How to determine the trade value for your vehicle

For many, buying a new vehicle requires selling the old one at the same time. Selling your vehicle privately can be a long, painful process. It’s easy to be disappointed when dealing with prospective buyers who have their own agenda’s, don’t show up for their scheduled appointments and/or fall through at the last moment. In addition, the cost to insure an unused vehicle for test driving can take away from the money in your pocket when everything is said and done. For those looking for a quick and convenient route, trading in the vehicle is the only way to go.

So What is the Dealership Going to Give me for my Car?

A local and reputable dealership (like where I work!) will happily provide you with an accurate appraisal. I have been involved in hundreds of appraisals and facilitated the sale of many vehicles.

I will show you how the dealers arrive at the trade-in value and use a personal example from a sale last month.

The formula used for determining trade value is the following:

Trade Value = Retail Price (compared to like vehicles)
                           minus reconditioning cost
                          minus profit

I took in a 2010 Toyota Venza Limited with 108,000 km on trade and will use this as an example. Trade value can be found going through three steps:

1. Determining retail price

When I set out to find the retail value or a vehicle, I browse the listings of reputable dealers in the area and compare based on kilometers, option content, colors (interior and exterior), and if possible, get the Carproof report to check the accident  history.

I only use reputable dealers because they usually offer the most information online and have a standard of quality set by the manufacturer. Independent dealers and private sellers are not likely to offer complimentary safety inspections, warranties, and financing options.

As for the Toyota Venza, I figured the vehicle would retail for $20,000 compared to other Venza’s of the same year and trim. The vehicle had been in an an accident, which caused considerable front end damage ($12,000 in repairs). This meant that I had to reduce the price of the vehicle (in this case, by approximately $2,000) to compensate for it’s less-than-perfect history. Therefore, the new retail price was $18,000.

2. Reconditioning Cost

Reconditioning cost is the amount of money it takes to restore the car to a nearly-new or new condition.

In order to ask the retail price for a vehicle, it has to look good and drive without defect. It can’t have any exterior or interior damage, or have components of the vehicle that are low and in need of attention (brakes, tires, filters, fluids).  Other costs like advertising, fuel, and insurance are added and many dealers put a flat fee averaging $350.

During the comprehensive inspection of the Venza, the technician noted the following safety concerns:

  • Alignment – $100
  • 4 tires (only 20% on current tires) – $285 each and $80 to install
  • Front rotors need to be machined for smooth braking – $90
  • Brake sensor – $400 including install
  • Cleaning of interior and exterior – $100
  • Fuel, Insurance, Advertising – $350
  • Rear scrape on quarter panel by the back door – $350
    Total Reconditioning $2610

3. The Market

Every business needs to generate a profit. The amount is primarily determined by how quick the car is expected to sell. A new computer program, called Vauto, shows dealers current inventories of a specific vehicle and how many were sold over the last 45 days. If the market is flooded with a certain vehicle that doesn’t sell fast, the profit amount has to be higher initially in the event it takes multiple months for the dealer to sell and the price has to drop to reflect the changing market. If the vehicle is a hot seller and there are not many around, the profit amount can be lower as the dealer is anticipating a less risky, quicker return on investment. Simply put, it’s a game of supply and demand.

In the Venza example, there are 26 other Venza’s for sale and one sells every 3-4 days. These statistics indicate that this vehicle is likely to take up to 85 days to sell. The thing that not everyone realizes is that the original asking price might only be posted for 30 days, at which time a dealership is likely to re-evaluate and potentially lower the price (and possibly again at 60 or even, dare I say, 90 or 120 days). This price reduction (usually $500-$1,000) comes out of the dealer’s profit. Because of the ever-changing market, dealers take all the risk, and sometimes even lose money.

Dealerships actually profit only between 5-15% on average. To allow for price adjustments, negotiations, and other unforeseen costs, it is necessary for dealerships to include, on average, a 15-25% profit when calculating the trade value.

 

Summary

Using the formula above for this Venza, this is how the trade value was determined.

Trade value = Adjusted Retail Price: $18,000
                             -Reconditioning: $2610
                             -Profit: $3000 (17%)_______
= $12,390

 

WHY sell to the dealer?

No matter if you are a savvy vehicle enthusiast, or a professional dealership, it is going to take WORK to sell your vehicle. (Even the Sham-WOW guy works hard to sell.) It is a lot of work, money, and time to get a car’s true dollar value. Selling a vehicle involves advertising, meeting up with potential clients, test drives, and negotiations. A seller also incurs the expenses of the insurance and gas while listing a vehicle.

In the case of this Venza, it made sense for the owner to sell to the dealer. To play out this scenario, in order for the owner to have sold the vehicle by himself to get it’s ideal price, he would have had to invest the $2610 to bring it to top condition. Then assume they negotiated with the new buyer and took a selling price of $17,000. This would lead to a net sale of $14,390.

Here is what many people don’t know. When buying a vehicle and selling your old back to the dealer, tax is calculated only on the amount of money exchanged. So, the value for the old car is a tax reduction on the new car and saves you the tax on that amount (12% in BC) . So to find the net value of the Venza, we multiply the trade value by 12%. ( $12,390 x 1.12 = $13,876.80).

Finally we see the net difference between selling privately and trading in is only $513.20. For peace of mind, safety, and pure convenience, who wouldn’t want to have someone sell their car for them and take all the hassle away? You can get on to the important things in your life and not spend it meeting up with strangers, giving out your phone number, re-submitting advert after advert, and swapping the insurances. At Marv Jones Honda, I take good care of all the details for you and provide fair trade values with excellent customer service!

If you want to find out what your car is worth on trade, shoot me a message. Be glad to help.

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