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How Do You Determine the Value of my Trade-In?


Published October 30, 2018

In moving out of a used car in anticipation of purchasing a newer model, most people basically have three options: they can give it away (child, friend or charity), they can try to sell it themselves, or they can trade it into the dealership.
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We'll concentrate on the second two choices as the first option isn't within the scope of this article.

When selling to a private party, it's an exchange that's part emotional and part economics. The buyer may like you and be willing to meet your price because you seem trustworthy, for example. When trading a vehicle into a dealer, there's no emotional side to it, and you should prepare yourself accordingly. The dealer may provide you with information or a price that doesn't agree with your perception and you need to be ready for it. They're not being mean or trying to talk you down, they're simply business people operating on a business level.

First, you have to recognize that dealers buy their cars at wholesale, including yours. So expect a wholesale price. There are factors that you can apply to help raise your price some, like complete service records, low mileage, scratch-free exterior, and immaculate interior. In most cases, these factors have value because it makes the car easier for the dealer to sell, which means they can use the proceeds to purchase another car for their lot to sell.

What you may not be aware of is that many used cars are purchased through automobile auctions. There are various reasons why cars end up here. It could be a perfectly good vehicle that a new car dealer took in trade but it doesn't fit with the customers they see on their lots, and they'd rather move it quickly through an auction than wait for the ideal buyers to walk in the door. The car could be a vehicle that was turned in to an independent leasing company that has no retail outlet for used cars, or it could be a bank repossession. What these cars sell for at auction is collected and provided to dealers. That's the wholesale basis that they use, not one of the car pricing sites you find online, to determine what they're willing to pay for your car. In essence, they're looking to buy your car for the same price as the exact same car would sell for at auction.

Wholesale prices of cars arenít fixed and can fluctuate based on supply and demand. For example, when the 2011 tsunami shut down much of Japan's car production, the wholesale prices for used Japanese cars went up. And it doesn't take a natural disaster to impact pricing. As buyers recently became more interested in SUVs the value of used sedans started to drop. But then sharp-eyed customers saw they were relative bargains and now the price of sedans is back up.

Unfortunately, there is no way for you to go to a computer and look up what the current wholesale auction price is as that data is usually only disclosed to dealers. On the other hand, with a little time and some research, you can get a good idea of what a fair trade-in value is for your car.

Determining a Fair Price

There are several sites online that will provide you with an estimate of the value of your car based on make, model, options, mileage, and condition. Be realistic when you evaluate the condition of your car as what you may see as a cream puff the dealer may see as a car that needs a good deal of touch-up work. Be prepared that it's likely that you'll be offered a value that ranges from the mid- to low-end of the scale unless your car has been hermetically sealed in a garage since it was new. This way your expectations will be more realistic.

Take a deep breath right now and remind yourself to detach emotionally from the transaction. It's purely business and the dealer's offer is in no way personal. Keep that in mind and the process will go much smoother.

Most dealers will perform a comprehensive inspection to check your car for any issues, repair anything that needs fixing, and thoroughly clean and detail your car. This could even include a partial or even a complete paint job if necessary before putting it on the lot. It all falls under the heading of reconditioning and costs can range from hundreds to thousands of dollars. These costs are a critical part of how dealers value trade-ins.

Dealers will often build in the cost of transportation (in case they want to resell it at auction or directly to another dealer) along with marketing costs. What a dealer spends on marketing will vary, but about $100 per vehicle is typical.

The dealers know that you need to get rid of your car and they love to negotiate, so you can expect their initial offer to be below what they're actually willing to spend to buy your car. Keep this in mind and remember that this is a business transaction. If the dealer didn't want your car, they wouldn't have made an offer in the first place!
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