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Loren Feffer

resale options for instruments

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What you're asking is to be able to purchase as a retail customer, and then sell as a dealer, which if you think about it, isn't reasonable.

If you do attempt to function as a dealer would when you sell the instrument, in order to justify the same price you paid you have to be able to offer the same services you were offered when you purchased the instrument, which probably will include some type of authentication guarantee, a trade-in policy, a certain amount of free service after the sale, and a shop to perform subsequent repairs as needed.

If you can't offer those perks, and I doubt you can, you'll have to sell at some lower price than you purchased the instrument for. Even then, you'll have to find a customer, pay for shipping on approvals (and permit approvals and swallow the risk--don't expect a purchaser to expect less of a chance to try before buying than you, yourself, demanded.)

If you can't handle those things, then you'll have to sell at an even lower price, to make up for it.

The general advice I give customers is that if you're buying an instrument of this type, don't count on getting back your money, especially some short distance down the calender. It's not a matter strictly of liquidity, but of that you can offer as a private seller vs. that a dealer can provide. Additionally, of course if you sell to a dealer, he has to be able to provide all of the service himself, take all of the risk himself, and write in some profit as well, so outright sales to a dealer gets you bottom dollar, so to speak. Consignment sales through a dealer can absorb as little as 20% of the sale, and are your best bet for maximizing your sales price, but take time.

Even though I'm a maker, a new instrument is the risky way to go to maximize the future sale--the maker won't buy it back--he ca make all he wants. A dealer won't buy it--he can buy them wholesale. That leaves only private customers, with the problems I noted above. That's why I choose to sell mainly through dealers, who can offer my customers a certain stability by, for instance, taking my violins back in trade for 100% of their sales price.

[This message has been edited by Michael Darnton (edited 03-18-2002).]

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Loren,

I think the real question is: do you really mean you want to sell it, or do you just want to have the ability to exchange it if you find that the instrument doesn't suit you?

If you really want to sell it, then all the points that Michael brings up mean that you will be unlikely to recoup your investment in 2 years whether the instrument is new or old.

However, if you think you might want to trade it in, then you should buy from a large enough shop so that they will have a good selection for trade when the time comes. Keep in mind that most trade-in guarantees are only for instruments that are at least as expensive as the one you originally purchased. Therefore, you can't "cash-out" with a lower priced instrument at a later date.

Frequently on this board, I see statements such as: "at least it doesn't depreciate as soon as I drive it off the lot, like a car." In actuality, the instrument does "depreciate" by about 50% when you leave the dealer (maybe a little less if you buy it at auction, but you still have substantial fees even there).

The difference between the car and the violin is that after the initial 'hit', you start recovering your investment, while the car depreciates to almost zero in most cases. After enough time, the instrument will probably appreciate enough that you can even make money, but that time frame is probably at least 5 years and highly dependent on the vagaries of the market (who knows, maybe there will be a sudden surge in demand for German factory fiddles and all those people that post on this board about the 'violin in the attic' will get rich after all).

In short, buy a violin from a respected shop with a good selection and you will have the peace of mind you seek.

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Some dealers will blatantly pressure you about appreciation in value. The violin they want you to buy will appreciate, while that other one won't. Don't believe it. In most cases, it's blatantly dishonest.

You probably can't get your money back for a long time, although you can probably get close to 100% trade-in value (minus tax and reconditioning) if you buy something substantially more expensive.

It's done for $10,000 violins and Strads alike. How many violins are sold for "investment potential"? "Investment bubble" would be more accurate. So buy it to play, but don't buy it to make money.

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quote:

Originally posted by DeepBlue:

...Frequently on this board, I see statements such as: "at least it doesn't depreciate as soon as I drive it off the lot, like a car." In actuality, the instrument does
"depreciate" by about 50%when you leave the dealer
(maybe a little less if you buy it at auction, but you still have substantial fees even there)...

I really don't think that would be the case if you buy smart. Look at paintings...it doesn't matter if someone has just bought it...if it is still a desirable painting it hasn't depreciated...you just have to find someone that wants it. Same with a violin.

roman

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quote:

Originally posted by roman:

I really don't think that would be the case if you buy smart. Look at paintings...it doesn't matter if someone has just bought it...if it is still a desirable painting it hasn't depreciated...you just have to find someone that wants it. Same with a violin.

Sounds good in theory... The problem is (as Mr. Darnton points out) that finding that magical buyer costs money. Those transaction costs have the same effect as depreciation. Call it what you want, but it's still difficult to recover your money. Maybe you'll get lucky, but don't count on it.

