Understand Your Trade-In Value (and Walk Away a Winner)

The majority of American drivers factor a trade-in vehicle into their car-buying practice. While doing so could reduce the final sales price by hundreds, even thousands of dollars, customers should be conscious of the give-and-take nature of trade-in valuation. Doing so will empower the customer to understand what they’re entitled to, ensure they receive the best deal and enjoy a far more positive car buying experience.

And with the wealth of tools made available by dealerships and the likes of Kelley Blue Book and Edmunds, it is easier than ever for prospective car buyers to empower themselves. That said, it’s also easier to create a false sense of both empowerment and entitlement. We might live in a click and swipe world, but not all tools are made equal.

With that in mind, let’s explore some of the dynamics that should be understood by anyone looking to trade in a vehicle.

First Things First

You are more likely to get more money for your vehicle if you sell it privately.

Why? Mostly because you can set the price and choose to accept (or decline) any offers (or haggling) ventured by a potential buyer. Also, your final price won’t have to take resale value into consideration, so there’s no need for you to worry about margin.

While it sounds simple enough, the time, energy and resources required for a private sale are often a scarce luxury. With many car purchases coming with a sense of timeliness (or urgency, even) the convenience of a dealer trade-in remains a key part of most car buying experiences.

But, as mentioned above, dealers have to estimate resale value in an ever-fluctuating marketplace. Factor in the cost of reconditioning the vehicle for resale, and it becomes easy to see how the dealer’s margin can begin to chip away. Not that you’re worried about a dealer’s profits, we just like to look at the big picture.

Understanding the Actual Cash Value

Also known as Fair Market Value, ACV is a product of the insurance industry and can also be applied to the automotive, as well. Basically, it equates the total amount that somebody would be willing to pay for a vehicle, in its current condition, at the time of sale.

Take a new vehicle, for example. We’ve all heard before how it “begins to depreciate the moment you drive it off the lot”. While that can be a frustrating sentiment that draws ire among consumers everywhere, it the extreme version of a simple truth: the more you own a vehicle, and the more it is used, the more it depreciates.

Estimating the ACV of a vehicle is influenced by a number of factors.

• Age of the Vehicle
• Mileage
• Wear and Tear
• Maintenance History
• Accident History
• Reconditioning Required for Resale
• Current Market Value (Based on Geography)

What’s important to understand that dealers will employ other industry criteria as well when appraising a vehicle. These are just some of the considerations you should be aware of, especially when using online valuation tools, or speaking with an appraiser.

Because You Should Know Your ACV

Or at least be confident in the estimate you receive beforehand. Failing to do so will leave you powerless in negotiating your trade-in value, able only to accept the dealer’s valuation ‘as is’. Remember, it could mean a difference of hundreds, or thousands of dollars.

Tools at Your Disposal

There are many. That said, there are also pros and cons attached to each.

For many, Kelley Blue Book reigns as the go-to resource for valuation of used vehicles. Unfortunately, it’s a common misconception that dealerships use it in appraising a vehicle. Understanding that KBB is a consumer tool, as opposed to an industry tool, is important. The same applies to Black Book or Edmunds. By no means should you be hesitant to use them; it’s just important to understand what they are.

Another worthwhile point is that the accuracy of KBB valuations may differ, based on your geography. As a California-based publication, its results may not be indicative of results you can expect in other parts of the country. Just as you’re looking to save yourself hundreds, or thousands of dollars – an inaccurate appraisal could inflate your expectations by the same amount.

Be Honest

Whatever tool you use, be it those listed above or the wealth of newer options such as TrueCar and its likes, honesty remains the best policy.

Remember, appraisal sites and apps are tools. They will not write you a check. There are no guarantees that you can expect an amount equal to their estimate, and their estimate is only as good as the information that you provide.

If you are asked to select between outstanding, clean, average, rough or damaged…be honest. For example, if your car is well lived-in, but in relatively good condition, opt for ‘average’ rather than ‘clean’. After all, better to have an estimate based on the minimum that you’re entitled to and use it as leverage than to be influenced by an unrealistic expectation.

Get a Second Opinion

And a third, and a fourth, and a fifth.

No, seriously. These resources may only provide estimates, but using multiple platforms will allow you to employ different criteria. By weighing the various results, you may reach a more accurate estimate of the vehicle’s ACV.

You can even employ other franchised dealerships, understanding that their estimates too are likely to be sight-unseen, based solely on the criteria you provide.

Automatic Deduction

We mentioned it before, but don’t forget dealer reconditioning and markup. That said, don’t be quick to assume that dealerships tack on huge markups to increase their margins. On average, the resale price is only $1,000 to $2,500 over the valuation. Factor in the reconditioning costs, and the likelihood of being haggled, and there’s less profit than you may have been led to believe. Understand this, and dealers become less “manipulative monster’ and more ‘simple business’.

Always Remember

You want to buy a car. Dealers want to sell you the car. If you can meet in the middle, based on a respectful understanding of each other’s process, there’s no reason why everyone can’t walk away a winner