Newsletter #33, April 2010

Please browse our newsletter archives or g)

This is Part 2 of a seven-part series on the vintage guitar market, written in 1991. Prices and other references specific to that time period have not been changed. Please feel free to email me with any comments.

George Gruhn

To view the rest of the series...
Introduction
Part 1: The utility market
Part 3: The role of the collector
Part 4: Fads (including Stratmania)
Part 5: Market dynamics
Part 6: The vintage dealer as trendspotter
Part 7: Instrument sales and musical styles

The Vintage Instrument Market, Part 2: How instruments are priced

People are always asking why a certain instrument is worth so much. Sometimes, they're not asking, they screaming. For example: "A mint condition '54 Strat is not worth $10,000!" I can sympathize, but the pure and simple fact is, a vintage instrument, or anything else for that matter, is worth whatever someone is willing to pay for it. If buyers are willing to pay $10,000 for that Strat, it is by definition worth $10,000, at least at that moment. That's not a totally satisfactory answer, though. What people really want to know is, what guidelines does a dealer use to establish price? The price on Strats has fluctuated wildly in the last year, but $10,000 is not an arbitrary price. There are, in fact, guidelines that dealers use, and the dealers who set that Strat price took various market factors into consideration before deciding they might be able to get that much. There are some obvious factors that determine the value of items in any collectors' market, such as rarity, condition and historical significance. All these factors and more enter into the vintage market, but in a different order of importance than in the stamp, coin, or gun markets. Utility value. The most basic level of value for a used instrument is its utility value. If there is a demand for basic, no-frills, single-pickup electric guitars and a new one costs $300, then any used guitar that fills those qualifications should have a similar utility value. The used instrument may be quite different from the new one, but a value based solely on utility can be established. Intrinsic value. In addition to or even despite an instrument's utility or performance value, it has a value based on the quality of the materials and workmanship that went into it. I call that intrinsic value, and I define it as the cost of producing an exact replica of the vintage instrument, with not only the same quality materials and craftsmanship, but with the same structure, function and visual appearance as well. Again, a used instrument that fits those demands should have the same intrinsic value as a new one. In the cases of many, many used instruments, there is no new instrument-even if it has the same model name-that is the equivalent. For example, the original Martin D-45 had many features which today would be viewed as custom, such as ivoroid bindings, but it also had features not offered at all today, such as wood violin-style purfling (the black and white lines around the abalone) which today are black and white plastic, even on custom order instruments. For electrics, the type of magnets, the type of wire used for winding the magnets, and the type of finish used on some vintage models are simply not available today, at least not from the manufacturer's custom shop. You simply can't get a varnish finish from Gibson that is like that of the old Gibson mandolins, nor can you buy a modern version of an Orpheum #3 banjo. It took a while for vintage prices to catch up with intrinsic value. In the 1950s, few vintage fretted instruments had any collectors' appeal whatsoever. They were in hock shops for 50 bucks. With the folk boom, acoustics appreciated at rapid rate, maybe 20% a year. Even at that rate it took several years for a $50 instrument to approach an intrinsic value that may be as high as $1,000. The electric market didn't begin to take off until about 1964, but it was a similar phenomenon. The concept of intrinsic value also helps to define the term collectible. For an instrument to be called collectible, it should have value in addition to its intrinsic value and thus sell for more than its intrinsic value. Otherwise it's a utility item. The market value of an instrument based on its intrinsic value can be undermined by a lack of utility value, as in the case of Gibson's harp guitars. With a 21-inch wide body, carved top, scroll body design and extra peghead support for its sub-bass strings, a harp guitar could easily cost $5,000 to build today, but with little current utility value, the average vintage Gibson harp guitar would be doing well to bring half of its intrinsic value. There is currently a small revival of interest in harp guitars - Michael Hedges has recorded with Dyer-brand harp guitars made by the Larson Brothers of Chicago and Jimmy Page has appeared on the cover of Guitar World with a harp guitar-so their utility value could rise if they should came back into vogue. The concept of intrinsic value can also be undermined by some unexplainable preference of buyers for one model over another. Stratmania is not the only example. A Les Paul sunburst with a curly maple top, for example, brings at least 50% more than one with a non-curly maple top. The difference in the intrinsic value of these two instruments amounts to pennies, yet their market values are thousands of dollars apart. Intrinsic value is probably the most stabilizing factor in the vintage market. Most guitars, even those with a modern utility value, bring less than their intrinsic value in the vintage market. Only a very few bring more than their intrinsic value, and those are the collectibles. Condition. In pricing a vintage instrument, the importance of an instrument's condition varies with the importance of the instrument itself. In the utility price bracket, $500-2,000, the difference between mint, excellent and very good condition does not make for any great disparity in prices. Performance - sound and playability - are greater factors than condition in the utility range. If a working musician has a choice between a very good condition instrument that sounds great and a mint condition instrument that doesn't sound so great, his choice is obviously going to be the one that works for him. And the price of the good sounding instrument may be higher than the one that only looks good. Starting at around $2,500 up, however, cosmetic condition becomes more and more a factor in the value of vintage instrument. In the $10,000-plus range, instruments become more like stamps, coins and guns, where a mint condition piece may bring double what the same model would bring in very good condition. There are a few exceptions, such as Gibson's Lloyd Loar F-5 mandolins or one-piece flange flat-head banjos, which are highly sought by working musicians as well as collectors. As a result of their extremely high utility value - they are considered the best of their kind ever made - a rough-condition Loar F-5 and RB-3 banjo (with the above specs) will bring almost as much as one that's immaculate.

