Nature of the wine valuation problem Establishing the current value of your wine collection is more difficult than valuing a public securities portfolio. Even relatively illiquid securities have a quoted bid-ask price which can be used as an “arms-length” fair market value. Valuing wine is more complicated because:
- Every combination of a wine name, vintage, and bottle size represents a unique item to be valued (even if one ignores condition issues) which generates an enormous number of items.
- The produced quantity of any item is often quite small, which limits the potential transactions which can be measured to benchmark a value.
- Transaction data is not centralized in one place. The best sources are wine search engines like Winesearcher.com for retail asking prices and Vinfolio’s Wine Price File for major auction house transaction data.
The difference between transaction prices and asking prices
Normally, the basis for establishing fair market value for any item uses transaction data as this means that the buyer and seller ultimately agreed on a price. Retail prices shown on Winesearcher.com are asking prices and are usually higher than completed transaction values from auctions.
A retail asking price is not a confirmation that a wine is selling. Moreover, some retailers routinely start with a high price and then gradually reduce the price over time if a wine does not sell. Therefore, at any given time, one has no idea whether the retail prices quoted on Winesearcher actually represent prices at which a wine is being successfully sold (which is the true test of fair market value).
How does one reconcile these differences given that all wine is not sold at auction and retail data is more abundant? In part 2 of this topic, I’ll address how Vinfolio has tackled this issue in our free VinCellar online cellar management software.
