People often come to us with questions about pricing from 3rd party sites. You know what we are talking about: car information sites that give out information about both new and used cars for sale, reviews, model and trim level details, and road tests. They also make used car pricing determinations based on the generic information they have. We are talking about sites like CarGurus®, Edmunds®, Kelley Blue Book ®, NADA®, and Cars.com®. There is no doubt these sites can be a great resource because they often do have car reviews and real life test reports, user experiences and car ratings, and pricing data, or recommended pricing, on used cars and new cars for both trade ins, private party sales, and dealership sales. However the one thing these sites are missing is that they don’t actually sell cars. Sites such as these get their used car pricing information from various sources. Some use information cars for sale that are currently listed for sale online, and some from cars that have actually sold using recent data and reporting. Some use the pricing data from auctions and some using reported sale prices from the state registrations. Once all that information is gathered there has to be some sort of adjustment made to figure out the sale price from the wholesale price, the trade in price, and auction value. After that, don’t forget about the different trim levels of the car, plus the cars actual condition which can vary greatly from one car to the next and therefore affect the value. With that in mind, we start to uncover the problem and disdain most auto dealers have with these 3rd party car sites. As we have already stated; they don’t actually sell cars. They don’t have parking lots full of inventory. They have not actually seen the car that is for sale, nor sat in it, touched it, and driven it. All they have is the generic information about the cars they are reporting on. Hence, the information they provide, and the pricing history, is not always applicable when determining the fair price on a different used car even though it might be the same year, make, and model. What really matters to a car dealership that is actually selling the car, is how much did the car cost them to get it, how much overhead and bills do they have to pay in order to make the car ready for sale and keep up the dealership, the building, and pay the sales people. The information that 3rd party sites provide can sometimes be helpful, but it doesn’t necessarily apply to every car and every car sale.
In addition to the obvious differences that can exist from one car to the next, think about how challenging it can be to determine what a fair price for a car is without being able to physically look at the car itself. Add to that the different information 3rd party car sites used in arriving at what they consider to be a fair price. Did one site take actual sales prices in your area? Or did another site take wholesale auction costs and then estimate a retail price from there?
While don’t work for, nor are we affiliated with, any of the 3rd party car information sites, there is some conflicting information and assumptions made about how they operate. We urge you to do the research for yourself. It is our understanding that Kelly Blue Book (KBB®) uses asking price from the best cars from used car dealerships, based on year, make, and model, as their base input; as their starting point. From there they then reduce that number by some computed method to determine the private party sale value for the used car. We assume this to mean they use an average baseline of vehicle costs and necessary operating costs based on information from several dealerships, and this may or may not apply to the dealership you are dealing with. So that means it’s possible their prices may be high, or even too low, on both retail price and private party used car pricing.
Edmunds® is another car site people reference when researching their next used car. Edmunds® states that they use actual sale prices from the state’s registration records. So, ALL car sales are included. Cars in average condition, cars in great condition, and used cars sold for with reconstructed or salvage titles can be included. This means that even if used car sales price shows it was really low because the dealership sold a car to the brother of the owner, or because the car was in such a bad accident that it was “totaled” so the price is super low, that sales price is factored in to their averages on what a fair price is for the used car you are looking at. So all cars sold to friends and family and all wrecked cars may skew the figures. In that way, it’s possible for Edmunds® to show what they consider to be a fair price but in reality it is biased on the low side.
What about NADA®? Lots of people reference the NADA® when looking at the prices of used cars for sale. We understand that it would be an understandable thing to do because after all, what does NADA stand for? The National Automobile Dealers Association. It is only natural for you to assume and expect them to have some fairly accurate pricing information about automobiles. It is our understanding that the NADA® uses the actual sales price and actual trade-in prices from what the dealerships are reporting. In a way this makes their pricing data a bit more fair and legitimate though it still may include those “super” deals to friends and family. This is the reason that banks and credit unions sometimes use NADA® car values when making loan decisions. However your bank or your credit agency may still offer only the “auction” value of the car because this is what they can get for the car at auction if you stop paying the bill and they have no other recourse but to repossess the car and sell it in an attempt to recover their money. This is why often times the bank or credit union will only loan an amount that is less than the retail asking price. It doesn’t mean the retail price the dealer is selling the car for is too high.
This difference between wholesale auction value and retail selling price can be several thousand dollars. “Wow, that’s a lot of money!” is what most people would immediately think. But most people have no idea of how much money, how much it costs, to actually run a business and a used car dealership. Just the payroll for the employees can be over $100,000 a month. The rent for the building and lot can be $10,000 a month. The costs to fix the cars before selling them can be anywhere from $100 to $4,000 for each car, and that is in addition to the vehicle cost (what the dealer had to pay in order to buy the car from auction or person that traded it in). Usually if you go to a car dealership showing what the NADA price should be for the car you are looking at, the dealership will explain why that price may be invalid. It doesn’t account for each car, for the variation in expenses each car and car dealership has, for the uniqueness, rarity, or condition of the car, any refurbishing, cleaning, and repairs that had to be done. For this reason it is easy to see why the pricing info from NADA, Edmunds, CarGurus, and the like may not reflect the true value of the car.
So as you can see these 3rd party sites can offer valuable information on cars for sale; things like reviews and real life experiences, and repair and total ownership costs. And sometimes this information is more reliable for used cars because the new cars and new model years don’t have enough information behind them yet; there is not enough history on the new models yet. When it comes to pricing information however it is harder to make the information apply to that actual car for sale that you are looking at. We’ve seen two cars, the same model from the same year, with the same mileage, be vastly different in price just based on the condition of the car. One may have been kept in a garage, with 1 owner, who was single and meticulously clean. The other may have been a family of 4 plus a dog, and they never had time for maintenance or cleaning the car. The kids may have spilled soft drinks and melted crayons in the carpet. It would be hard to take these two cars and apply the same value based on sales history of 10 other cars like it that are 100 miles away. The car for sale in real life doesn’t always match up to the car for sale on paper or a third party website.
At Max Auto Sales, we believe these other websites that are full of information on new and used cars can be a great resource. We also know it’s hard to take information based on a regional or national average and make it apply, and be correct, for each and every used car dealership, and each and every new or used car. It’s not very fair, nor accurate, to take a small car dealership in a small town 200 miles away and compare him to a large dealership in a huge city with a completely different budget. We believe this 3rd party car information sites and be a great tool, and a great guide for you to use when looking for your next car, but you have to also understand there will be some variation from one car dealership to another based on their costs and the condition of the car.