Used Car Pricing: The Insanity Of Used Car Prices!

by : Theodore Olson

Used car prices are elusive, despite numerous attempts to harness them. We've all heard of Retail, Private Party and Trade-in values. But do these "help" in determining a vehicle's real value? When we turn to the web for prices, it gets even more elusive. One web site places a retail value on a car at $18,000. Another puts it at $21,000. What should we believe?

If sellers are looking to get the highest price for the car they're selling, and the buyer wants to get the best deal possible, is there such thing as a fair used car price for both parties?

The answer is yes, but both parties have to be on the same page.

We'll call this "page" Fair Market Value.

That being said, how do we interpret the market to determine fair market value? Since most sellers and buyers are going to try to interpret the market to his or her advantage, let's even the playing field.

One of the most profound remarks I've heard to establish a better playing field for used car pricing comes from industry expert and owner of Medway Imports, Barry Roth. He states:

"To find market value, you need to take all the pricing data you find for a particular vehicle and throw out the high and low prices. What's left in the middle is where you'll find a fair market value."

While this doesn't address the used car pricing problem entirely, it does remove the unrealistic numbers that many clutch to like the drowning to a life preserver. It moves folks to more reasonable prices according to the market.

A lot of time is spent on popular web sites (for better or worse) to "help" determine used car pricing. But one should also follow and watch the market to see what cars are being advertised and sold for-if they're being sold at all.

Used car prices are also determined via auction pricing, and industry used car guides such as Black Book and the NADA Official Used Car Guide.

Importantly, even these books don't settle the used car pricing debate. Here's a publisher's note on the inside cover of the latest NADA guide.

It states:

The vehicle values in the N.A.D.A OFFICIAL USED CAR GUIDE,® are developed by N.A.D.A's editors based on many sources of information. These include reports of actual transactions throughout each area for which the guide is published.

The values in this guide assume a vehicle is clean. Appropriate deductions should be made for reconditioning costs incurred to put the vehicle in a salable condition. An exceptionally clean vehicle or one that bears a guarantee, warranty, or manufacturer certification should bring a premium price.

Please read your guide carefully when determining the value of optional equipment. N.A.D.A.'s editors believe that most optional equipment has little or no value on older cars. This is especially true of options that cost relatively little when new and which deteriorate with age or use. Only the more popular vehicle options are listed in the guide. Unless otherwise stated, all vehicles are assumed to be equipped with automatic transmission, air conditioning, compact disc player (and/or AM/FM stereo cassette,) power steering, rear window defroster, and tilt steering wheel. For other standard options, please review each vehicle's listing.

As you can see, even the most respected used car pricing guide "assumes" quite a bit, leaning heavily on the "opinions" of its editors to determine "appropriate deductions" and thus the ultimate value of a particular car.

So where does this leave car buyers and car sellers? After both parties throw out the high and low prices, it leaves them in the middle of the market. This is where they'll each get a fair shake(assuming vehicles are "clean"). Finding and picking a good or "clean" car is another story.