Have you seen Pawn Stars on the History Channel? The show is about a family owned pawn shop in Las Vegas.
The show fascinates me in two respects. First, a guy can walk into the shop with an item he wants to sell. If the owner is familiar with the item, he may rattle off its history, show a lot of knowledge about it, and ask the guy how much he wants for it. The negotiating begins.
Second, let’s say a customer walks in with a rare item. The shop owner may know a little about it but not enough to make a cash offer. So, he calls in an expert to examine the item and give his opinion as to its value. Sometimes the item is rare, sometimes it is a fake.
Case in point. Guy walks into the shop with a Wanted poster for John Wilkes Booth, the man who assassinated President Lincoln. He claims it is an original and he is asking $33,000 for it. The shop owner is excited, knows this is one of the most iconic documents in US history, but is it real? He calls in an expert.
The expert comes to the shop armed with an original Wanted poster. He says it is one of four known to exist. Value? $100,000. He examines the customer’s document and explains the differences between the two. He says the customer has an early reproduction. Value? $100.
Little bit of a spread bewteen $100 and $33,000, huh? Buyer beware.
Again, I am fascinated on two fronts. The pawn shop owner never knows who or what will walk into his store. Yet his knowledge and experience allows him to negotiate with many customers about many different items and at the same time, protect himself from being taken.
Secondly, what does he do when confronted with an item that he may desperately want but knows little about? Instead of relying on his instincts or allowing his emotion to carry him, he calls in someone who knows more than he does. This way, both the owner and customer can hear what the expert has to say. Sometimes he will give a high value on the item that will be pleasing to the customer, and the owner now knows its true value. Will he offer to pay market value? No. He has holding expenses and hopefully a profit to account for. Sometimes they make a deal, sometimes they don’t.
It seems to me it would be real easy for the owner to be hustled if it were not for the experts he relies upon. They are indispensable for him to stay in business.
The note business is pretty similar. We have to rely on third party experts to determine the true value of a property, to determine the credit worthiness of the payor, for title folks to search out the chain of title on the property, etc. Once this due diligence is complete, then the “true value” of the note can be determined, and the buyer can part with his cash.
Due diligence is to the note buying business what expert opinions are to the pawn shop owner. Good for both parties.
