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Let's say I'm awarding standard treasure for a AVP of 3 on a medium game. That value would be 800 gp.

So if I have a masterwork Dagger worth 302 gp. Do I subtract the 302 gp from 800 gp or do I just do 151 gp since that's the amount the PCs would get for it?

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Ideally, you want to use the item’s value to the player

Is this the item the player’s been dreaming about? Full value (probably not more; item prices are often too high and rarely too low, though exceptions do, of course, exist).

Is this an item that is gonna get shoved in a handy haversack and forgotten until the players get somewhere they can sell it? Market value, if that.

Is this an item they weren’t going to buy, but is useful enough to keep rather than sell if they come across one? Figure out its value somewhere between base value and sale value.

Ultimately, you want your players to have useful items roughly in line with what the system expects for characters of their level. It keeps them more competent and more likely to have the appropriate stats to deal with monsters the book says they should be able to deal with. It tends to be more fun for them and less of a headache for you. But the item has to be worth that much to the players, not just what it says in the book.

I don’t necessarily mean giving them everything they want, and I definitely don’t mean that you should have “Magic Marts” that sell everything they could ever want, but you should be aware of the crucial items and make sure the players get them more-or-less when they should. Sooner or later, the players should have a way of getting the items they’re looking for, whether that’s loot you drop, items they find in a store, or side-quests you give them to get it.

You can definitely go too far, giving too much, but the wealth available for Pathfinder characters tends to be fairly conservative: you have a lot more leeway to give too much than you do giving too little. Melee and mundane characters, in particular, are already the weakest cahracters and are massively reliant on magic items; reduced magic item access makes the weakest characters weaker and don’t hurt the strongest characters nearly as much.

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