Used Car Price - Pricing and Negotiating
How to find and negotiate used car prices
Buyers and sellers of used car often wonder how the price of used cars is determined. How is the value of a used car set? Who sets it?
If you are a buyer, is the seller's asking price being fair? Am I paying too much? Can I talk the seller down on his price? What price should I pay?
If you are a seller, how much should you ask for your car? What is a fair price to ask? How do I determine used car prices?
These are all common questions. Let's try to answer them here.
Used car prices are not an exact science
We all know that a brand new car's value begins to depreciate as soon as it's driven off the dealer's lot, often as much as 20% of MSRP (Manufacturers Suggested Retail Price - sticker price). Once it changes from a new car to a used car, it has less value. That value is based on a number of factors, such as year model, mileage, options, accident history, condition, and even the area of the country in which the vehicle is located.
So who "sets" prices of used cars?
Nobody "sets" prices for used cars. However there are "price guides" from companies such as Kelley Blue Book (kbb.com), NADA Guides (nadaguides.com), Edmunds (edmunds.com) and a number of other companies who provide used car value estimates based on data from auction sale prices and dealer transaction prices.
There are always differences between the estimated values of different guides. Which is right? Which is more accurate? Since these values are simply educated evaluations of data, none are "right" or "more accurate."
In short, used car values are based on what buyers are willing to pay. If a particular car make and model has a reputation for bad reliability or poor quality, buyers will not be willing to pay as much as for a make and model with better reliability or quality. Or if large gas-guzzler SUVs are less desirable in times of high gas prices, values will drop, and values of fuel-efficient hybrids and small cars will rise.
How to read used car price guides
When you look up a used vehicle price online you'll be asked for your zip code because prices vary depending on where a car is being sold. You'll also have to specify mileage and what options are on the car. You'll also be asked to make a judgment about the car's condition. Then you'll be shown three or more sets of values that are generally as follows:
Dealer Retail Price is the price you would expect to pay if buying from a licensed new-car or used-car dealer — retail price. Dealer prices will always be higher because of business costs and need to make a profit. Furthermore, dealer retail price is always for a car in "excellent" condition — the highest possible value. Price guide publishers don't want to create price conflicts with used car dealers who advertise on their web site. Smart used car buyers will use this price to guide them in negotiating with dealers.
Private-Party Price is the price you would expect to pay if you were buying from an individual, not a dealer. Although many sellers think they should be able to get the same price as a dealer, buyers often disagree. (NADA does not provide private-party prices, only trade-in and retail). Many car sellers use this price to set their asking price — typically by adding about 10% to allow some bargaining room. Smart buyers will use this price as a bargaining starting point, and negotiate the price down from there.
Dealer Trade-in Price is the price you would expect to receive from a dealer if you were to be trading your car — essentially a wholesale price. This is also the price that a dealer might expect to pay for a car at a dealer wholesale auction. There is usually a large difference between trade-in value (wholesale) and dealer retail value. Dealers typically make more profit on used cars than on brand new cars. If you plan to trade a car, use this value as a guide in negotiating the trade-in credit you receive from your dealer.
Remember that used car price guides are just that – guides – and not standards. Different guides have different values for the same car, same condition, same mileage.
How to negotiate used car prices
We recently received a question from a young reader who asked, "A dealer is asking $8000 for a car I want. Do you think I can talk him down to $7000?"
From the question, we realize that the reader is assuming that the $8000 is a fair-market price for the car, and that $7000 would be a good deal. Not necessarily so. Let's explain.
Let's say the dealer bought the car at wholesale auction for $5000. He cleans it up and puts it on his used car lot with a $8000 price tag. The car is actually worth about $6000 in the used car pricing guides discussed above. He knows that smart buyers will know the $8000 is just an asking price and will want to negotiate. If a buyer such as our reader comes in and "talks him down" to $7000, the buyer is paying $1000 too much for the car, but goes away happy thinking he got a great bargain. And the dealer made an extra $1000 profit he would have been willing to give up to a more price-savvy customer.
In summary, it's not about "how much can I talk the dealer down" but how much the car is actually worth. If a dealer or individual seller is asking more than the values suggested by popular pricing guides, then you should use guide prices to ask the seller for a better selling price.
We explain elsewhere on this site that it is very important to get a mechanic's inspection on any used car you plan to buy since most used cars are sold "as-is." If that inspection finds previously undisclosed problems, even minor problems, use that information to ask for further price reduction from the seller. An inspection report can be a powerful negotiating tool.
Using vehicle history reports in price negotiations
Vehicles that have been wrecked and repaired or previously salvaged are less valuable. Buyers are not willing to pay as much for such vehicles, fearing hidden damages and problems. Therefore, if you are considering a used vehicle purchase, always get a history report. Such reports are usually very accurate, as far as they go. However, they may not be complete or may have missing data.
If you are buying a car that has been wrecked and repaired, even though the vehicle is now in perfect condition, you can use the information to bargain down a seller's asking price — especially when you can show him a copy of the report.
Vehicle history reports can be obtained from CARFAX or AutoCheck®
.Carfax charges $30 for a single report, and AutoCheck charges only $15. We actually like AutoCheck's reports better. Here is a sample AutoCheck used car history report. We often see questions from people asking about free Carfax reports (or AutoCheck reports). Unfortunately free vehicle history reports don't exist unless you can get a seller to dealer to pay for it. However, the small cost of a report can easily save you from making a costly purchase mistake. It's a good investment.
Summary
Used car prices are not absolute values, but vary considerably depending on make and model, options, mileage, condition, location, and vehicle history — and the company publishing the prices. Prices can be negotiated over a wide range. There are no "right" prices. Smart buyers and sellers use pricing guides and vehicle history reports in price negotiations.