Last week we hosted our very first wine valuation workshop at WineWorld Retail Showroom. For those who have not been able to find time to attend, let us recap one of the most relevant sub-topic under the subject of wine valuation in this blog: When you get a valuation figure (or range) for your wine collection, what are the four questions that you should ask your wine valuer?
Essentially, wine valuation is an aggregate value of market price of each individual wines in your wine collection times the quantities that you own. Thus, the four questions to ask any wine valuer go to how they gauge market price of a wine.
Question 1: Which price is being used?
Mid-Price, Lowest Average and Bid-Offer Average are three popular ways used to gauge market price. Unless otherwise stated, the value is often drawn from a global database. Mid-Price refers to the average value of listing prices of an individual wine. Lowest Average refers to the average value of the lowest listing price in each market.
Bid-offer average is only available for wine valuer whom have access to data from bid-enabled merchants and platforms. The concept follows the workings of a stock exchange rather than an auction house. Bid refers to the best potential price a buyer is willing to pay to acquire the wine. Offer, which translates to “Ask” price in stock exchange, refers to the best potential price a seller is willing to sell the wine for.
There are pros and cons using each of the three measures above. The most important point to note, for all wine valuers, is that the designed algorithm must be trained to detect and remove outliers and abnormalities in the data set. For example, in bid-offer average, to eliminate any non-bulk transaction bids that are, say, 50% below average offer prices.
Question 2: Which source is being used?
Be sure to ask your wine valuer whether their wine price data set deals with listing price, transaction price or a mix of the two. Unlike stock exchanges, the world of wine trading has yet to evolve to a stage where transactions are centrally documented in open exchanges. Most transactions occur outside of an “exchange” ecosystem and thus most transaction records are private. Because of that, the source of price data used by wine valuers often come from merchants’ listing prices instead of transaction prices. Generally, the variance between listing and transaction price seldom exceeds 10%, but that depends a lot on transaction quantity, buyer-seller relationship and other variables.
Say if transaction prices are being used, it can be interesting to ask if your wine valuer makes any differentiation on trading appetite. Using solely transaction prices of major stockholders and established institutional traders may remove a lot of noises and come to be more accurate. This, however, can only be feasible if you are looking at wines of reasonable production volume (say, 10,000 cases annual production or above).
Question 3: How valid is the price?
The validity of market price generally correlates with how accurate and up-to-date the wine price data set is. Given technology advancements and simply the increasing popularity of online trading, numerous wine merchants now manage to maintain an online listing price database that are updated either instantly or no longer than every 3 hours. On average, major wine valuers are able to maintain a wine price data set updated with listing records that are accurate as of past 24 hours.
We do see the emergence of more sophisticated mechanisms, mostly modeled on what has been done in stock exchanges. 14-day and 30-day average prices of a heavily traded fine wine may be of very good reference value especially if you are planning to liquidate that specific wine in your wine portfolio. It offers you insights on future price movements.
Question 4: Are there any skew factors that may have affected the prices?
Auction prices have to be carefully used when it comes to gauging market price of a wine. The difference between reserve price, auction estimates and hammer price can vary greatly. WWX team is of the opinion that online auction prices, especially for ongoing ones, should be removed from a wine price data set.
Tax factor should be removed, although it is generally easier said than done. It is generally fairly easy to gauge price before VAT as most wine merchants list prices without VAT to enable international trading. Tax in the form of import tariff and duty are harder to eliminate as it concerns the declared value of the wine (which logically equals listing price less seller margin). The strictest wine valuer will eliminate all Duty Paid stock and use only In Bond stock prices in their wine price data set.
We hope the above questions and our elaboration allow you to better understand the context, assumptions and discretions your wine valuer has to make in order to give you the final valuation figure or range for your portfolio.
All WWX users are eligible to FREE access to our real-time portfolio valuation function. (All that it takes is for you to input the wines that you own using the Online Form under the tab “My Wine”.) Now we are going to briefly tell you the context, assumptions and discretions we have made to give you the WWX valuation figure for your collection.
The Ultimate Question: How do we calculate market price at WWX?
On WWX, our system uses a sophisticated, continuously fine-tuning algorithm to come up with individual wine’s market prices – which are then used to give you a real-time valuation for your wine collection.
Context and Discretion: WWX uses the Lowest Average method to calculate Market Price. Our wine price data set crawls listing prices from a pool of pre-screened, reputable merchants operating and holding stock in UK, HK and France only. Generally, prices are updated as of last 24 hours. Auction prices are excluded. Preference is also given to wine prices for OWC or OC stock.
Assumption: We assume all wines you have input into our system are of good conditions, come with verifiable provenance and are in OWC or OC. We do not discount the value of any of your wines that come with condition(s).
Free sign up to get a real-time valuation of your wine collection on WWX.