During this visit, I want to talk to you about the part of buying a car that just about everybody dislikes – negotiating the purchase price and figuring out what your trade-in is honestly worth. This can strike fear in most people, but it doesn’t have to.
General Information – Your best tool in preparing to talk price with the dealer or private seller is PREPARATION! That’s right, do some research before you buy so that you know where you are financially and can agree to negotiate within a range that is acceptable to your lender and your budget. If you are going to pay in cash, make sure you have set aside enough for registration and those little repairs/maintenance you will most likely have to have done after purchase. While you certainly can go on line and research a variety of car pricing services to determine what the value of the used vehicle you are interested in is worth, I prefer a lower tech and more accurate solution – the reference desk at your local public library. Ask to see the current reference copy of the National Automobile Dealers Association (NADA) Official Used Car Guide.
Why I like the NADA Guide – This is the book that the loan officer at the bank or credit union is most likely to use in determining how much to lend you (if you are not paying cash) based on what the vehicle is worth. The NADA Official Used Car Guide is printed in ten regional versions every month and reflects the actual prices reported by used car dealers at auctions around the country. It covers the values of used vehicles for the last eight years. This wealth of information includes five different values; (trade in value – rough/average/clean), clean loan value, and clean retail value. (Note: if you are considering a vehicle older than 8 years old, ANY source you may consider on-line or off will only be at best a basic GUIDE due to the increased variables of wear, tear, use and overall condition.)
For those with either a vehicle to trade that is OLDER than eight years and/or considering the purchase of a vehicle in that vintage or older, an alternative plan would be to shop around (on and off line) locally to find out what similar vehicles of that age are selling for. As I mentioned before, valuations of older vehicles can differ by a greater amount from vehicle to vehicle because of mileage and condition. Now about that trade-in:
What you know prior to getting your trade-in appraised – First, you should know that even if the vehicle you are planning to trade is in good shape and over five years old, its most likely going to be sold to an automotive wholesaler. This matters because the dealer will be getting “buy bids” from several of the wholesalers that they work with prior to working up the sales offer. The bids received will be the working numbers they will use to negotiate with you.
Here is my philosophy regarding trade-ins: the older and higher mileage it is, the more willing I am to trade it in. Reason? The dealer is best qualified to dispose of it if need be, without the potential legal repercussions of you selling the old jalopy outright.
Now it’s only fair to warn you that a dealer may be reluctant to accept or make an offer of trade-in on such a vehicle. Main reason is that there is a lack of financial incentive (if the vehicle is in bad enough shape, its going straight to the junkyard once the deal is closed.)
The value of the old vehicle reducing the cost of the one you are looking to buy can sometimes be more than what you can get in cash – not to mention a lot less hassle than having to sell it yourself.
This also limits the negotiation room the dealer may have during the negotiation. If you are trading a newer and/or lower mileage vehicle – the dealer may opt to keep it for his own used car lot. This is GOOD news for you because they may be willing to pay more for the vehicle – hence a better deal for you. (but if the vehicle is that good, why are you trading it?) Under these circumstances, if you feel (based on your research) that the offer is too low give the vehicle’s mileage and condition, you may want to consider selling your vehicle yourself. I will cover that subject in a future column.
Did you know: That cleaning the vehicle up before getting it appraised can help you? Yes, even automotive appraisers can be lured by shiny sheetmetal. I wouldn’t spend lots of $$$ to get the vehicle in order, but washed, vacuumed, throwing out the accumulated trash in the nooks and crannies can actually make you a few more bucks at appraisal time.
NEXT TIME: Negotiating the purchase price.