A panel member asked me how he might find valid pricing information on used cars. In trying to sell his four-year-old car, he had found that the KBB "private party"
value of $18,645 was far higher than anyone was actually willing to pay. Only when the selling price was cut to $15,400 had buyers
expressed any interest. No surprise.
I've often found the used car values at KBB and elsewhere off the mark and never bother to look at anything
other than the "trade-in" value, as the actual market value is rarely higher than that number.
Instead, I look at what cars are actually selling for via a nationwide used vehicle search on
a site like AutoTrader or Cars.com. Working up from the bottom, wherever I find three or more
vehicles with a typical set of features and reasonable odometer readings at roughly the same price,
and there's nothing obviously wrong with them, then that price is pretty close to the market price. (Two or three vehicles will often be offered at
very low prices, but there is usually a reason for this, like a major accident in the car's past.)
Most of the cars on these sites are being sold by dealers, which usually ask more than a private party would. But I suspect
that the price a desperate dealer has to settle for and the price a motivated (but not quite desperate) private party seller has to settle for aren't
far apart.
Prices will vary a bit by options, but most options have poor resale values.
If you want to lose as little as possible on a new car, don't check off too many boxes.
If you suspect significant regional variation, then only search a 300-mile radius around your zip code. But usually this is not necessary.
The wider the search, the better the odds of identifying a valid cluster.
In the case of the person who emailed me, the "lowest cluster" price was about $14,000. That's the price I'd try to buy his car for if I was
shopping for one. As a seller, I'd probably aim at least $1,000 higher, and thus ask about what he's currently asking, with the understanding that any
amount over $14,000 is gravy. Nothing wrong with gravy, but you won't always get it. Patience helps, especially
if there aren't similar cars for sale at a lower price within a 50-mile radius.
He also wondered how quickly his car would continue to depreciate if he held onto it. I used the same method with cars a year older,
and found that they're worth about $12,000. So about $2,000 per year at this point, which is much less than the first couple of years.
Of course, repair costs are likely to climb going forward, especially since the car is out of warranty. That's where TrueDelta's vehicle reliability research will eventually play a role.
Thanks for reading.
Michael Karesh, TrueDelta
First posted: September 27, 2006
Last updated: November 16, 2006