Regarding paintings--buy a painting at a full service art dealer and I think you will find the same problem. Buy a painting at auction and I know you have the same problem (buyer's and seller's fees).

[This message has been edited by DeepBlue (edited 03-18-2002).]

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quote:

Originally posted by La Folia:

Some dealers will blatantly pressure you about appreciation in value. The violin they want you to buy will appreciate, while that other one won't. Don't believe it. In most cases, it's blatantly dishonest.

You probably can't get your money back for a long time, although you can probably get close to 100% trade-in value (minus tax and reconditioning) if you buy something substantially more expensive.

It's done for $10,000 violins and Strads alike. How many violins are sold for "investment potential"? "Investment bubble" would be more accurate. So buy it to play, but don't buy it to make money.

So true.

In 1989 some economists published a study in an academic journal about the investment returns on Strad instruments. They analyzed sales over almost a 200 year period. What they found was that the average annual rate of return for a Strad was between 1.27% and 4.77% depending on the assumptions made about costs of taxation, insurance, etc.

Certainly the 80s and 90s probably provided better returns than that, but the long-term potential is much more modest.

The article quotes a letter from W.E. Hill and Sons to one of the authors. They say: "We are very much against musical instruments such as violins being considered as investments." Those words still seem to be worth heeding.

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quote:

Originally posted by DeepBlue:

In 1989 some economists published a study in an academic journal about the investment returns on Strad instruments.

Do you have a citation? I cannot find it from a keyword search in ELDB. It would be intresting to see the methodology.

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I'm considering the purchase of what I would be for me a fairly expensive "upgrade" instrument -- say in the $20K range. Many factors go into such a purchase of course but I'd like to collect some opinions on just one: if I should need/want to sell this instrument in the future, am I best off buying an older instrument from a large dealer, or workng with a maker on a new instrument? Or something else?

I know that violins are not very liquid under the best of circumstances but I fear a scenario where I buy a $20K violin only to be told two years from now that I can only sell it for $10K.

If protecting value is important, what is the best way to proceed?

Thanks for any and all comments.

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Many shops (like Shar) offer 100% buy-back (less repairs) toward the purchase of another instrument--in the even you want to upgrade or have grown disenchated with the one you have. j.

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Most of the responses seem to be summarized by "buy an instrument for the pleasure of playing it, not as an investment." That's certainly been my experience as a private buyer.

When you think about it, even the "get full price at trade-in at the same dealer" is not that good of a deal. Suppose you bought a fiddle for $30K and kept it for 10 years. On going back into the shop to "trade-up," everything that you will be buying will have gone up in price about 10% per year since you bought your fiddle 10 years ago, while your trade-in will not have appreciated at all under the "get full price at trade-in" deal.

The only dealer/maker I can recall who would return to you, in cash, a good chunk of your original purchase price if you decided, after a long period of time (within 5 years, I believe) to return the instrument is the Chicago maker Gunther Reuter, whose policy was (is?) to return 80% in cash of your original purchase price. But, I may be wrong on that.

[This message has been edited by skiingfiddler (edited 03-19-2002).]

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quote:

Originally posted by Loren Feffer:

I'm considering the purchase of what I would be for me a fairly expensive "upgrade" instrument -- say in the $20K range. Many factors go into such a purchase of course but I'd like to collect some opinions on just one: if I should need/want to sell this instrument in the future, am I best off buying an older instrument from a large dealer, or workng with a maker on a new instrument? Or something else?

I know that violins are not very liquid under the best of circumstances but I fear a scenario where I buy a $20K violin only to be told two years from now that I can only sell it for $10K.

If protecting value is important, what is the best way to proceed?

Thanks for any and all comments.

I would vote for buying an instrument with a documented history over a new instrument. I would think an older instrument would also appeal to collectors as well as players.

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quote:

Originally posted by FINPROF:

Do you have a citation? I cannot find it from a keyword search in ELDB. It would be intresting to see the methodology.

Ross, M and Zondervan, S (1989), "Capital Gains and the Rate of Return on a Stradivarius," Economic Inquiry, 27:3, 529-540.

I couldn't find it on any of the electronic databases I have access to. I actually had to make a trip to the library and copy this article--quite an unusual event these days.

