The Basics of Used Car Values
What is a used value?
Most commentators would say that the used value of a car is the price that someone is prepared to pay for it.
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I believe a better definition would be the price that at least two people are prepared to pay for it. This is effectively the principle of a car auction where the winning bid is say £5,000, but two bidders are prepared to pay £4,900. So although someone pays £5,000 for it, the true value is £4,900.
What does a used value mean to different people?
One of the most common questions I get asked is “what’s my car worth?” The answer is far more complex than most people realise. For a start there are many different pricing levels:
1) Trade value (as used by the motor industry or trade). This is the true CASH value of a car in clean condition when bought as a single unit. In other words it is the price that a car wholesaler would pay in cash today.
2) Part exchange value. This is the price offered for your car when purchasing a new one. This is often thought to be the same as a trade value but is actually quite different and takes into account any part exchange over-allowance built into the retail deal. It is effectively one part of a two-way transaction. The car should be in a clean condition with a service history.
3) Private sale value (direct sale to next owner). This is generally higher than a trade value, but usually lower than a retail value. It isn’t a true market value, more of an agreed price between two non-trade parties. This is the value for a car in clean condition with no serious faults. It will have a service history and at least six months’ MOT.
4) Retail value (as used by the motor industry). This is NOT a forecourt value or sticker price. It is usually defined as the net retail value after allowing for any part exchange over-allowance. It is a key value used by professionals, historically called top book. This is the value for a car in top-notch retail condition with a full service history and a full MOT.
5) Forecourt value (the screen sticker price at a dealer). This is the advertised price of the vehicle at a dealer. It is usu-ally made up of three parts:
• a provision for a part exchange over-allowance,
• the trade value,
• a sales markup or dealer’s gross profit margin.
This is the value for a car in top-notch retail condition with full service history and a full MOT.
6) Advertised sale price (e.g. on the internet or in a newspaper). This is not generally a true indication of what a used car is worth. It’s purely an asking price. The final transaction value may end up being far lower. This is the value for a car in top-notch retail condition with full service history and a full MOT.
7) Auction value is the average cash price you would expect to pay at an auction. This is similar to the trade price. The car should be in clean condition.
*Buying tip – don’t confuse a trade price with a part exchange price.
Mileage and condition
All values should be adjusted for mileage. Average mileage is usually between 10,000 and 12,000 miles per annum. The best rule of thumb is to deduct or add 0.5 per cent of the value per 1,000 miles, depending whether the mileage is higher or lower than average.
All value types are described for cars in clean condition. A clean car is easy to move on and simple to retail. Cars in average or below average condition are a different matter. In simple terms you deduct the cost of bringing the car up to a clean standard. This might be just a good valet, but could also include smart repairs, re-sprays, new tyres, mechanical fixes and a new MOT.
Buying tip – never buy a car that stinks of tobacco.
Some cars have been abused to such an extent that they can never be brought back to clean condition, in particular cars that have been smoked in. I once bought a part exchange estate car from a dealer in Hull without looking inside it. It turned out it had been used as the principal transport of a fishmonger. When I put it into an auction the drivers refused to drive it. A simple mistake cost me £1,000, but I’ve never made the same mistake since!