It’s not surprising with so many collectables on the market that oriental rugs is considered by some to be a worthwhile investment. After all, there are stories about how an oriental rug sat in a shop for months, if not years at a low price, only to be discovered that it was worth far more. While there are still oriental rugs available that are undervalued, the chances of striking it rich with a single purchase is about as slim as winning the lottery.
However, just because big payoffs are rare does not mean that oriental rugs are a poor investment. As with most collectable items, their value builds gradually over time as the supply becomes scarce and the demand grows. Just keep in mind that for the most part the profits will be far smaller.
Most oriental rugs are sold by knowledgeable dealers who understand the basic value of the rugs they are selling. This mean that finding a rug which is considerably undervalued is quite rare. Dealers generally buy wholesale and then set the price at double what they paid for retail. When you think about it, that’s not much of a profit to make double what is paid. Particularly when you consider the other costs involved.
Furthermore, for those who want to sell their rugs, they will have to do so at wholesale prices to dealers or private buyers. Since dealers and private buyers make up most of the rug market, a person wanting to buy a rug for a discount.
Here, you will bid against private buyers and dealers to purchase oriental rugs. The good news is that major auction houses provide the opportunity to purchase a real bargain. Some rugs will sell for far below their value while others will go for well above what is considered a good retail price.
It’s possible to hit big with a purchase depending on the value of the rug and others overlooking its potential. However, it’s also quite possible that you may be stuck with an overvalued rug. This is because those who are in charge of rugs at major auction houses will place estimates on their value. However, because so many rugs pass through their auction house, they only put estimates on so many rugs. They do find out based on sales how accurate their appraisals came to be.
This is because the rugs are appraised at different values, but generally do not sell out. This is because dealers and private buyers are only willing to spend so much, so roughly 30% of all the rugs do not sell at all. Add to this the fact that some rugs will sell below the minimum estimated amount. Keep in mind that there is a bottom line or reserve price which means that the rugs will not sell for lower than its purchase price.
So, it can be expected that around half the rugs put up for auction will not sell in their estimated range or not sell at all. While a 50% average may sound low, it would be difficult to those who are not experts in appraisals to do any better.
Downside of Auction Houses
In addition to possibly overpaying for a rug, there is the issue of losing up to 10% with your purchase which does not include the commission that the auction house receives. Many auctions will have competitors who will bid with you for the rug. This means that you might pay a little higher than planned because the other bidder, sometimes called an underbidder, also wants the rug at the price you desire.
This means that you wind up paying a little more than expected which cuts into your potential profits. While the loss may seem negligible at first, it does start to add up with the number of rugs that you eventually win at the auction. Unless no one else wants the rug, you should expect to pay a little more than your desired price.
As with most collectables, the different types of oriental rugs fall in and out of favor over time. Generally speaking, while good rugs will increase in value over time, some types of rugs will enjoy a boost of interest which increases their value even further. This means that if you buy a particular type of oriental rug that is out of favor, you can sell it for a higher than expected price if it comes back into favor.
Of course, the ability the predict the different types that will be in demand is a trait that few, if any possess. But it is something to keep in mind if you are purchasing a wide array of rugs for potential future sale.
Are Oriental Rugs Worth the Effort to Invest?
Despite all the issues and risk associated with oriental rugs, they do make for good investing opportunities. While you wouldn’t want to plan your retirement on them, they do have the potential to return a tidy sum if you do your homework. This means looking at trends in the prices of oriental rugs depending on their origin.
Keep in mind that even if you become quite good at appraising value, that auctions are still quite risky in terms of what you can make. You are better off finding a good, knowledgeable, and honest dealer that can provide expert advice and help guide your purchases. This is especially true if they let you use your purchase as credit for buying an additional rug in the future.
Remember that there are some parts of the world where this type of rug is being made, but not discovered by the outside world such as southeast Asia. Buying up a few rugs from areas of the world that are not front and center in terms of trends may pay off at a future date. Unfortunately, you never know when that date might arrive, so be sure to mix your purchases between solid sellers which make less money and more risky purchases at lower prices that might pay off well.