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Pawn Shops: Understanding How They Work

Liz's advice on finance, credit, frugal living practices, & anything monetary is from the 'school of hard knocks,' research, & experience.

The three balls are the ages-old traditional symbol for a pawn shop; it stems from the days when a great many people could not read.

The three balls are the ages-old traditional symbol for a pawn shop; it stems from the days when a great many people could not read.

Pawn Shops Are a Business

Pawn shops are indeed a business, and while most are legitimate, I imagine there are some establishments willing to take in items of questionable ownership. However, the majority are businessmen and women just as interested in making a living as anyone else.

Due to the popularity of the currently running series on TV's History Channel, Pawn Stars, featuring a Las Vegas pawn shop and its owners, I am surprised that people seem not to have wised up to this fact.

My husband and I are very interested in collectibles and antiques, so it is one of our favorite shows—not because it is a "reality" show—but because of the unusual items that are shown.

The world-famous Gold and Silver Pawn Shop from the TV show is located in Las Vegas, Nevada, USA.

The world-famous Gold and Silver Pawn Shop from the TV show is located in Las Vegas, Nevada, USA.

When You Need a Loan in a Hurry

Using a pawn shop amounts to getting a loan without going through the hassles, paperwork and credit checks required by banks and other financial institutions.

You get hard cash on the spot, but you also carry a much higher risk, i.e., that of losing your item if you are unable to pay back the loan in the allotted time. Additionally, you stand to get a lot less money than you might want.

Do these risks outweigh for you the potential of being denied a loan for bad credit, or getting the loan, then being hounded by collection agencies when you can't pay it back?

Need hard cash in a hurry?

Need hard cash in a hurry?

What Are Your Items Worth?

If you want to pawn an item, whether it is your great-grandfather's antique pocket watch with an "absolutely amazing story" behind it or your beloved collection of comic books from your childhood, the only thing that really matters is not your story but the actual demand for the item in the secondary market. In other words, nothing is worth more than someone is willing to pay.

In pawning, you are trying to raise some cash temporarily to cover an urgent need. You want cash, for whatever reason, and you want it right now. So, you take your family treasures to your local pawn shop in the hopes of raising that cash.

First, the proprietor and/or an appraiser will evaluate your item on several points, which may include, but not be limited to:

  • rarity
  • material
  • authenticity
  • demand
  • condition
  • retail price range

Once the deal is struck and you agree to pawn the item, the dealer will quote you a price based upon a percentage of that retail price, and that is the amount you will be loaned. You will be given a claim ticket; your item gets marked with the other half of the ticket and disappears into their back room.

You'll be given a specified amount of time to repay the loan and retrieve your item. You will also pay interest and in some cases, other fees. The amount of interest charged is usually regulated by state laws.

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If you fail to come up with the money to get your item back in the specified time frame, ownership transfers to the pawn shop, and they are free to sell it at retail on the second-hand market.

The only upside to this is in their favor, because they have your property and can recoup their loan by its sale; you won't have to worry about the failure to repay showing up on any credit reports, but you'll have lost your item.

Selling an Item to a Pawn Shop

It is this type of transaction that constitutes the majority of cases in the above-mentioned TV show. And this is where I sit and shake my head in wonderment at the combined greed and stupidity of the people trying to sell their items.

If the pawnbroker is not certain of the value, authenticity or demand for any given item, they will refer to an expert in the field . . . at least the good and reputable ones will do so. Here is where things get interesting.

Sometimes, a person will come in with a fairly high-value item, and the expert will tell them something like, "At auction, I've seen these gizmos go for upwards of $4,000." The would-be seller then gets a smug grin on their face, and when the pawnbroker thanks and dismisses the expert, turns back to the customer and asks, "So, what do you want for this item?" About 90% of the time, the person will reply, "Well, you heard the man—he said $4,000, so that's what I want!"

At least twice during each episode, someone walks in with their item to sell and announces some off-the-wall inflated price they expect to get. Then, when an expert is called in for an evaluation in an area where Rick doesn't quite feel knowledgeable enough and states a retail or auction price, the customer wants to disagree with them and still wants their original price or the price quoted by the expert, if it's as much or higher!

I want to be able to reach through the screen, grab that customer by the neck, shake them and yell, "YOU IDIOT! Did you not hear the fellow say 'retail' or 'what Rick could expect to get?'

Do the people who walk through the doors of that shop not watch the show? Have they learned nothing about how the business works? Or are they really that greedy?

It is especially galling when it turns out the item was found, or given to them, or otherwise (legally) obtained for free!

This seems to be all the pawn shop's customers can see.

This seems to be all the pawn shop's customers can see.

But I Saw It on eBay for XXX Dollars!

