Over-graded Coins
The key component of coin value is naturally its condition. This is usually described as its "grade". The best way to think of this is a comparison of the coin's present state of preservation (amount of wear) as compared to the "ideal" condition, as it was new when it came off of the dies at the Mint of origin. The most critical component of determining a coin's grade is the amount of wear it has received, but strike, luster, color and originality are all factors that are used today, especially by the grading services.
Due to the need to establish value in the commercial coin market, "grade" has become a substitute for "value", as grade can be listed in a simple shorthand version such as Good or Mint State 63, making it easier to use terminology that theoretically all parties can understand. In other words, when a dealer states that a particular coin is a "Good", then the person to whom they are speaking should have a mental picture of what the coin looks like, and therefore have a point of comparison in terms of price. The problem that develops in the coin market is what happens when a coin is over-graded, in other words its present condition is overstated (and therefore it is de facto overpriced).
An over-graded 1805 dime
The 1805 Draped Bust Dime shown here was sold by a major national firm as a "Very Good". A quick review of the ANA Grading Standards shows that it isn't even close! It is not too far from a Good, and I had hoped that it would certify as such, but no such luck. Obviously, the customer who purchased this over-graded coin lost out in two ways: first, he paid too much for the coin at the time of purchase; second, he lost the appreciated value of this coin had it been a Very Good. This series has had a significant increase in values since the time he purchased the coin, on the order of double what he originally paid for it. This shows the absolute necessity to learn the basics of grading, and to work with a dealer who does not "push the envelope" as far as grading is concerned. A reliance on certified coins is not necessary, but enough of an understanding of basic grading skills most certainly is, in my opinion.
A cleaned early U.S. half dollar
The 1806 Draped Bust Half Dollar shown here was sold by a major national coin firm to one of our customers. It was sold as a Fine-12, and while it is correctly graded technically, the coin was harshly cleaned at some point in the past. The fact that it was cleaned was not mentioned when the coin was sold. You may think that this should be obvious, but some collectors cannot tell. Others are so used to receiving coins like this from many mail order dealers, that they consider this a normal appearance!
It is also common for coins like this to be "Net" graded - in other words, a cleaned coin like this might be sold as a "VG" rather than a Fine. Some collectors will receive these coins and think that they are getting a bargain - the truth is that when sold back to a dealer in future, these damaged coins will bring far less than the value of a problem free example that really is a Fine, and in many if not most cases, they will be worth less than a Good as well. The reality is that dealers do not want these type of coins back, as they are harder to sell generally, except to the novice or the uneducated collector.
A "Net" graded early U.S. silver dollar
This 1799 Draped Bust Silver Dollar has been cleaned, as almost all have been. However, the cleaning was relatively light and is not considered objectionable in terms of the coin's commercial value. There is also a mark in the Reverse field; again, this is considered commercially "normal" or acceptable in this grade range for this series of coins - as large as they were, the early dollars tended to pick up marks in rough handling, as they served mostly as "bullion".
The coin grades close to Fine-12; certainly the Obverse qualifies as Fine (or extremely close), and based upon this the coin would be called a Fine by many dealers. The dealer that sold the coin sold it as a Very Good, an example of "Net" Grading. In this case unlike some, I believe that this was appropriate, as the coin was discounted to the customer that bought it. The reduction in potential value from the cleaning is about "washed out" by the fact that he received a coin that looks better than the assigned grade, not worse.
A "Slider" coin, sold as Unc
One of the worst abuses foisted upon the unknowledgeable collector is the practice of selling "Sliders" as Uncirculated coins. A "Slider" is a coin that technically grades AU-58, in other words it shows just the barest hint of wear on the high points, but retains almost all of the original luster. The term "slider" comes from the commercial consideration that the coin can "slide" up in grade from AU to become an "Unc". A disparaging term used by some, primarily on the West Coast, is "Beltway BU". This recognizes that the majority of the problem seems to stem from the practices of dealers on the East Coast.
The problem is of course more complicated than that - I will have an expanded discussion of this issues in our section on "Grading" shortly in the future. The images below show a classic example of this problem - a Key Date 1903-O Morgan Dollar sold as "Unc". An exceptionally rare coin prior to the mass release of Silver Dollars in the late 1950's-early 1960's, bag quantities emerged in November of 1962, many of which circulated briefly before being recognized and hoarded by collectors and dealers. The combined result of coins that had been stored in bags for 57 years banging and rubbing together, and the brief trip into commerce (including a number of trips through slot machines) left most 1903-O Dollars in grades between AU50 and MS-62. If one of these coins retained 95% plus of the original luster, dealers commonly get away with calling these coins "MS-60".
There is a truly fine line here, but in my professional opinion, this coin shown shows the signs of having been in circulation, and having being there long enough to have picked up some actual wear (it is not widely appreciated that a coin can circulate for a short time, NOT receive any wear, and still qualify as Unc or Mint State, which ever term you prefer - this discussion is for another day). As the difference in price between an AU50 and an MS60 is only about $10-20, why would anyone take the risk? My advice is to buy a coin advertised as an AU at an AU price, or choice a clearly BU coin for maybe $50 more.