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I agree with most of what's beem said.Two other factors which should be added to the equation are condition and attribution.As you look you should find that for the same money you can find a better quality instrument if it has some condition flaws or

if the exact maker is in question ,though hopefully the time and place of origin would be clear.Although it is possible to find a better sounding violin this way,it could make resale slower as not all buyers

will consider such an instrument.Though,if the sound is clearly better,you'd probably be okay with this approach as well.Just something to be aware of. Andrew

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Thanks for all of your replies. Of course I have no expectation of "acting as a dealer" to try to sell an instrument -- my main interest was in how shops handle sales or consigments or whatever of instruments previously purchased.

But you have basically confirmed my hunch that -- not unfairly, I suppose -- one can pretty much count on a large hit (on the order of 50%) on value if one needs to sell an instrument in a timely way.

Again, thanks for your input.

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Loren,

I think that 50% is quite pessimistic. If you buy from a good shop, they will feel obligated to stand behind what they sell. Speaking for us, we offer a consignment sale at 80% of the appreciated value of the violin and make sure that it is sold in a timely way.

Trade in is a better course as you will get a greater value back. We offer 100% of the appreciated value provided you are stepping up in value...otherwise it is 100% of the purchase price. The main factor to consider is: does the shop you are buying from have a good selection of instruments in a higher range so that you will have options.

Of course, it is best to ask around. If a shop stands behind what they sell and treats customers in a fair way after the sale, their reputation will certainly reflect this.

Good luck!

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Auctions:

Sale results vary from situation to situation, but if you are reselling an instrument purchased at auction, you should expect to lose the total of the buyer and sellers premium if it is sold soon after you purchase it. Of course, that would be mitigated by appreciation in value if the resale is several years later. As well, if you buy "well" and sell "well" you have an opportunity for profit. Keep in mind, though: an auction house doesn't have the same obligation to their buyers that a shop does. If the resale market is weaker for any reason, the auction house has no obligation to look after their customer. And auction premiums are high: You will find total premiums and fees often over 30% at the major houses (for very little service, guarantees or expertise). Tarisio plug time: Tarisio total buyers and sellers premiums are 15% on any better item. I would also assert that Tarisio guarantees and expertise offer a lot more to the buyers and sellers than their competitors.

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Mr. Reuning,

How is the appreciated value of an instrument determined? Is there any room for negotiating the appreciated value between violin seller and dealer if there is a difference of opinion, or is that value determined solely by the dealer?

[This message has been edited by skiingfiddler (edited 03-19-2002).]

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Another consideration is that if you take depreciation on an instrument for taxes and later sell it and make a profit, you'll end up owing capital gains. Or at least that's my understanding. We've been taking depreciation and recently had a financial planner tell us that it was not such a good idea.

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If you are afraid of losing money off a dealer than just sell it by yourself. There are plenty of options such as ebay and the newspaper or Maestronet. You could even try Tarisio but then you are losing a good chunk (I think it is like 25%). If you buy a good instrument it should hold its value and gain value with inflation plus whatever extra gain you might get for the instrument being rare or whatnot. As far as a good investment goes, it is better to buy an old instrument simply because the number of instruments the maker made is finite. With a contemporary maker who knows how many more instruments he will make. One of the aspects of value of an instrument is how rare it is. And a question of mine is why would you not buy an instrument as an investment? Number one you don't pay income tax on it as you do in the stock market. Number two you usually can't lose the value of the instrument as you can in the stock market. Number three there is no property tax as there is in real estate. Instruments don't cost much to insure if you have homeowners insurance. You can just bind it to your policy for probably less than $100 a year depending on the instrument. Banks invest in instruments. Wealthy people invest in instruments. Why do you think they do, just for fun? They know they are getting a good deal. I hope that helps.

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To add to shetland's two caveats, you should also be aware that gains on any personal property, including violins, are subject to taxation, just like stocks. It is easier to cheat on your taxes by not reporting gains from personal property than not reporting gains on stock, however.

Prices of violins, just like any other art and antiques can and do go up and down, depending upon the taste of buyers and the ability to pay. At one time I believe Stainers sold for more than Strads, for example.

As far as banks investing in violins, they do not. At least in the US, they are highly regulated as to the type of assets in which they can invest, and invest primarily in loans and other debt instruments. If they hold non-financial assets it is primarily taken as collateral on a loan default and they typically try to dispose of them as soon as possible.

Like art and antiques, buy a nice violin if you get enjoyment from it, but don't think of it as an investment. Every time I buy an oriental rug the dealer talks about what a great investment it will be. I nod and smile, but know better.

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