Original price. Intrinsic value should not be confused with original price. Original list price really has nothing to do with the market value of a vintage instrument, except to the degree that some buyers have a hard time accepting a price on an instrument that might be anywhere from 10 to 100 times the original list.

It is, nevertheless, interesting to compare current prices to original prices, especially when the originals have been adjusted to reflect cost of living indexes and average wage figures. In addition to settling arguments, such as whether $200 for a pre-war D-45 was actually a bargain compared to today (it was) or whether $250 for a 1930 F-5 mandolin was a bargain (it was not), these figures can help determine whether the prices of modern replicas or reissues are truly accurate reflections of intrinsic value or whether an extra premium has been added to the price because of the model's popularity. For Gibson and Martin acoustics prior to World War II, the original list prices (adjusted for inflation) were significantly lower than current lists, but when the prices are figured relative to average wages of working class Americans, new instruments come out to be about equal or in some cases a bit of a bargain compared to their earlier counterparts.

Fender electrics show the same thing. A vintage reissue Stratocaster in the $800 range is relatively cheaper than the Strat was in 1955 at a list of $230-250. So is today's $500 Telecaster reissue compared to its $190 '55 version.

Gibson's new Les Pauls, on the other hand, listing at $1,700 for a gold top and $2,600 for a sunburst, are quite a bit more expensive than were the '58 goldtop at $247 or the '60 sunburst at $265.

List prices can also be deceptive when trying to predict which instruments will appreciate the most. The most expensive - which should indicate that they are also the best quality from any time period - have not always proven to be the best investments. Furthermore, original list provides no guide whatsoever in pricing a vintage instrument. In the vintage market, pricing is a function of supply and demand. While the cost to make a modern replica might be determined by taking original list price and multiplying by a factor, there is no such formula to determine the actual current market value of that instrument in the vintage collectible market.

Among the more recent and more obvious examples are the electric solidbody guitars of the '50s and '60s. "Cheap" models in the $100-$200 range when new, such as Kays or Silvertones, were not so cheap compared to Strats and Teles, which were only in the $200-$400 range when new. National's Res-o-glas map-shaped electrics listed as high as $295 in the early '60s, which was more than the Telecaster. Now, while Kays and Silvertones have a bit of collector's value (as much sentimental as anything else) and some of the map-shaped Nationals are beginning to bring several times their original list price, they haven't come near the 10- or 20-fold increase in the value of Strats and Teles.

Even within the Fender line, original list prices are no help in predicting or establishing values now. Strats and Teles were not top of the line models in the '60s. Jaguars were the most expensive (at almost twice the cost of Teles), followed by Jazzmasters, then Strats and Teles. In today's vintage market, the order is reversed, with Strats and Teles on top, then Jazzmasters followed by Jaguars. The Gibson line has similar examples. In 1958, a Les Paul Standard model listed for $247 while a Les Paul Custom was 50% more expensive at $375. Both have appreciated considerably in the vintage market, but while Customs may bring $2,500-$3,000, most Les Paul Standards will bring double that and one with a curly maple top will bring $10,000 or more.

The acoustic market is no different. Through the years, for both Gibson and Martin, archtop f-hole guitars have listed for more than flat-tops (because they cost more to build), but for many models today, demand has caused the reverse to be true. Consider Gibson's late '30s prices on L-5s and Super 400's - $275 and $400, respectively - versus the J-200, Advanced Jumbo or J-35, which listed at, $200, $80 and $37.50. The L-5s and Super 400s of that period are certainly collectible, bringing $2,000 and $3,000 now, but while they have appreciated to a little more than six times their original list price, the three flat-tops have left the archtops standing in the starting blocks. Same-vintage J-200 prices start at about 37 times original list, J-35 prices are now about 45 times original list, and Advanced Jumbos go for anywhere from 75 to 90 times their original list price.

Martin's pre-war D-45, a flat top acoustic, makes mincemeat in today's vintage market out of its most expensive competitor in Martin's line, the F-9 archtop. (The D-45 makes mincemeat out of all competitors, be they flat-top, archtop, mandolin, banjo, acoustic or electric.) The D-45 originally sold for $200, which was $75 less than the F-9. While the F-9 has appreciated by a factor of almost 10, the D-45 is today worth 100 times its original list price.

