Used Car Prices – Pricing and Negotiating

How to Find Used Car Prices and Negotiate Best Deals

how to negotiate car dealsBuyers and sellers of used cars often wonder how prices and values are determined. How are values of used cars set? Who sets values? Are the values reliable?

If you are a buyer, is the seller’s asking price being fair? Are you paying too much? Can you talk the seller down on his price? What price should you offer without being unreasonable? What if the seller doesn’t accept your price?

If you are a seller, how much should you ask for your car? How do you determine used car values? What is a fair price to ask? Should you set a higher asking price to allow room for negotiation?

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” values of used cars?

Nobody “sets” values for used cars. However there are “price guides” from companies such as Kelley Blue Book (kbb.com), NADA Guides (nadaguides.com), Edmunds.com and a number of other companies who provide used car value estimates based on historical data from auction sale prices and dealer transaction prices.

There are always differences between the estimated values in 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 when large gas-guzzler SUVs become less desirable in times of high gas prices, values will drop, and values of fuel-efficient hybrids and small cars will rise.

Local care dealers generally have a good feel for prices in their area, based on supply, demand, and customer preferences. For example, dealers in wintery Vermont know that convertibles have much less value than the same cars in Florida.

How to read used car value 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 be asked to make a judgment about the car’s condition, which has a large effect on value. 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 generally be the highest 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 website. Smart used car buyers will use this price simply as a rough guide 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 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. There are no “standard” prices for used cars. Also remember that dealers don’t typically use these guides to set prices.

How to negotiate used car prices

We recently received a question from a 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 asking price 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 the guide values as a bargaining tool to ask the seller for a lower price, although dealers may tell you that guide values are “inaccurate” — which just might be true for the local area.

If you need a loan

If you are going to need a loan from a bank or finance company, they also use car value guides.  If you agree to pay too much (more than a car is worth), you will not be able to get a loan for the full amount. Check with a bank or reputable auto loan company such as Auto Credit Express before you agree on a purchase price.


Get your car inspected

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.” It’s particularly important for older cars with high mileage. The chances of serious (expensive) problems increase with age and mileage.

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.

Already low prices online

Even if you don’t plan to shop or buy a car online, you can use Internet car sites to do your preliminary research and check prices.

Edmunds.com is one of the top used car shopping sites and lists over 4 million cars. You can easily find good cars in your area and check prices quickly.

In many cases, you are also provided a free Carfax report so you can check on a car’s history.

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 from a company such as Carfax. Such reports are generally 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.

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 or 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 can vary considerably depending on make and model, options, mileage, condition, location, and vehicle history — and what the seller thinks his vehicle is worth. Prices can be negotiated over a wide range. There are no “standard” or “correct” prices for used cars. Smart buyers and sellers use pricing guides and vehicle history reports in price negotiations.