NADA Used Car Prices, Edmunds Used Car Prices, and Kelly Blue Book Used Car Prices - Who's Right?

To illustrate the discrepancies, here's an everyday example: NADA may retail a 2003 SAAB 9-5 Linear at $15,996, Kelly Blue Book prices it at $17,456, and Edmunds prices it at $14,800. These are all retail values, assuming excellent or clean condition. $17,456 minus $14,800 is a $2,656 difference. That's a huge price difference in the highly competitive used car market. This is not an argument to protect used car dealers. Rather, this is a warning for the used car buyer when he or she is surfing the web for used car prices.

The retail values placed on many vehicles by these web sites can have even larger price differences - some as high as $4000 to $8000 dollars. These gigantic price fluctuations can leave a used car buyer spending $1000's extra, depending on which guide he or she used. Moreover, private party and trade-in sale prices do not accurately account for vehicle condition.

Vehicle condition is a critical variable. An owner might think his trade-in is in stunning condition and thus worth X, based on his Internet research. An expert may know it needs $1000's in repairs and reconditioning costs.

The answer to "whose prices are right" is that none of the big three web sites reflect used car prices accurately. Most often, the prices are too high on the retail side, questionable on the trade-in side, and confusing on the private side.

So what or who is the real authority? The answer is the Market! The market (i.e., the folks grinding it out everyday in the used car market place - sellers and buyers) reflect true market value. Web sites are guides only. Thus the used car prices from these sources need to be measured against the reality of the market.

Here's a scenario to illustrate the importance the market plays on used car values. In the Northeast, the banks rely on NADA, used car dealers prefer to use Kelly Blue Book, and used car buyers are turning more and more to Edmunds. Now the dealer of course wants to use the inflated Kelly Blue Book value. The buyer wants an unrealistic Edmunds price, and the bank wants to use an under-valued NADA price. In other words, the three primary people in the car buying process - the buyer, the seller, and the lender, are all on different pages. Each player wants the most advantageous price based on the part he or she is playing. The market is the only element that evens the playing field. The point here is to demonstrate that the market is the true source to determine a REAL and FAIR used car value.

In order to get a fair price, according to the market, a used car buyer should aim for the middle. Avoid the highest prices and be realistic and flexible about the lowest. Stay somewhere in the middle to get a fair deal.

If you want a great deal, follow the market closely. If buying from a retailer, eBay and auction prices don't count, as these are wholesale venues. Check out Cars.com, AutoTrader.com, and some of the other Used Car Sources. See what the vehicle you want (including miles, equipment and accessories) is being advertised for. Again, shoot for the middle!

Use the popular Internet resources, but don't follow these GUIDES blindly. You may actually pay significantly more than market value.

Having said all this, this doesn't mean that used car dealers are going to stop trying to low ball trade-in offers. And of course every dealer wants to sell its vehicles for a maximum. But remember, the same goes for car owners, but in reverse. They want the highest price for a trade and the lowest retail price on a vehicle.

When using Internet sources to determine a used car value, be sure to enter the correct information. This may sound elementary, but option packages, models, miles, color, equipment, engine, transmission, gear ratios...etc, can be confusing. Yet these are important variables that will affect prices dramatically. In short, the wrong information skews the numbers.

Finally, what really needs to be highlighted with NADA, Edmunds, and Kelly, as well as other Internet sources, is that they are GUIDES. They are excellent resources for vehicle information, but weak resources for prices. This is not to bad mouth any of these sites - they are great starting points. Remember, however, that these guides may or may not be in the car buyer's favor. Fair used cars prices are dictated by the market. Yes, do your research on the Net, but don't cling to it. Use the Internet only to find the used car market's middle ground.

What You Need to Know About Used Car Pricing

When it comes to putting a selling price on the car, the dealer has to begin by determining his out-of-pocket costs.

● First there is the price he paid to acquire the car. He might have taken it in trade against a new car - which means that he accepted the car in lieu of cash - or he might have purchased it from a private seller, a wholesaler or bought it at auction.

● Second, he will add what it has cost him to repair and recondition the car.
This might include body work, new parts and detailing.

● Third, if he is a good business man, he’ll factor in such items as loan interest, the commission he’ll have to pay the salesman, insurance and other operating overhead expenses.