Mandolins and banjos have been just as unpredictable as guitars in the vintage market, based on their original list prices. Gibson's F-5 Lloyd Loar-signed mandolins which listed new at $200 in 1922 and were raised to $250 in 1923 have outperformed all other mandolins, leaving the F-4, which listed new at $165, trailing far in the dust in today's market.

Gibson's RB-3 banjo from the 1930s, the flat-head 5-string Mastertone with one-piece flange, is worth around $10,000 today. Few banjo buyers in the '30s, however, thought anything of the $100 Model #3. If they did buy a #3, they probably wouldn't have bought the 5-string, which was considered a country instrument, but rather the more respectable tenor or plectrum. The 5-string is now worth more than double what the tenor is, and the flat-head is worth several times more than the comparably-priced raised-head version. In terms of appreciation from its original list, that $100 Mastertone beats everything in its field, even such solid performers as Bacon & Day's Silver Bells and Gibson's Bella Voce, Florentine, or All American.

Today's instrument values relative to each other are not those of 20 years ago and will probably not be those of 20 years in the future. No one can predict with certainty what the market for specific instruments will be in 20 years, only that the market will be different, and that it will be driven by many of the same forces that drive it today.

Precedent. Prior precedent is obviously important in establishing a market value for a particular instrument. If a certain vintage Telecaster sold to a knowledgeable buyer for $1,000 yesterday, every Telecaster like it is going to have a market value of at least $1,000. If a dealer sells a Telecaster to a knowledgeable buyer today for $1,500, then the market value of other similar Teles goes up to $1,500. Until the buyers let dealers know otherwise, the market value of an instrument is always going to be at least as high as the price it (or one like it) last sold for. In the case of extremely rare or one-of-a-kind items; however, there may be no prior precedent. If a dealer knows of no similar item which has been sold in recent years, he will have to rely on other information or gut instinct to establish a value.

In the case of a destabilized, rapidly changing market, it can be very difficult to establish firm values. When a market falls, as the stock market did on Black Monday in October of 1987, traders had a hard time at mid-day establishing stock or option values. Similarly when an instrument market is rising rapidly it is also difficult to establish firm values. Due to changing musical trends, the recent reentry of electric buyers into the acoustic market and the reduced value of the US dollar, the current market has the stability of a shark feeding frenzy. In effect, buyers and sellers smell blood. In such a market, not only do prices rise, but new sharks keep entering, drawn by the smell of potential gain. Prior precedent is thrown out the window.

Rarity. Unlike some collector's markets, rarity is not necessarily a quality that contributes to a vintage instrument's value. There are many one-of-a-kind instruments that are custom variants of standard models, but they are often not considered to be as valuable as a pristine perfect catalog example. Conversely, the most valuable stamps and coins are the rarest. Aesthetics and workmanship are so irrelevant that mistakes can be valuable if they are rare. A stamp collector who discovers a mistake in a new stamp will immediately try to buy as many as the post office has. On the other hand, a guitar buyer who notices that Gibson inlaid its logo upside down on a headstock will be unlikely to snatch it up and then ask innocently if there are any more like it in stock.

The vintage gun market sits somewhere in between the instrument market and the stamp and coin markets. Firearms, like instruments, do have a utility value, although no one buys an old firearm to shoot it (one shot from a mint condition gun would drastically lower its value) and no one believes old guns work better than new ones. Firearms also have intrinsic values, and many are collectible because their workmanship and ornamentations is considered to be of higher quality than anything available in the new gun market. Like the stamp and coin markets, rarity brings a premium price in the firearms market.

The primary reason for the difference in the value of rarity between these markets and the vintage fretted instrument market is, in my opinion, the difference in the number of collectors as well as the utilitarian appeal of vintage fretted instruments as opposed to vintage stamps, coins or guns, which collectors may covet but do not use as utility items. The more collectors there are in a market - especially wealthy, stable, long-term collectors, such as there are in the stamp, coin and firearms markets - the greater the value that is placed on rarity. As more collectors enter the vintage market, rarity may play an increasingly important role in raising prices. Supply. The supply of vintage instruments is fixed since, by definition, vintage instruments are no longer in production. As time goes on the supply gradually goes down through loss and damage, although in general, the higher-valued models are better taken care of and thus do not suffer the losses of the lower-end models.

While the supply is fixed or slowly falling, the number of instruments in circulation varies. Instruments in a museum are not for sale and never will be, so they may be considered out of circulation. An undiscovered Martin D-45 in Aunt Millie's attic is out of circulation if it's not for sale and she has no idea that it's of value. She might neglect it and let it be destroyed by the elements because she thinks it's worthless, or it may be "discovered" and put into circulation. While the number of instruments in circulation affects the market price, the reverse is also true. When prices rise, instruments come out of hiding and onto the market. In theory, this increased supply should drive prices back down, but in reality, the supply of vintage instruments is almost never enough to meet the demand.

Introduction
Part 1: The utility market
Part 3: The role of the collector
Part 4: Fads (including Stratmania)
Part 5: Market dynamics
Part 6: The vintage dealer as trendspotter
Part 7: Instrument sales and musical styles