Thanks to virtual showrooms, CarFax reports, and online dealerships like Carvana and CarMax, car sales are easier than ever. Some buyers still prefer to visit an actual dealership first and get an up-close view of the car. However, even a thorough inspection or test drive can’t alert you to every issue.
According to Edmunds, pricing is also an important factor when buying a new car. Dealers don’t have to adhere to a model’s MSRP, so finding a good deal can be frustrating. Fortunately, websites like Kelley Blue Book also have calculators to determine the fair market value of your potential new car.
Financial hurdles when buying a car
When it comes to used cars, buyers are often confused when dealers throw around terms like “invoice price” and “MSRP.” It’s hard to know if the dealer is offering you a good bargain when you’re presented with seemingly meaningless charges. One solution is that buyers can still negotiate the price of a new or used vehicle within a certain margin.
However, the recent inventory and chip shortages have made negotiating difficult as used car prices skyrocket. According to CNBC, the cost of used cars has spiked by 21% compared to last year. The price of new cars has only risen by an estimated 4.9%.
What is fair market value?
Edmunds describes fair market value, or “true market value,” as the average price other drivers have paid for a car. Other factors can also determine a vehicle’s fair market value, like supply and demand or optional features. Additionally, a vehicle’s fair market value doesn’t include extra fees like local taxes.
A popular model’s fair market value will likely be closer to the car’s actual sticker price, also known as the MSRP. Auto dealerships might also charge more than the MSRP if the vehicle’s inventory is limited in your area. Vehicles that come with more options are also typically more expensive. However, knowing a car’s market value takes some legwork from the purchasing process for less picky customers.
Meanwhile, less popular or older vehicles might skew closer to the invoice price, which is the price paid by the dealership to the manufacturer. However, some dealerships won’t directly disclose this number since it could influence the buyer’s negotiations. It’s also difficult to determine an invoice price with a glance at paperwork since it’s a culmination of several technical costs.
It Still Runs advises users to determine the true market value of a car themselves with online tools. For used vehicles, Edmunds and KBB have calculators that factor in the average amount paid by other buyers in your ZIP code. Elsewhere, the calculator on NADAGuides won’t give you an exact fair market value but will provide a flexible price range.
You can also browse online listings yourself and see how competing dealerships are pricing your desired car. Don’t be afraid if the vehicle you want is slightly out of your price range. In some cases, dealers mark up their inventory online to attract serious buyers and don’t mind additional negotiations.
Why is market value so important?
Fair market value gives you a good leverage point and a better chance at getting the car you want. Less experienced shoppers are likely to take the dealer’s word at face value when buying a car. You can avoid a bad deal and even get exceptional savings with just a little research. Under the right circumstances, you might even walk out merely paying the car’s invoice fee.
Determining a car’s fair market value also assures that you get properly compensated from a trade-in. Some cars become more valuable after their production run if they have certain features, packages, or colors. Demand can also spike for a vehicle if it’s suddenly discontinued, especially for beloved models like the Chevy Impala.