWT]

Thank you, CT. A question: Different years of issue within a series often have different attributes that affect technical grade. As an example, the coins produced in some years might be more weakly struck than coins struck in others. These differences might arise among the branch mints or as a result of minor changes in design. The TPGs seem to recognize these differences by commensurately raising or lowering technical grading standards for particular years within a series.

 

If my perception is correct (and let me know if it isn't), would you consider this practice to be a kind of market grading?

[James_OldeTowne]

This is a fantastic choice of topics, and I enjoyed reading your explanation. I also agree with Brotherman's statements about how NGC tried to address this issue with the star designation.

 

I would like to pose one question in response to your opening statement:

 

Market grading is the attempt by the TPG's, or anyone for that matter, to subjectively assign a particular coin a higher grade

 

Is it also logical that sometimes, a lower grade is assigned due to perceived problems with a coin? In other words, if it has been very lightly cleaned, yet has retoned enough to be passable, as long as assigned a five point deduction (as an example)?

 

Just wondering if we shouldn't consider this flip side to the scenario presented.

 

James

[CTcollector]

Thank you, CT. A question: Different years of issue within a series often have different attributes that affect technical grade. As an example, the coins produced in some years might be more weakly struck than coins struck in others. These differences might arise among the branch mints or as a result of minor changes in design. The TPGs seem to recognize these differences by commensurately raising or lowering technical grading standards for particular years within a series.

 

If my perception is correct (and let me know if it isn't), would you consider this practice to be a kind of market grading?

 

I'll answer. But keep in mind this is my opinion and others may have a different perspective. I do consider it to be market grading when different dates/mints of the same series are graded to different standards on a major grading attribute such as strike. Lets use the 1940 date in the walker series as an example (Maybe this can entice my favorite dentist to chime in). The 1940 P coins are always crisply struck with full skirt lines and full to near full hand with thumb split. The eagle usually has a nice rounded chest with full feather detail. The 1940 S is almost the exact opposite, its almost always poorly struck at the central design elements. Lets say the technical strike detail that is required for an MS-65 grade on a walker is full skirt lines, full hand, full head and full breast feathers on the eagle. I would think for either the 40-P or 40-S to achieve an MS-65 grade it must meet the defined strike criteria or at a minimum be very very close. The relationship of crisply struck 40-P to 40-S walkers is something like 100 to 1 (I don't know for sure - just using for example) so therefore the population in MS - 65 should reflect that relationship. Once you say that a 40-P Walker needs to meet the criteria for strike noted above to achieve gem status but the 40-S is allowed 50% skirt lines and 50% hand and partial detail on the eagle's breast you've introduced market grading. You now boosted the otherwise technically deficient, but arguably the better candidates of the 40-S population, into gem classification. You've in effect ranked and priced those coins.

[CTcollector]

This is a fantastic choice of topics, and I enjoyed reading your explanation. I also agree with Brotherman's statements about how NGC tried to address this issue with the star designation.

 

I would like to pose one question in response to your opening statement:

 

Market grading is the attempt by the TPG's, or anyone for that matter, to subjectively assign a particular coin a higher grade

 

Is it also logical that sometimes, a lower grade is assigned due to perceived problems with a coin? In other words, if it has been very lightly cleaned, yet has retoned enough to be passable, as long as assigned a five point deduction (as an example)?

 

Just wondering if we shouldn't consider this flip side to the scenario presented.

 

James

 

 

James - I think what you are referring to, at least for the true problem coins, may be better described as "NET" grading. For the stuff that has been lightly cleaned long ago and legitimately retoned - I don't think TPG's are penalizing those coins. They may be limited in the ultimate grade they recieve versus lets say a virgin original coin, but I don't believe points are being deducted....

[MikeKing]

Those were all really clear explanations re market grading, took a lot of mystery away and are appreciated.