No, folks, that's not how it works. Refer back to the list in the second section, and note that the final item in determining the value says retail price. That's the amount the pawn shop expects they can sell your gizmo for in a best-case scenario. It is not the price you are going to get—not even close.

It's funny how often someone will quote an eBay price they saw, but it's irrelevant. If that person is not a registered user on the site, they cannot know if the item even sold at all or if it sold for what was being asked.

Casual browsers cannot see those behind-the-scenes transaction details as registered users can. You can ask any price you want; whether you get it or not depends on the marketplace.

You might be surprised at how many items at the end of eBay auctions end up classified as 'not sold.'

Payback for the Dealer

So, expect to get not more than half or a third of that estimated retail value. Why? This hardly seems fair, does it?

Well, yes, it is. You must remember, the pawn shop, as I said earlier, is a business, and they are in business to make a living. Not only do they have the very high expenses of all the money they pay out for merchandise on a daily basis, but they also have overhead just like any other business. This includes the usual things:

  • rent or mortgage on their building space
  • utilities and phone
  • salaries for employees
  • insurance
  • office supplies
  • security

Besides that, they also have all those pawned items in the back room. They don't know if the money will be coming back in or if they will have to attempt to sell those things later on. In either case, the money paid out as loans on those items is tied up and not available for their operating expenses.

Then, there is the inventory they have purchased outright. Some items may be in high demand and turn over quickly; others may have been a bad guess and sit around collecting dust for months or even years before a sale is made to recoup some of their cash.

Buying an Item From a Pawn Shop

Suppose you are on the other side of the transaction and wander into a pawn shop looking for some unique item that can't be found in the mall, or you want to buy a similar item for a lesser price.

Just as with selling an item to them or pawning it, there can be some amount of haggling over the price you are willing to pay.

This poses a risk for the shopkeeper, as they must have guessed correctly about the price an item will fetch and how much they paid for it. If they are wrong, they lose money on the deal. It really is a very high-risk business to be in, financially speaking.

The Shops' Other Risks to Consider

Not only are there money risks to consider, but shop owners must stay abreast of complex laws governing what they may and may not sell. Some of these rules and laws vary by state, and some by the type of license the shopkeeper has for their business.

For example, at the shop featured in the show Pawn Stars, they are not allowed to handle any firearms except certified antiques. Your great-great grandpa's Civil War rifle? Sure—just fine. A modern-day pistol? No, not at all.

Adding to their financial risk is that every item that enters their possession, whether as a pawned or purchased item, must be run through police checks against lists of stolen property and sit for a full month as this process is completed. Only then can their purchases be put up for sale; in the meantime, it's cash out the door with no return.

In case you think it would be fun to visit the shop from the TV show, be prepared to wait in line!  Also, they don't allow walk-in customers on days they are filming. Call ahead to find out.

In case you think it would be fun to visit the shop from the TV show, be prepared to wait in line! Also, they don't allow walk-in customers on days they are filming. Call ahead to find out.

How to Get the Highest Price When Selling

Forewarned is forearmed, as they say, so please, if you decide to pawn something, remember, they are in business to make money, just like the rest of us.

Don't walk into their store expecting pie-in-the-sky top dollar for your item. If you really want the highest and best price, then you are better off selling whatever it is on your own as a private party directly to another private party by any of the various means available to you. This may include any of the following:

  • private auction houses
  • online auction sites, such as E-Bay
  • newspaper classified ads
  • online ads at no-fee sites such as Craigslist
  • private party-to-party in-person sale to someone you know

Any of these are likely to get you a higher-end price than you would at a pawn shop. The disadvantage is one of time: the time it takes to list the item, wait for a potential buyer to show interest, and complete the sale.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2012 Liz Elias


Liz Elias (author) from Oakley, CA on August 14, 2012:

@ Brett.Tesol,

My apologies for such a prolonged delay in responding to your comment. It somehow ended up in my 'denied' folder!! Annoying! There is some kind of glitch going on with that, and I can't explain it. Non-spam ends up in spam; approved comments are showing up in the 'denied' folder, etc.

I do appreciate the shares and tweet, and thank you so much for your input.

Susan Zutautas from Ontario, Canada on February 06, 2012:

That's the word I was looking for reserve price :) I could not for the life of me think of that when I left my comment. I worked one day at an auction and I have to say it was a lot of fun.

Liz Elias (author) from Oakley, CA on February 06, 2012:

Hello, Susan--

Indeed--either they let a truly great item go for a pittance, or they stupidly insist on a highly inflated price.

Auctions (while it's true you can set a 'reserve' price) are best for very-high-value items, but not so much for less pricey stuff, (unless you have a large lot of mixed items), because they charge fees and percentages that come off the top of what the item sells for.

