How Do Pawn Shops Come Up With Prices – ANSWERED!

Brian McCracken


So when you are in need of a little quick cash, one of the best options out there for you to choose is to check out a local pawn shop and see if they would be willing to make you a loan on something you own.
That having been said, one of the most frequently asked questions is to find out how pawn shops come up with the prices that they offer you on those items.
Do they just make them up or is there some kind of little black book that they have with all of the secret prices that they can offer you for your items?
No, of course not – let’s not be silly here.
Let’s just cover some basics here in that pawn shops buy and sell merchandise all of the time. That’s basically what they do all day, every day.
So just realize that these businesses run based on rules and guidelines – they have a real good idea of what they are doing and what they can afford to pay for items. If they didn’t, they wouldn’t have been in business for so long, would they?
So let’s talk about the three main ways that pawn shops come up with the prices that they can afford to offer you when you take something into them for a loan or to sell.
The Golden Rule
The golden rule when it comes to pawn shop and pawnbrokers is that they have to know how much they are able to sell something for before they know how much they can buy it for or loan against it.
Now, we all at least in some way, shape, or form know this but not everyone realizes just what that means or sometimes thinks that whatever it is they have can be sold for quite a bit more than it actually can be.
So what we are going to do is look at the three methods pawnbrokers use to figure out how much they can pay for something.
Pawn shops are often passed down in families and with many items, pawn shops determine the prices based on previous experience.
First Method: Experience
Okay, let’s just have a moment again and really consider the fact that pawnbroking is one of the oldest businesses in existence today. It’s been around for centuries and in all of that time, while the items pawned may have changed, the basics have pretty much stayed the same.
Now with that in mind, it probably won’t come as a big surprise that most of the local pawn brokers that you are likely to work with are businesses that have been passed down through the family for generations.
In fact, there are more pawn shops out there that are passed from father to son than probably just about any other business in existence.
With all of that time and family history you’ve got to realize that experience is going to come in to play. Pawn brokers have been doing this so long that they sometimes already know what they can sell something for as soon as they see it and that is the golden rule after all.
A lot of pawn shops will determine their prices in part based on what they find items for sale for on Amazon.
Second Method: Amazon
Now then, one of the next major things that pawn shops will do when determining how much they can pay someone for an item when they bring it into their stores is look to see what similar used items are selling for on Amazon.
A lot of people consider Amazon is be a purely be a place to buy new items at great places but what most people don’t realize is that you can actually shop for a lot of used items on Amazon as well.
Because of that, Amazon will often act as live marketplace for pricing used goods that consumers can buy.
What you’ve really got to keep in mind about Amazon though is that anyone can ask any price for anything that they want to so it’s not a really great live-example of what an item will really sell for – it just provides a guideline for what other people are asking for their used items.
Really, the best tool pawn shops used for determining how much they can pay you for your items is…
Some pawn shops will use eBay to help them determine prices as well.
Third Method: eBay
eBay really is the pawnbrokers best friend when it comes told determining how much a pawn broker can afford to pay you for your used merchandise.
Not only is there a much broader product selection than what Amazon typically has to offer but they also are able to look up the history of actual sale prices for used items like yours and get a really good idea for what something like what you bring in can be sold for online should you have to forfeit it or in case you just wanted to sell it outright.
The Ratio
Now, once a pawn shop knows how much they can sell an item for, you might ask where they go from there.
The truth of the matter is that if you bring them an item that they know they could probably sell for around $75, they normally aren’t going to offer you the full $75 for it.
Well, if you are making a loan against an item then that loan will have a monthly interest charge attached to it which gets calculated into the cost of the item when it forfeits.
So if the monthly interest charge was $5 and you didn’t come back for that item after 4 months – there would be an additional $20 cost to that item for the pawn shop. If they paid you the full $75 upfront, that means the item would then have actually cost them $95 – and they can only maybe sell it for $75! In other words, they would be losing money and no business operates to lose money.
So with that in mind, they’ve automatically got to figure in the monthly interest charges as an expense should you not be able to come back for your item.
On top of that, let’s just get back to this point that businesses don’t exist to lose money, they exist to make money. So the pawn shop has to be able to buy or loan on the item for something less then a maximum of $55, which is the $75 they could sell it for minus the $20 possible interest charges that would be associated with the cost of the item should you forfeit it.
That ultimately means that a pawn shop will probably offer you something closer to $35 or $40 on that item, which is right in the normally used ratio of 40-60% of whatever a like-items sold for price on eBay is.
That is what you can expect to get for an item at a pawn shop most of the time, and that’s exactly how pawn shop come up with the prices that they can offer you for your merchandise, almost across the board.
Other Factors
That having been said, there are scenarios where pawn shops can’t find items just like your on Amazon or eBay or that you items are heavily marked up, incomplete or somehow damaged that would negatively impact the potential sale price of that item should you forfeit it.
Now, how much a pawn shop detracts for defects like that will largely depend on what kind of defects we are talking about or how incomplete the item is in total.
Sometimes there are things that are really minor issues and won’t mean much but in other cases, like a cracked case, bent frame, missing charger, etc – these things can really add up and take away from that 40-60% ratio that we talked about up above.
So be honest with yourself about what you are taking to the pawn shop if you are trying to figure out at home how much they would be willing to pay you for it. You’ve got to look at things from the perspective of what would they do if they had to sell it.
Understanding that will greatly enhance your understanding of the pawn industry and how pawn shops work.