Three Values Associated with Used-Vehicle Pricing
By Jeff Youngs, February 24, 2012
There are three values commonly associated with used-vehicle pricing:trade-in value, private party value, and retail value.
Trade-in value is a theoretical value, which indicates the best possible price a dealer will offer if the car is in top-notch condition. The lowest of the three common appraisals, "trade-in" value is accurate only for clean cars with high re-sell potential. Typically,a dealer will offer less than trade-in value to cover the costs to the dealer to sell the vehicle at auction or on the used car lot without losing money during the transaction. These costs to the dealer can include paperwork, transportation to auction, repair, reconditioning,vehicle certification, and other costs that the dealer must recoup when the car is wholesaled at auction or sold on the used car lot. While there are exceptions, most trade-in values are 20 percent less than private party values.
Private party value is the asking price commonly associated with sales between private citizens. These prices are lower than retail value because a private party does not recondition, service, repair or guarantee their vehicle before the sale. Private parties are also not burdened with facility overhead such as rent, insurance, utilities or employees. In most cases, the only warranty in effect will be any remaining balance of the original factory coverage, and only if it's transferable. Generally, there is no buyer recourse as private sales are final. Private party values are often mid-pack when compared to trade-in or retail values.
Retail value is the price established by professional licensed-automobile retailers. While the cost may be as much as 20 percent higher than private party values, the vehicles sold by the dealership have often been professionally reconditioned, detailed and cleaned, and repaired to bring them up to required standards (e.g., new tires and brakes). In many cases they will be offered with a limited mechanical warranty or as a factory certified vehicle with an extended warranty.
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