So, to get the best price, and keep the proceeds yourself, go to a private-party marketplace, such as the classified ads, or Craigslist.

Thanks so much for your input, and I'm pleased as punch that you liked the article. ;-)

Susan Zutautas from Ontario, Canada on February 06, 2012:

I watch Pawn Stars all the time and like you I cannot believe how much people let their said items go for. Many times times I think perhaps they are really hard up for money ... but then why not take it to an auction and set a predetermined price on it. In most cases I think you'd be far better off at an auction than going to a Pawn shop. Excellent article!

Liz Elias (author) from Oakley, CA on February 05, 2012:

@ peoplepower73--Thank you very much--I'm pleased you found the article useful, and thanks very much for the share.

@ L.L.Woodard--Thanks so much for your added information. They certainly do have interesting finds, don't they? Thanks, also for the vote and the share.

L.L. Woodard from Oklahoma City on February 05, 2012:

Only in the last few years have I ventured into any pawn shops, but am glad I did. You never know what's going to be in the inventory when you walk into a place and there's always at least one interesting item.

Voted up and SHARED.

Mike Russo from Placentia California on February 05, 2012:

Great information. I never bought or sold anything in a pawn shop, but if I do, I'll definitely use your hub as my resource. Thanks for SHARING.

Brett C from Asia on February 05, 2012:

A very good review of the pawn business! As you other comment says, the other interesting companies are the gold for cash schemes and of course, payday loans (up to 2000% interest in the UK!!!!)

Thanks for SHARING, tweeted too.

Liz Elias (author) from Oakley, CA on February 02, 2012:

Hi, again, Steph--Your sister sounds like a smart lady! I'd have to do a lot more research to write such a hub. Perhaps that is one for you--being closer to the actual experience. ;-)

Stephanie Marshall from Bend, Oregon on February 02, 2012:

Cool - you should check out the gold places. My sister did NOT mail hers in. Sounds like she found a reputable place in person to use. It sounds like that is another Hub begging to be written! All the best! Steph

Liz Elias (author) from Oakley, CA on February 02, 2012:

Hi, there, Steph--

Thank you very much--this was one of those articles that was begging to be written for some time.

I'd have to research those "we buy your gold" places. I don't think I'd trust putting things in the mail; to easy for them to claim they never received it. Besides, just as with the pawn shops, you are NOT going to get the current price-per-ounce for the gold (which as of this writing is, I believe, in the neighborhood of $1200.)

Have fun on your pawn shop expedition, and thanks for stopping by and adding your input.

Stephanie Marshall from Bend, Oregon on February 02, 2012:

Very interesting hub! I've been wary to go into pawn shops, but it looks like there is some real money that can be made. My sister recently sold some gold jewelry to one of those places that takes it and melts it down. She made over $700 from old earrings that didn't have a match and a few other items that were simply collecting dust in her jewelry box. I am very tempted to try out pawn shops, etc.!

Liz Elias (author) from Oakley, CA on February 01, 2012:

Hello, iguidenetwork--

Thank you very much indeed for your compliment! I'm most pleased tht you enjoyed the article.

iguidenetwork from Austin, TX on February 01, 2012:

Fantastic hub...thanks for sharing with us!!

Liz Elias (author) from Oakley, CA on February 01, 2012:

Hello, suziecat7--thank you very much for sharing your experience, and for the vote. I'm glad you liked the article.

suziecat7 from Asheville, NC on February 01, 2012:

Great Hub. Though I have never pawned anything myself, I have purchased items from the local pawn shop. Informative Hub - rated up!

Liz Elias (author) from Oakley, CA on February 01, 2012:

@ Michele Travis--Thank you very much for stopping by and leaving a comment. Actually, there are a good number of people who pawn things out of desperation. They are not so much "getting ripped off," as they are finding themselves in an an unfamiliar position: that of wholesaler. The pawn shop, on the selling side, is a retail business. The people selling their items to the shop become, in effect, wholesale merchants. Much as you go into any regular store, and know that the marked price you pay is going to be higher, often by quite a lot, than what the store paid to the manufacturer or wholesale jobber. Thanks much for the vote and your input.

@ E Padro--I'm pleased you found this to be a useful article, and thank you very much for the vote.

E Padro from United States on February 01, 2012:

Very informative hub. I'm sure many people will benefit with this information, especially these days when money is short for many families. Thanks for taking the time to explain with such details. Vote up

Michele Travis from U.S.A. Ohio on February 01, 2012:

Thank you for this hub. I have been watching "Pawn Stars" I don't have anything of real value to sell to them, but this is a very good hub for anyone who does have anything of value so they don't get ripped off.

Gave you a thumbs up!

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