With his current and projected costs in hand, he will then decide how much mark-up to include in the selling price. The amount of the mark-up reflects the condition of the car, the make, model, mileage, options and, most important, the market demand. Many dealers will also include a "negotiation pad" in their mark-ups. They recognize that most people won't buy a car - new or used - unless they feel they’re getting a deal and buying it for less than the advertised price. So a dealer will build in a large enough cushion to give the buyer a discount and still end up with whatever he considers to be a reasonable, or maybe even a more than reasonable, profit.

How Much Will A Dealer Negotiate?

Assuming that the car is not a hot, one-of-kind model in high demand, there’s usually plenty of room for negotiation. If the car has been on the lot more than a couple of months and demand for the make or model is low, he may be willing to sell it well below his asking price. However, there is a price beyond which he will not go. That price is what he knows - based on market reports - that similar cars are selling for at auction. A dealer never wants to have more cost in a used car than he knows he can recover should he have to sell it at auction. That’s why trade-in quotes are always made with an eye on the current auction prices. That’s also why many trade-in quotes are below the going auction (or wholesale) prices. Dealers are always looking to buy low and sell high.

The Number You Really Need to Know

Clearly, in planning your negotiation strategy, your objective is to discover what cars like the one you’re considering are bringing at auction. It’s the auction results that, in large measure, set the wholesale price of a used car. If you take the wholesale number, add - at the very most - $1000 additional dealer costs and then subtract it from the asking price, you have a pretty good idea of the dealer’s mark-up. From there, you can decide how much profit you’re prepared to let the dealer make on the sale. (Oh, how dealers hate it when the customer decides to determine the profit on a car.)

Some Real World Examples of Used Car Pricing

Recently we saw a GM car that had been purchased by the dealer at auction for $8,500. After spending $400 for repairs and reconditioning, he put it on the lot at $13,995. That's a markup over his cost of nearly 60 percent. A buyer negotiated the price down to $12,400. The customer felt he'd made a good deal and the dealer, with $3500 profit in his pocket, said nothing to disabuse him of that notion.

Another example: A sales manager dealing with a totally uninformed customer gave him $22,900 for his late model, luxury sedan trade-in. The actual wholesale value of the trade - per the auction reports - was approximately $27,550. Two weeks later the trade-in, all shiny and clean, was on the dealer’s used car (excuse me, preowned) lot with an asking price of $34,995. Now you know why the used car lot - along with the service department - is where dealers make most of their profit. (It certainly isn’t in the new car end of the business. But that’s a subject for another article.)

How to Determine the "Wholesale" Price

Now you understand why knowing the current wholesale value of a used car – whether buying or trading-in - is one of the most important pieces of information you can have. One source of this information is the car loan department of your bank. They will usually have all the latest price books and possibly even auction reports that show what various makes are bringing on the auction market.

Used Car Price - How is it Determined?

Used car price can't be based on science 

It is commonly known that even a brand new car's value will start to depreciate rapidly as soon as it's taken out of the dealer's car lot - sometime as much as 20% of MSRP price tag. And then it will be considered as one of those many found at used car lots. Once it becomes a used car, then the actual value will be based on a number of factors. Usually brand name and model, mileage driven, year built, options, accident history, overall condition (exterior and interior) will be deciding factors when it comes to evaluate the value. 

So how is price set? 

There are no rules or regulations on who should determine the value of used cars. The price tag is only suggested number therefore no one should conform to any preset value. However there is a price guide provided by the companies such as Edmunds, Kelley's Blue Book and NADA Guides. Those companies have well established history of used car value estimates based on the data out of final sales price at the auction and dealer's transaction records. But again, those numbers are statistics and accumulation of what was put towards particular car model of chosen year built, plus many other deciding factors. 

We can always find that those estimated values are all different between those companies for the exact same used car, and begin to wonder which one is right and more accurate. If you are a buyer you would want less price tag for the same condition, and if as a seller you would want the most value out of it. Since these values are just educated and tested data in the past, no price tag is either right or more accurate. Another words, there are no rocket science on the price determination process or definitive court order to follow. 

In short, used car values are determined by how much the buyer is willing to pay. If any particular car manufacturer and model has a good reputation and popularity among consumers, then the buyer will definitely pay more to get one. For example, there were times when a large size SUV was so popular and has been dream car to each mid-size family. But since the high gas price is becoming an issue, the value started to decrease as more people began to avoid and tend to depend on fuel efficient hybrid, small car. 

Therefore, the trend keeps changing due to other economic factors - the gas price in this case, and you can never tell what the right and accurate used car value would be for the next few years to come. 

If you are considering purchasing a used car, then you would want to visit Used Car Dealers and get a consultation, as they already have dealt with many transactions and records of sales in the past.