I have never done business in a pawn shop!
The History Channel has a show called Pawn Stars. Have you seen it? It’s about a family owned pawn shop in Las Vegas. The show fascinates me.
A guy walks into the store with a Wanted poster for John Wilkes Boothe, the man who assassinated President Lincoln. The 12 day manhunt for Boothe was the biggest in United States history. The shop owner gets real excited. He knows this is one of the most iconic documents known to exist. The customer claims it is real and asks for $33,000.
Is this document real? Is it a fraud? Is the shop owner being hustled?
He calls in an expert. The expert walks into the shop with 1 of 4 original Wanted posters known to exist. Value? $100,000.
The expert compares the 2 documents and points out the similarities and differences. He concludes that given the differences, the customer owns an early reproduction. Value? $100.
No sale!
Here is what fascinates me.
First, the pawn shop owner never knows who or what will come into his store. He has to be ready for anything. His experience has taught him a lot, and given him knowledge about people, the items they bring in, and the true value of these items. He will offer to pay the customer based on this experience and knowledge. Will he pay market value? No. He has holding costs and a need to make a profit. The customer has a need to get a fair price. Sometimes they make a deal. Sometimes they don’t.
Second, he must rely on experts at times instead of his own instincts. He can’t afford to take a loss because his cockiness or emotion got the best of him. He does not want to buy something that he should’ve passed on because he finds out after the fact the value is not there. The expert gives both the shop owner and the customer a 3rd party opinion, and sometimes both are surprised by what the expert has to say. Maybe the item is worth way more than the customer realizes, so he is pleasantly surprised and may walk out with way more money than he anticipated. Many times, though, the opposite is true, and the item has little value.
The note business is pretty similar. Due diligence equates to the pawn shop owner’s expert. After an initial conversation with a note seller, a note may appear very attractive on the surface. But, examination of a few documents and a little research may find scars underneath – poor property value, poor credit, unpaid property taxes, poor pay history, etc. In this case, the customer may not have what he thought he had – a very marketable note attracting top dollar. The “differences” will be pointed out, and the parties may or may not come to a resolution that satisfies both.
For the pawn shop owner and the note buyer, Ronald Reagan’s famous quote rings true:
Trust But Verify.
