For example, on the Antiques Road Show, the expert will say an item is worth 5-8K and that they would insure it for 10K.
In: Economics
Because what you can sell an item for and what it will cost you to buy the item if you lose it are often different.
Let’s say there are 30 known items in the world, for the sake of this example, let’s say it’s a statue.
If yours is lost, or damage in some way, there are now 29 known examples in the world, making the remaining ones more valuable by a small amount.
Then you have to factor in inflation, which impacts the price of most things over time.
In the antique world, you’re also dealing with the condition of the item (the only available replacement for your item may be in better condition than yours, making it more expensive), and there’s also the cost of sourcing the replacement, shipping of that item, etc.
Years ago I sold an item to a collector for $600, to replace that item today, if I could even find it, would probably be $1,000. I’d pay that $1,000 if I could find one, but I’ve never seen another for sale. I actually paid a specialist in the field to attempt to source the item for me, but he couldn’t find one for sale, in fact, the only item he managed to find at all was the one I’d sold myself.
So, there’s a lot of factors. Rarity being increased if yours is lost, inflation, sourcing costs, shipping, condition, and I’m sure probably a few things I’m not thinking of.
Generally it’s because the value of an item will change over time. With antiques the value will often increase. The insurance company will never give you more than the amount of insurance that you have. And most people aren’t tracking the value of the item with the amount of insurance every month etc. So they likely suggest that to ensure in the event of a loss that you are able to recover the full value of the item in the event of a loss.
The antique industry is weird because both supply of and demand for antiques is extremely low. Matching someone who has a particular antique to sell with someone who wants to buy it is often difficult, so its rare that you get “full” value for your antique if you have to sell it in a particular period of time.
Appraisal value on an antique is what a dealer will give you for that antique right then. Its less than they could turn around and sell it for tomorrow because their business is buying and selling antiques – they’re not going to buy from you and then sell it to someone at the same price. They’re going to buy it from you, then set the price way higher than what they paid you for it because they’re willing to wait a few years for someone to come by and pay that price.
That increase in price they get has nothing to do with inflation – it just has everything to do with the low supply/demand situation that exists in the market. IE, the antique broker is waiting to sit on an item until they find the right buyer.
Auction value is similar to appraisal value in that its telling you “what can you likely get at the auction you are physically present at today.” That’s going to be higher than appraisal value because the auction house is filled with people who want antiques, so some of them may want yours. Additionally, the auction house’s cut of the final sale price is likely going to be less than the broker’s markup – meaning that you get more of the final sale price.
Insurance value is basically what the value of the antique is to a broker. IE, how much is this antique worth if you’re going to stick it in an antique shop and wait for the right buyer to come by for it? You’re unlikely to make a sale at that value right away, but you probably will if you spend 1-2 years trying to sell the item.
When you insure an item that appreciates over time or is otherwise affected by inflation, your insurance policy does not reflect the impacts of future inflation. The insurance runs for a period of time (typically one year), then renews at a different value to reflect appreciation and inflation.
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