Condition Rarity – When to Look for It, When to Be Leery of It

(n.)

The term condition rarity can refer to two things:

1. ) A coin that is considered rare because of its exceptional state of preservation. This meaning is typically used in conjunction with modern coinage, but logically it can be used for any series with a large number of surviving pieces. A conditionally rare coin is typically a coin in the higher tiers of Mint State, with few other known specimens certified at that level.
2. ) A kind of rarity by which a coin or other numismatic object can be judged that is determined not by mintage, age, survival rate, etc., but rather by the item’s exceptional state of preservation.

Understanding condition rarity and its relationship to absolute rarity is essential to avoid unnecessary exposure to market declines when populations increase. This is especially important when investing in modern coins with low submission rates and low high-grade populations.

Absolute Rarity vs. Conditional Rarity

When numismatists talk about the concept of rarity, they are talking about the perceived number of pieces that are believed to exist, or are known to exist. For example, five 1913 Liberty Head nickels are known to exist. This number has been stable since a United States Mint employee revealed that he had five of them around 1920. With an absolute rarity that is easily understood, the condition of the coins matters in terms of the desirability of any given specimen compared to the others. When talking about 1913 Liberty Head nickels, it is generally understood that the Eliasberg specimen is finer than the Olsen-Hydeman specimen, which is finer than the Walton specimen, and so on. Even rarer are the handful of United States coins that are unique or are one of two or three known. In these instances, as is the case with the 1913 nickel, condition is important in determining which coin is likely to sell for the most money, but every specimen is rare, and therefore valuable.

Not every coin works this way. Each coin in the U.S. series has its own story and personality. Some coins are considered rare, or are virtually unknown in Mint State, but are relatively plentiful in circulated grades. Civil War-era San Francisco gold coins fall into this category. These coins are condition rarities, and collectors rightfully treat the Mint State coins differently than the circulated coins from the same issue.

Condition Rarities are Not Necessarily Rare

Using the same understanding of condition rarity that one would apply to a vintage coin with stable population and a known scarcity in Mint State when it comes to a modern coin is a misapplication of the term and can lead to disastrous consequences.

Certified populations of modern coins are subject to different pressures than most classic coins. In most instances, the value of a raw modern coin falls under the minimum threshold necessary to warrant submission to a grading service. We call this terminal point – the grade where a coin becomes worth less in its certified holder than the cost associated with submitting the coin to be graded.

In instances where a coin is typically worth less in its certified counterpart, the profit motive to submit the coin for grading is absent in the first place. This reduces the number of coins submitted for certification, which skews the population data. Often you see this with modern world coins that don’t have an established collector base, but you will also see it with recent U.S. issues.

When marketing conditionally rare modern coins, the seller may state that the coin is a pop 1 with none finer, or pop 3 with 1 finer. These may be factually correct statements, but they do not express the reality of the situation. For modern coins, one has to be careful that an insufficient amount of material has been submitted for grading to draw any conclusions from the population data. Otherwise, the buyer will almost always overpay for a common coin, thinking that it’s rare.

Third-Party Grading Service Special Programs Sometimes Bifurcate Population Data

The way third-party grading services publish their population data can lead to misunderstandings regarding a coin’s condition rarity.

Typically, new modern coins will be submitted for certification in limited numbers at the outset of a coin program’s release.

All three of the major grading services offer special consideration to coins submitted within 30 days of the program’s launch. These programs (First Strike for PCGS, First/Early Releases for NGC, and First Delivery for CAC) often account for a large percentage of the total number of coins submitted for any given program, but not the large percentage of the total number of coins available for submission.

In some instances, sellers may indicate that a coin is conditionally rare from this pool of coins, or from the pool of coins submitted after this window, as the services often report coins submitted within 30 days apart from the general population. And while it may be true that a service received a limited number of coins for grading during this window, there is no material difference in the quality of the coins submitted within 30 days and those submitted later. Furthermore, there is usually no way of knowing whether a coin submitted within 30 days was struck before, or after, coins submitted later. Finally, there is no real difference in quality of a coin struck early in the year and one struck later as die state and other factors are more determinate of a coin’s quality.

Another aspect of grading service special programs comes in the form of limited-edition special label programs. These programs often report the population for the coins from that program and omit reference to the broader certified population for the issue. Sellers will often use the limited nature of these programs to market a coin for higher prices because it is a “condition” rarity. It is best to avoid paying more money for a coin due to the nature of the label, because it is unlikely that a two-way market for the label will exist to support that price when a collector decides that it is time to sell.

Grading Service Policies May Influence Condition Rarity

The third-party grading services sometimes play a role in the collapse of conditionally rare modern coin markets. Each grading service is responsible for establishing their own grading standards and policies and while this typically yields predictable outcomes, there have been instances where these policies have skewed the data to the point where collectors make incorrect inferences.

This situation developed with the early issues from the American Silver Eagle program, where PCGS suspended the awarding of the MS-70 grade for several years as a result of a well-known milk spotting issue. At the time, NGC, PCGS’s main competitor, did award the 70 grade, and as a result, that company received an overwhelming majority share of all coin submissions for the series. The few PCGS 70 coins skyrocketed in value because of their perceived rarity. Collectors believed that the PCGS coins were somehow better and paid thousands to tens of thousands of dollars for these coins.

When PCGS changed their policy regarding grading MS-70 early date Silver Eagles, the populations for these coins exploded and the value of these one-time condition rarities dropped by as much as 90% or more.

It’s not only the American Silver Eagle that is subject to these valuation declines. In recent years, we have seen top pop coins lose value as other coins earn the same or higher grades. To learn how this impacts the market, it may be a good idea for an advanced collector to compare top end registry sets from different periods as this kind of shift is better apparent in these data sets.

Affordable Ungraded Material Will Always Put Pressure on Condition Rarities

When a large gap exists between coins in the top grade and those in the grade immediately below it, an incentive exists to resubmit a coin, possibly multiple times, in order to get a coin in a plastic holder at a level that will yield the submitter more money. For classic coins, with stable ultra-high-end populations, population bloat can occur when submitters do not follow the necessary steps to inform the grading service that the old certification number is no longer active.

Attempting to turn a $5,000 coin into a $28,000 coin by virtue of a one-point upgrade is just another day in the rare coin industry, but the fact remains that the submitter first has to identify a $5,000 coin that has a chance to upgrade.

With modern condition rarities, the cost of acquisition is usually drastically different. If only a small fraction of the available supply of coins has been submitted for grading, then the likelihood of finding additional coins that may earn a high grade is very high (though you will still need adequate grading skills to maximize your efforts). If the costs associated with seeking out potentially high-grade coins are also low, the cost to “make” the new coin is also likely low.

Overtime, those with access to more cheap coins will continue to submit them and enlarge certified populations to the point of diminishing returns. A clear example of the collapse of the value of a modern condition rarity can be seen in our coverage of the 2001-S Sacagawea dollar. Again, that particular coin is not alone. The 1995-W American Silver Eagle and countless other modern coins have suffered similar fates.

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