[supertooth]

IGWT------ CTcollector has given an excellent example in the 1940 and 1940S Walkers. The 40S usually has a terrible strike while the 40P has an excellent strike. You will see very few thumb and finger separation 40S coins while the 40 P is easy to find fully struck up. But the 40S is only following the normal problems of many of the S minted Walkers. Consequently, if you sit an MS65 1940S TPG coin alongside an MS65 1940P TPG coin, usually the P minted coin will be a much nicer struck coin. The TPG services, therefore, have allowed for the weak strike of the 40S coin. Myself, I would wait for a fully struck 40S coin. They are out there----but few and far between. You must know your series----as many have said before me. Knowledge is power in the coin business. Bob [supertooth]

[EZ_E]

At one time the definition of an MS65 coin required a full strike but that is no longer the case since the date/mm is a huge consideration. Think how few MS65 coins of the 1940 S and 1941 S Walkers as well as the 1921 Peace dollar there would be if that was the case. The premium would be outrageous and the registry participants would be hollering.

 

Another point is the Pinnacle Rarities 1818 Randall hoard cent that Jazzy posted. It exhibits a very late die state with very little detail but it still graded 65. I think that this example is an extreme example of market grading and should be considered unacceptable.

 

[GDJMSP]

This reminds me of an old thread:

 

What do you think of market grading?

 

Hoot

 

 

Howdy Hoot

 

Must say, this sure brings back a lot of memories. I spent a good deal of time going back re-reading all the old posts on this subject. Kinda funny what can happen when ya do that, time after all has the unique ability of making you see things from a different perspective. And that's certainly what has happened to me in this instance. For by reading all my old comments on the subject of market grading it appears even to me that I am against the concept, when in fact I am not. I just did poor job of describing what I am against. It also became obvious to me that I also had a poor understanding of many of your comments. Funny how that works aint it

 

So anyway to continue the point of this thread, I fully agree that technical grading is not the way to go. It just leaves too much out. Technical grading does not take into account too many important factors that impact the grade of a coin including - quality of strike, luster and eye appeal. And if you leave these things out what do you have left to judge a coin by except marks and wear or the lack of it ?

 

So yes, market grading is the way to go. However, I did say that there are some things I am against. But I am not so sure that they happen as a result of market grading as much as they happen because of mistakes made by the grader or grading policy of the TPG. Those things would be bumping a grade because of a coins's rarity and bumping a grade too much for attractive toning.

 

Now many, it appears, are absolutely convinced that these things happen because of market grading. I agree, they happen, you'd have to be blind not to admit that. But I am not so sure that they happen because of market grading. I think it has more to do with emotion than anything else. The grader becomes excited because of a coin's rarity or beautiful toning. And as a result his judgement is impaired and he assigns a grade that is too high for the coin. Now why do I think that ? I think it because it has always seemed to happen with coins of rarity, but it has not always happened with coins that have exceptional toning. That has only occurred in more recent years. So this leads me to believe that the problem is a result of the grader's emotion instead of the grading system.

 

Yes, I will agree that a coin with exceptional eye appeal is worthy of a single grade bump, but never more than that. Of course if that grade bump is due to exceptional toning only, then when and if toning falls out of favor in the coin market, then that bump will no longer be given. And in fact coins that were previously given grade bumps for that reason may have to be downgraded. But I will never agree that coin's grade should be bumped because of its rarity.

[USArmyParatrooper]

I have always been fan of AU-58 coins simply because they (usually) have much better eye appeal than, say, an MS 60-62 coin. And they can be had for less money. It's a win-win.

 

But I had no idea TPG's sometimes will assign the coin an MS grade when, in fact, the coin has wear. Is this common practice for all four top-tear graders?

[Arizonadesertrat]

"Is it also logical that sometimes, a lower grade is assigned due to perceived problems with a coin? In other words, if it has been very lightly cleaned, yet has retoned enough to be passable, as long as assigned a five point deduction (as an example)?"

 

This is the essence of net grading. I have seen a $4K key date Morgan dollar net graded MS60 because it had a weak strike, ZERO luster (almost certainly from repeated dipping), just a dull battleship-gray color.

[GDJMSP]

I have always been fan of AU-58 coins simply because they (usually) have much better eye appeal than, say, an MS 60-62 coin. And they can be had for less money. It's a win-win.

