How do I tell what a used car is worth?
Of course, condition, kilometres driven and seller motivation all impacts on final value of any used car ... no matter how carefully driven
QUESTION
Hi John, You have referred to using Redbook for used car values in a few of your articles. I have long since been used Redbook as a guide to what a car is worth, and its very easy to calculate where the price falls on a sliding scale against the kilometres on the odometer. I realise its not the be all and end all but it is a starting point.
I have been looking at some used cars for a while now, and seems like everytime I mention values with car salesman, they all say the don't regard Redbook as a guide at all: "only insurance companies use the Redbook to calculate payouts". The guy who said that is a buyer, and he said because he buys 100 cars a week, so he just knows what is selling and how much for.
Another car broker friend of mine - who is not in the business of ripping off his customers, said that he calculates prospective maximum bid values at auctions from his experience and he discusses with colleagues, and he also doesn't use Redbook at all.
I do remember before we invented the internet, that a car dealer friend told me that Redbook, which really was a little red book as you would know, was the source of determining trade in and resale values, and he actually carried it in his pocket.
It seems to me that some people in the car resale business don't want Joe Public using Redbook, when in fact, it is, as far as I know a reliable source of average prices in Australia, and therefore, Joe Public should definitely be using it. What do you think? - Mark
ANSWER
Mark, a couple of key points:
POINT 1 - USED CAR PRICE ESTIMATION
First: everyone needs a ballpark estimate of the likely selling price of the car they are either about to sell or about to buy. If you don't use a resource like Redbook, you're basically limited to trawling the classifieds and seeing how you go. The problems with that, of course, are that you can't search precisely in the classifieds by make, model and (importantly) variant, and then you have to get a gut feel for the average price for 'your' target car - which might take hours. And also, these are the asking price, which (unless the seller is a moron) have fat built in for negotiation.
When you go to Redbook, you get a good ballpark estimate in a matter of seconds, for free, with just a few clicks, so there is a huge convenience and time-effectiveness factor to consider.
POINT 2 - USED CAR NEGOTIATION BASICS
Second, I'd be looking at the motivation of the salesman telling you (effectively) that Redbook is at best useless and at worst a joke or irrelevant. If you go into a negotiation with what you consider to be evidence that a particular car is worth a particular amount, then a principal objective of the other party is to repudiate the validity of your evidence.
Frankly, if Redbook were a resource only for insurance companies, it would not be publicly available.
I'd suggest Redbook prices are typically a little optimistic, but they are an excellent way for a consumer to get a good feel for the price of any car quickly, but that consumer should also acknowledge that there is some flexibility in that price, because at the end of the day all prices are a negotiation between a buyer and a seller, and therefore depend on the relative motivation of both parties to the transaction.
If you're looking at a demonstrator read my report on buying a dealer demonstrator >>
Supply and demand is a huge factor as well. For example the recent Volkswagen diesel scandal >> means used diesel Volkswagens are on the nose right now - good (I guess) for buyers, but bad for sellers.
Professional buyers do generally have a good feel for the value of particular cars, at auctions or on the showroom floor - but even they use some reference guides to pricing, because even if you are buying 100 cars a week, that's still not a very large relative sample of the market of used cars on sale at any particular time. (Most days there are about 500,000 used cars on sale in Australia, if online classifieds are any indication.)
Learn more about the warranty on a used car >>
I'd suggest buyers should use Redbook (or similar) for ballpark pricing, but not use it as evidence in negotiation. The only thing that matters in negotiation is the highest price you are prepared to offer (as a buyer) or the lowest price you are prepared to accept (as a seller). Everything else is just conversational fluff.
Read my report on the top 20 ways to beat a car dealer >> (Many of the tips there are certainly of assistance in buying a used car.)
