The Pawning Process
The pawning process begins when a customer brings an item into a pawn shop. Common items pawned (or, in some instances, sold outright) by customers include jewelry, electronics, collectibles, musical instruments, and tools. In our case just JEWELRY. Gold, silver and platinum are popular items—which are often purchased, even if in the form of broken jewelry of little value. Similarly, jewelry that contains genuine gemstones, even if broken or missing pieces, have value.
The pawnbroker assumes the risk that an item might be stolen. However, laws in many jurisdictions protect both the community and broker from unknowingly handling stolen goods (also known as fencing). These laws often require that the pawnbroker establish positive identification of the seller through photo identification (such as a driver’s license or government-issued identity document), as well as a holding period placed on an item purchased by a pawnbroker (to allow time for local law enforcement authorities to track stolen items). In some jurisdictions, pawnshops must give a list of all newly pawned items and any associated serial number to police, so the police can determine if any the items have been reported stolen. Many police departments advise burglary or robbery victims to visit local pawnshops to see if they can locate stolen items. Some pawnshops set up their own screening criteria to avoid buying stolen property.
The pawnbroker assesses an item for its condition and marketability by testing the item. Another aspect that affects marketability is the supply and demand for the item in the community or region.
To assess value of different items, pawnbrokers use guidebooks (“blue books”), catalogs, Internet search engines, and their own experience. Some pawnbrokers have trained in identification of gems, or employ a specialist to assess jewelry. One of the risks of accepting secondhand goods is that the item may be counterfeit. If the item is counterfeit, such as a fake Rolex watch, it may have only a fraction of the value of the genuine item. Once the pawnbroker determines the item is genuine and not likely stolen, and that it is marketable, the pawnbroker offers the customer an amount for it. The customer can either sell the item outright if (as in most cases) the pawnbroker is also a licensed secondhand dealer, or offer the item as collateral on a loan.
Determining amount of loan
To determine the amount of the loan, the pawnshop owner needs to take into account several factors. One factor is the predicted resale value of the item. This is often thought of in terms of a range, with the low point being the wholesale value of the used good, in the case that the pawnshop is unable to sell it, and they decide to sell it to a wholesale merchant of used goods. The higher point in the range is the retail sale price in the pawnshop. For example, a five-year-old diamond ring may have been bought by the customer for $1000. However, as a used item in a pawnshop, it will only fetch $250 to $300, because since it is not new customers will be wary about the durability of the ring. Used jewelry unless is in excellent condition it will only value the scrap value of the metal. When it comes to the diamonds wholesalers will buy them at a lower price than the actual wholesale value since they are in business to make money.
The pawnshop owner takes into account their knowledge of supply and demand for the item in question to determine if they think that they will end up selling the ring for $225 to a wholesaler or $300 to a pawnshop customer. If the pawnshop owner believes that there are “too many used rings around these days in town”, they may fear that they will only get $225 for the ring if they have to unload it to a wholesaler. With that figure in mind as the expected revenue, the pawnshop owner has to factor in the overhead costs of the store (rent, heat, electricity, phone connection, yellow pages ad, website costs, staff costs, insurance, alarm system, confiscated items, etc.), and a profit for the business. As such, the customer who comes in with this ring that they paid $1000 for when it was new may be offered as little as $200 by the pawnshop owner, who is taking into account all of the risk and cost factors.
In determining the amount of the loan, the pawnshop owner also assesses the likelihood that the customer will pay the interest for several weeks or months and then return to repay the loan and reclaim the item. Since the key to the pawnshop business model is making interest off the loaned money (in our case at a low monthly fee), pawnshop owners want to accept items that the customer is likely to want to recover, after having paid interest for a period on the loan. If, in an extreme case, a pawnshop only accepted items that customers had no interest in ever reclaiming, it would not make any money from interest, and the store would in effect become a second hand dealer.
Determining if the customer is likely to return to reclaim an item is a subjective decision, and wily customers may attempt to persuade the pawnshop owner that the item in question is important to them (“that necklace belonged to my grandmother, so I will certainly return for it”), and they will claim that they will return to recover it. The pawnshop owner can use a variety of factors to evaluate the likelihood that the customer will return and balance that against the item being pawned. Some customers may return several times over a year and pawn the same valuable item as a way of borrowing money, and they return each month to pay the interest and recover the item.
As well, the pawnshop owner can assess the item and the pawner; if a non-disabled twenty year-old male comes into the pawnshop to pawn an electric wheelchair (perhaps the possession of his late grandfather), the pawnshop owner may doubt the man’s claims that he will return for the wheelchair. On the other hand, if a middle aged man pawns a top quality set of golf clubs, the pawnshop owner may assess it as more credible that he will return for the items. The salability of the item and the amount that the customer wants for it are also factored into the pawnbroker’s assessment; if a customer offers a very salable item at a low price, the pawnbroker may accept it even if it is unlikely that the customer will return, because the pawnshop can turn around a quick profit on the item. If a customer offers a top quality, brand-name valuable at too low a price the pawnbroker may turn down the offer, because this suggests that the item may either be counterfeit or stolen.
We are not Rolex Authorized Dealer. Rolex is the property of Rolex SA.
A Pawn Broker
A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The word pawn is derived from the Latin pignus, for pledge, and the items having been pawned to the broker are themselves called pledges or pawns, or simply the collateral.
If an item is pawned for a loan, within a certain contractual period of time the pawner may purchase it back for the amount of the loan plus some agreed-upon amount for interest (or fee). The amount of time, and rate of interest, is governed by law or by the pawnbroker’s policies. If the loan is not paid (or extended, if applicable) within the time period, the pawned item will be forfeited and offered for sale by the pawnbroker. Unlike other lenders, the pawnbroker does not report the defaulted loan on the customer’s credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item. The pawnbroker also sells items that have been sold outright to them by customers.
The Pawnbrokers’ Symbol
The pawnbrokers’ symbol is three spheres suspended from a bar. The three sphere symbol is attributed to the Medici family of Florence, Italy, owing to its symbolic meaning of Lombard. This refers to the Italian province of Lombardy, where pawn shop banking originated under the name of Lombard banking. The three golden spheres were originally a symbol that medieval Lombard merchants hung in front of their houses, and not the arms of the Medici family. It has been conjectured that the golden spheres were originally three flat yellow effigies of byzants, or gold coins, laid heraldically upon a sable field, but that they were converted into spheres to better attract attention.
Most European towns called the pawn shop the “Lombard”. The House of Lombard was a banking family in medieval London, England. According to legend, a Medici employed by Charlemagne slew a giant using three bags of rocks. The three-ball symbol became the family crest. Since the Medicis were so successful in the financial, banking, and moneylending industries, other families also adopted the symbol. Throughout the Middle Ages, coats of arms bore three balls, orbs, plates, discs, coins and more as symbols of monetary success. Pawnbrokers (and their detractors) joke that the three balls mean “Two to one, you won’t get your stuff back”.
Saint Nicholas is the patron saint of pawnbrokers. The symbol has also been attributed to the story of Nicholas giving a poor man’s three daughters each a bag of gold so they could get married.