How much should I sell my car for? You've undoubtedly heard that a new car loses half its value the moment you drive it off the lot. While this is a slight exaggeration, many would agree that a car is far from a good investment unless you're buying something classic or rare. So, does that mean you're out-of-luck if you're trying to profit? Not at all, but you have to do your research to get to the true market value of your vehicle.
Why Do Cars Depreciate?
A car you bought yesterday would hardly sell for the price you paid, simply because the term "used" has a major impact on perceived value. It might be in pristine condition, window sticker, new car smell, and all -- but that doesn't mean you can ask to make a profit. To understand depreciation, it's important to think about new car pricing.
New Car Pricing
Carmakers set the wholesale price based on the cost of making the vehicle plus a profit margin. Some of the factors that go into manufacturing costs are:
- Raw materials
- Facilities maintenance
- FICA tax
- Research and development
The Manufacturer Suggested Retail Price (MSRP) or “sticker price” is the presumed market value of a new car. A lot of dealerships will advertise discounts off the MSRP to bring in a higher volume of car sales.
Depreciation is the decline in value over the useful life of an asset. It’s well-known that a new car loses value the moment it’s sold. Just the fact that it’s no longer a “new” car causes its perceived value to drop by a few thousand dollars. Of course, some cars hold their value better than others.
Luxury brands depreciate more quickly than the average used car. For example, the Maserati Quattroporte loses more than 72% of its value in the first 5 years. A 7-series BMW loses 71.2%. Luxury car buyers tend to trade in for the latest model after a few years. Used car buyers don’t want to pay a premium price for an outdated car, so they lose market value very quickly.
Cars made for fleet sales usually depreciate quickly as well. The main reason is that they flood the used car market and there’s not a large demand for them. Also, fleet vehicles usually have high mileage when the owners sell.
Additionally, the automaker’s financial status can affect the value of their products. If the company is filing for bankruptcy, their cars are of lower value. Cars from companies in good financial shape, on the other hand, have a higher resale value. Meanwhile, a car model that hasn’t seen design updates in the last three years will rapidly decline in value.
If you own a classic car, of course, it's a whole different story!
Finding Your Car’s Value
Used car prices vary depending on several factors.
- The car model’s track record. Brands like Toyota and Honda hold their value well because they have a long-standing reputation as reliable cars. Buyers expect that they won’t have to put a lot of money into repairs and maintenance.
- Fuel prices. When fuel prices are high, gas guzzlers lose value because of the high cost of ownership. Fuel-efficient cars become more desirable and increase in market value.
- National and local employment rates. A large part of market pricing has to do with how many people can afford consumer goods. When employment rates are high, more people can afford to buy cars (and need them to get to work).
- Tax rates. When people have to give away a lot of their cash to federal, state, and local governments, they have less to spend on consumer goods. When tax rates are lower, people spend more.
- Economic outlook. When people are optimistic about their financial future, they tend to spend more.
- Insurance rates. High insurance rates mean a high cost of ownership. If it costs a lot to insure a car, people perceive its value to be less.
There are three tiers of market value.
- Wholesale Value. This is the trade-in price. It’s what dealers are willing to pay for your car.
- Retail Value. A dealer buys your car to sell it for a profit. This is what a buyer would pay for the car at a dealership.
- Private Sale Value. This is typically higher than the wholesale value, but less than dealer retail. Car shoppers who look to private sellers expect to receive a better deal than they would from a dealer.
Used Car Value Guides
These are some of the go-to resources for used car values.
- Kelley Blue Book. The Kelley Blue Book was first published in 1926 by Les Kelley, who owned the Kelley Kar Company in Los Angeles, California. The Blue Book gathers data from wholesale auctions, car dealers, automobile manufacturers, rental fleets, and other related sources.
- Consumer Reports is the trusted buyer’s guide for all kinds of consumer goods. It uses data from Black Book, which was previously only available to auto dealers. The car valuation tool compares the selling price for similar cars in your area from dealerships.
- NADAGuides. J.D. Power now owns the National Automobile Dealer Association (NADA). Car values are based on dealership pricing by location.
- Edmunds. The Edmunds tool collects pricing information of similar automobiles in your region to determine “true market value.”
How Much to Sell Your Car For
Using one or more of the used car value guides, you get an idea of what your car is worth. For the sake of simplicity, we’ll call this the Blue Book value, even though you may have used the other guides as well.
How you price your car is going to depend on:
- How quickly you want to sell. If you want to get rid of your old car quickly, price it lower than the Blue Book value. Be careful about reducing the price too much. It could make prospects think that it’s a clunker.
- What upgrades you’ve added. If you’ve had a better and newer sound system installed, that could increase the car's value.
- What it costs to sell. If you’ll be spending money on advertising, you want to price your car to recover those costs. Consider all the ways you can sell your car.
- The prices of similar used cars near you. Look at a few car-selling sites and search for your make and model. Limit the search to a 25-mile radius of your zip code. If it looks like cars are going for more than the Blue Book value, you can likely get a higher price as well. Remember, car shoppers look to private sellers to get a better price than at the dealership. Compare prices from other private sellers.
Expect to haggle with buyers. People go to private sellers because they’re looking to get a good deal. Price your car higher than what you expect to get, but not so high that it repels your prospects.
Tips to Boost Your Car’s Value
Get an inspection. With an inspection report, you show potential buyers that a professional did a deep-dive into the car’s condition. This should include a check for:
- Proper functioning of the car’s equipment
- Condition of brake pads and drums/rotors
- Hidden problems with the frame or body
- Engine and transmission issues
- Computer codes that reveal hidden mechanical or electrical problems
- Search for hidden rust, fluid leaks, burned out bulbs/fuses, etc.
Be sure to work with an ASE Certified tech. Certification means that the mechanic has the knowledge and experience to do quality work. When you advertise with PrivateAuto, you get access to a free inspection scheduling tool. It finds certified mechanics near you and you can make an appointment right from the app.
Detail inside and out. Get a professional wash, wax, and interior cleaning. Replace worn-out floor mats with new ones. The newer it looks, the higher the perceived value.
Replace worn tires. A passenger car’s tire should have a minimum tread depth of 2/32 of an inch (1.6 mm). However, the tires start to look old before that. What’s more, tires worn below 5/32 of an inch start losing the ability to perform on wet roads.
Get a vehicle history report. Your car’s past can affect its value. If you’re the first owner and your car hasn’t had any serious damage, you can prove that you’re offering great value for the money. For a complete picture of your car’s history, we recommend PrivateAuto's partner, AutoCheck. When you sign up for a premium listing on PrivateAuto, you get an AutoCheck report at no extra cost.
Conclusion/ Final Thoughts
When people buy something, the price they pay reflects how they perceive the item's value. People perceive the value of a used car based on how long they can expect it to serve as a reliable means of transportation.
Some car brands hold their resale value better than the average used car. This is because they have a long-standing reputation for reliability. On the other hand, luxury brands tend to depreciate quickly. People who buy new luxury cars usually prefer to have the latest model with the newest features. Since car buyers don’t want to pay a premium price for a car with outdated features, the market price takes a nosedive.
Potential buyers will perceive your car as more valuable if you can show proof that your car’s in good shape. An inspection report from a certified mechanic and a vehicle history report, such as an AutoCheck report, can help with that. So, when it’s time to sell your car, PrivateAuto makes it easy. With a safe and secure platform, selling your car is quick and stress-free.