My gaming groups tend to handle old loot thusly: the Fighter might get the first magic armor, and then when he gets an upgrade his hand-me-down goes to the Cleric or whoever, or possibly straight to a henchman. They rarely sell something purely because it’s surplus for which they can find no use – but it’s possible they’d rather have the cash than a beefier (and happier) hireling.
Also, some types of loot are uncommon. Where do you find magic ballista bolts or magic horse barding?
I just thought about solving both problems by letting players hammer out their old swords, rip up the stitching in their old leather armor, and have an armorer fix up something new. With the same magic as the old item.
A magic sword might be put into service as the head of a ballista bolt. If you get 3 suits of Chainmail +1 you could get someone to make Chainmail Barding +1. Yeah, I know you probably need a lot more chainmail than that, but I’m concerned more about the value of the starting item(s) and the value of the end item being reasonable.
The germ of this idea was in a game I ran where all magic arms and armor were typically 1 or 2 points weaker for the magic portion, but were frequently made of Mithril (+1 higher and low weight) or Adamantine (+2 higher but normal weight). That meant two things: (1) I could drop a magic weapon in a loot pile that wasn’t as powerful (like a steel Frostbrand +1), and (2) non-magical equipment made of Mithril or Adamantine was possible (which let me have boring +1 and +2 gear without special weird magical stuff, which I had determined that every single magic item would have).
One outcome of (2) was that players would be able to melt and reforge Mithril and Adamantine gear into whatever they wanted, allowing them to trade several Mithril (+1) daggers for a Mithril Chainmail (+1), or in one case melting down some Admantine shields they found to armor-plate their wagon with +2 sheet metal.
There was also a nice choice for the players who had enough metal to make it, between light equipment that was +1 or normal weight equipment that was +2. Because I was tracking encumbrance pretty regularly with Delta’s stone-weight system, I had a few players choose to wear the weaker but lighter Mithril armor because it meant being able to haul around a couple extra sacks of treasure or gear.