 

But I had no idea TPG's sometimes will assign the coin an MS grade when, in fact, the coin has wear. Is this common practice for all four top-tear graders?

 

 

Direct quotes taken from the PCGS grading guide -

 

 

" If you need magnification to see the 'wear', it is either not wear or it is wear that is so slight as to not prevent the coin from grading Uncirculated."

 

" Thus, what appears to be wear is sometimes incomplete striking, bag/roll friction, album slide lines, cabinet friction, flip rub, slight mishandling, or actual wear from slight circulation. The grades involved are AU58 and higher. This element of grading is not just about the difference in AU58 and MS60, since there is slight wear or friction in grades up to MS67."

 

[coinman23885-migration]

 

Direct quotes taken from the PCGS grading guide -

 

 

" If you need magnification to see the 'wear', it is either not wear or it is wear that is so slight as to not prevent the coin from grading Uncirculated."

 

" Thus, what appears to be wear is sometimes incomplete striking, bag/roll friction, album slide lines, cabinet friction, flip rub, slight mishandling, or actual wear from slight circulation. The grades involved are AU58 and higher. This element of grading is not just about the difference in AU58 and MS60, since there is slight wear or friction in grades up to MS67."

 

I personally find this disturbing, especially since many collectors are forced to pay a double premium. A nice coin that is a slider AU in a MS62 holder having nice reflective fields or rainbow toning may command an additional 30% over the retail price for a coin in the same grade (per the slab). That AU58 1884-s S$1 in a MS62 holder can now command the price of a MS63 (well - maybe not quite that high, but you get the picture).

 

Secondly, if the top third party grading services are going to ignore the Sheldon scale, then they should clearly outline this and and perhaps develop a new scale.

 

A nice AU58 should never make it in a MS holder no matter how beautiful it may be. I think this is a result of people buying the holder and not the coin. If a coin is much better than its technical grade, then pay a premium; however, I think that should be a conscious decision on the part of the collector. PCGS and other services are playing on the sight unseen market and artificially altering market factors... I think this will have some consequences in the not too distant future.

[Kurtdog]

I have always been fan of AU-58 coins simply because they (usually) have much better eye appeal than, say, an MS 60-62 coin. And they can be had for less money. It's a win-win.

 

But I had no idea TPG's sometimes will assign the coin an MS grade when, in fact, the coin has wear. Is this common practice for all four top-tear graders?

 

Direct quotes taken from the PCGS grading guide -

 

" If you need magnification to see the 'wear', it is either not wear or it is wear that is so slight as to not prevent the coin from grading Uncirculated."

 

" Thus, what appears to be wear is sometimes incomplete striking, bag/roll friction, album slide lines, cabinet friction, flip rub, slight mishandling, or actual wear from slight circulation. The grades involved are AU58 and higher. This element of grading is not just about the difference in AU58 and MS60, since there is slight wear or friction in grades up to MS67."

 

That's just their style, and they can have any one they want. Whether knowledgable collectors accept it, that's, of course, quite a different matter.

 

BTW, to CTcollector, that's one very good, no-nonsense synopsis of market grading! (thumbs u

 

[RJP]

This is a very interesting thread.

Thanks for sharing

Bob

[grip]

A little old.But still a very good read.

[slingshot-migration]

Yes, that is a good overall explanation of market grading. I see many MS-62 indian quarter eagles which I believe show slight wear and are truly AU-58 grades IMO in MS 61-62 holders. These coins exemplify the authors opinions of market grading in that they typically have good luster for a MS61-62. I am not of the opinion to purchase these coins as they don't appeal to me but, to each their own. A slightly worn coin IMO should be in an AU holder.

Another interesting coin I saw at a recent HA auction had a strong 63 obverse with a weak 61 reverse. It was in a MS 62 holder and brought high money for a MS-62 much closer to 63 price. Market graded I thought corectly. I can't say I object to market grading. However, it simply doesn't appeal when I see those slightly circulated in MS holders regardless of how much luster or lack of bag marks they have.