Ethical Dealings

The Sunday edition of the Washington Post had a short but interesting Q&A from Kiplinger's Personal Finance. It is about a dealer who is purchasing property from a private party and who subsequently sells at auction for a much inflated price. We have touched upon this topic in the past. The post states the dealer probably did not act ethically, but it was not illegal. At the end, it also states if a amateur antique collector finds an under valued items, is there an ethical obligation to inform the seller.

In appraising, or being a professional in any other field , there is usually a higher standard connected to your dealings and practice. Taking it a step further, as a dealer or appraiser should you notify a dealer selling the undervalued item? I would say there is no obligation to do so, as both are professionals in the business. As a dealer, pricing can be based upon cost, value, need for cash flow, and inventory management to name just a few factors. It of course can also be because of miss-identification as well.

The Q&A is well worth reading and thinking about.

Q: I asked a local antiques dealer to come to my house and make me an offer on some old furniture and china. He bought several things, and I later heard that he sold one of them at auction for a fabulous sum -- many times what he paid me. When I complained to him about it and asked for a share of his profit, he refused, saying that I seemed pleased with the price he offered me at the time. Was this right?

A: Legally? Probably. You didn't invite him to your home to do a written appraisal of your goods, which would have legally obligated him to research your antiques and tell you their fair market value. You accepted his offer without duress and were free to get an appraisal or solicit offers from other dealers.

But did he act ethically? No, regardless of whether he knew at the time just how valuable your item was. If he discovered its true worth later (but before putting it up for auction), an ethical dealer would have contacted you to discuss what he had learned -- not offering to return your merchandise, but to share with you some portion of the future profit.

If the dealer recognized the high value of your antique the moment he saw it in your home, then he was taking advantage of you to buy it for so little. (Note, however, that reputable dealers typically pay 30 to 50 percent less than retail value, to provide enough markup to cover their costs of doing business and leave them a profit.)

An ethical dealer thrives on positive feedback and referrals from satisfied customers, developing a reputation for fairness in both buying and selling. But this dealer is a sharpshooter who apparently doesn't care.

A corollary issue: Does an amateur antiques hunter who spots a rare, severely underpriced item at a private garage sale or estate sale have an ethical obligation to inform the seller of its true worth? No.

-- Kiplinger's Personal Finance