Pricing - ughhhhh. What is my car worth?
Whether you are buying or selling a car, privately or from a dealer, understanding a vehicle's value is a vital element in the buying or selling process.
If you're a buyer and you get it wrong, you will either pay too much, or never find a car. If you're a seller and you get it wrong, you will either sell your car for too little, or not sell it at all: whichever way you look at it, being on the money is key.
But with the number of cars on the market, this can be a daunting process. How do dealers do it?
Step 1: Plug it into Trade Me (or similar)
The first thing most dealers do when pricing a used car is to enter the details of vehicle they are trying to price, into Trade Me.
In doing this, it's important you enter as much information as possible so that you are comparing apples with apples.
This means you need to enter, at the very least, the make, model and year in the search box. You may then need to also include the following details:
Whether it is 4WD (see note below)
Transmission (if you have a preference - but note when you're comparing prices, manual vehicles are usually slightly cheaper than automatics)
Model detail (e.g. when pricing a Toyota RAV4, it's a good idea to use the 'keywords' field to add the model detail / variant, i.e. Limited, GXL, GX etc)
Number of seats
A couple of notes:
Engine size: Often models will come in two different engine sizes (e.g. Toyota RAV4 comes in a 2.0L and a 2.5L engine) - however, it is not easy to filter by engine size using the Trade Me search function. This is because the Trade Me listing tool uses the full CC rating, while the search function uses the 'litreage' and only has 1.5, 2.0, 2.5, 3.0L options. The CC rating doesn't always equate exactly to these numeric intervals. For example, many 2.0L vehicles have a CC rating of 1998 or 1995CC. Many 2.5L vehicles are 2497CC or similar. So if you want to see all cars above 2.5L, and you use the search function to filter for this engine size, you may actually filter out all of those cars that have been listed with their correct CC rating of 2497 - because it is below 2500 / 2.5L. For this reason we don't recommend using the engine size field in the Trade Me search tool - but to be mindful of engine size when looking at results. Don't compare your 2.0L car to a 2.5L car and vice versa.
2WD / 4WD: Currently the Trade Me search tool doesn't allow you to filter out 4WDs. You can filter out 2WDs, so you are only lining up 4WDs against other 4WDs. But if you are looking at a 2WD vehicle and enter its details using the search function, your results will include 4WD vehicles. It's important to be aware of this because 4WD vehicles will usually be worth more than the equivalent 2WD vehicle.
Mileage: While you will want to compare your car to vehicles with similar mileage, we do not recommend filtering by mileage at this initial stage. This is because seeing vehicles at lower and higher mileages can be helpful to show you the full price range, and also what you are competing with at different mileages. Sometimes there can be lower mileage cars priced under the market - it is good to be aware of these. But see next step - mileage is a helpful sorting tool.
Step 2: Sort by mileage
Once you have hit "search" and got your list of results you are comparing with, it is helpful to sort the results. We like to sort by mileage so you can see exactly where your car sits (if you are a buyer) or how the car you are looking at lines up against cars with similar mileage.
You can also sort by price - getting close to the lowest price in a category can be a helpful sales tool.
Step 3: Analyse
Now it's up to you - you have all the information, now you need to make an assessment of price based on that information. Try and find the most similar cars to yours or the one you are trying to price and this will give you a good idea of the range of prices for that car.
We recommend preferring dealer prices when pricing your car over similar privately listed vehicles. This is because dealers know the market and price accordingly. Also, dealer prices should generally be higher than prices for the equivalent privately listed car (see below).
Sometimes when your search does not return a lot of results, it can be helpful to expand your search to one or two years above and below the car you are looking at. Just be careful to ensure there was not a model change in these years, or if there was, be aware of this and exclude newer or older models / shapes when comparing. Note that sometimes model updates will involve something minor like a change in engine size, or a minor cosmetic update ("Facelift") - so be careful to note these differences - they do affect price.
Should there be a difference between the private sale price and the dealer price?
The $1, 2, 3,000 question...
Is there, should there be, and what is the difference between the private sale price and the dealer price?
Looking on Trade Me, it does not appear that there is a great difference between the two, in most cases, private sellers do tend to list their cars very close to the dealer price for the same vehicle (and in many cases, higher!).
But look at it from the buyer's perspective. If you are choosing between two nearly identical cars, one from a dealer and one from a private seller - which would you choose? Dealers offer the following to buyers:
Consumer Guarantees Act / Fair Trading Act coverage which means - guaranteed clear title, the car has to be of acceptable quality, fit for purpose and as described.
Convenience in terms of viewing - in most cases, you can turn up to the yard any day of the week, and the car will be ready to test drive.
Additional services - dealers will generally be able to arrange finance, all the paperwork, warranties, provide a vehicle check, insurance, servicing etc.
Trade in - if you have another car to sell, buying from a dealer can be handy as they will usually accept your old car as a trade in.
Information - while it can be perceived as a 'hard sell', sales consultants are generally knowledgeable about the cars they are selling and will be able to tell you or find out the history of the vehicle, as well as the benefits of this car vs similar models.
Buying privately, buyers have no consumer protection so are really taking a significant risk - they have little or no comeback if something goes wrong.
And on top of what buyers get, it is important to note the costs that dealers incur getting a vehicle ready for sale:
Change of ownership ($10)
New WOF ($40) (all cars sold by a dealer need to have a new WOF)
Paint and panel (dealers generally have paint chips / dents / scratches touched up before sale ($700 on average)
So dealers generally spend around $1150 just to get a car ready for sale. This doesn't take into account other costs like dealership rent, salaries, financing costs, the risk of market prices dropping and the risk of something going wrong with the car down the track, and a profit margin. In addition, many buyers negotiate a discount from the sale price so the dealer 'list price' is often $500 - $1000 higher than the final sale price.
Taking these things into account, we believe it is reasonable to expect a pretty good saving to choose to buy privately if there are similar dealer cars available. If you look at the dealers' costs and the discount worked into list prices, you would expect this saving to start around $1000-$2000.
As a seller, it will depend on the car (unusual or very popular vehicles may be able to sustain higher relative prices) and how quickly you want to sell as to how much below the dealer price you decide to list for. We recommend starting $1000-$2000 below the dealer price initially but if there is no interest, be prepared to meet the market and be realistic about the value difference.
As a buyer, if you are considering buying privately, make sure you do your homework and really check the car out carefully. Also, be prepared when negotiating - have the dealer prices written down and what you believe the difference should be when discussing with the seller.
But what about Tootsweet?
Exactly - if you've had a look around our website you will know that Tootsweet aims to help private sellers bridge the gap between dealer listings and their listing by offering all the same services a dealer offers, to people buying privately: Low rate finance (lower than many dealers), mechanical warranties (affording similar protection to the Consumer Guarantees Act, for an extended period), trade-in, vehicle checks, inspections and more.
Having these services available means that buyers may be more willing to pay closer to the dealer price - because they are accessing all the same services anyway.
Should I just trade in?
Watch this space for a new post soon about trade in values and using Tootsweet's service where dealers make offers for your car. But in short, selling to a dealer can be a good option if you can't achieve the dealer price when you sell your car. If you accept that you are going to have to sell for $2000+ below the dealer price to sell privately, the wholesale price may not seem so bad. More soon!