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No Grade Coins – Introduction


After spending the past couple of months on "Difficult to Grade Coins," we’re going to switch gears and move on to an even more esoteric area — coins to which we cannot assign a grade. To understand PCGS’s approach to this topic, one must go back to the original founding tenants of PCGS — sight-unseen trading.

In the pre-certified coin market, every dealer graded his or her own coins. It was up to the buyer and seller to "meet" at a price before a trade took place. This usually involved both parties sharing some agreement on the grade. The problem with this, from a pricing standpoint, was that dealers could offer to purchase a given coin in a particular grade (an MS-65 Morgan Dollar, for example) and offer a "bid" price. This offer was typically picked up and reported by the Coin Dealer Newsletter. If coins were sent to the bidder (buyer) at his price, he could accept or reject all or none of them, depending on if he accepted them as MS-65s. One could post ever-increasing "bid" prices, and buy virtually no coins. This led to steady advances in the bid price of coins, but as the prices climbed, the criteria to qualify for the grade also advanced.

In order to add true transparency and meaning to the market, PCGS coins were intended to be traded "sight-unseen." That is, if you bid for an MS-65 Morgan Dollar, and another dealer sent you one, you were required to purchase it. If you had a disagreement with the grade, it was between you and PCGS, not you and the seller.

When buying coins sight-unseen, no one likes surprises. You want and expect a typical coin for the grade, without problems. Prior to this, coins were sometimes "net" graded, and a coin might show details of a higher grade, but due to a scratch, or rim bump, be offered at a lower grade to compensate for the problem. As one can imagine, these coins simply did not fit into a sight-unseen system.

For example, if you were bidding on a 1914-D Lincoln Cent in a grade of Fine-15, you do not want to receive an XF-40 with a heavy scratch — or one that has been harshly cleaned. While the value of the two coins might be close, many collectors and dealers do not want a scratched or cleaned coin at any price. As a consequence, PCGS chose to return these coins to the submitter in a soft plastic sleeve, nicknamed a "body bag." This kept all problem coins off the market and ensured the population of PCGS coins trading in the sight-unseen market was all free from any significant defects.

Next time, we’ll take a look at the market forces that caused PCGS to modify its approach to such coins, and exactly what changes took place.

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