There comes a time in the life of every vehicle when it is no longer useful. Either it has traveled its last mile, absorbed a devastating impact, suffered the violence of vandals or endured saturation from flooding. Whatever the circumstance, the conveyance is no longer drivable.
At the same time, though, it may still retain some unseen value. Parts left intact, for example, are in demand by multiple sources. Some may see a car to be junked, while others can appreciate the salvage value. Before shopping the degraded automobile around to junk dealers, owners would do well to apply a salvage value formula for optimal profit.
What Is Salvage Value?
Salvage value is the estimated value of property at the end of its useful life. According to the IRS, the salvage value is the estimated value of the property after the end of its useful life. While a working vehicle might be worth more than just the sum of its parts, a defunct car or truck is evaluated solely on parts.
In brief, salvage value is the appraised worth of a commodity or manufactured object that has reached its lowest point of depreciation. It is a concept that affects not only vehicles but buildings, machines and crops. Any items that are no longer marketable as those items have salvage values.
So, a car salvage value applies when the car becomes permanently inoperable. Salvage value reflects the amount a seller can expect to receive for a ruined auto.
Is the Car Irreparable?
In the strictest sense, almost any damaged vehicle is fixable with sufficient time, materials and labor. However, doing so might be more expensive than replacing the car altogether.
It is when the vehicle crosses that all-important threshold that salvage value, also known as scrap value, kicks in. In other words, when purchasing a new automobile becomes the cheaper option, the old car's worth passes from the whole to its parts. How, then, does an owner calculate car scrap value?
Calculate Car Scrap Value
There is no universal formula for the salvage value of a car or truck. Insurance companies use their own methods, which they see as tried and true. However, there is a way for a vehicle owner to come fairly close to an accurate scrap value.
Begin with the Kelley Blue Book (KBB). For nearly a century, the KBB has offered car values according to make, model and year. In doing so, it earned a celebrated reputation for accuracy and reliability. Since all stable calculations should rest on dependable numbers, the KBB is the best place to start.
Having found the retail price in the KBB, immediately go to the National Auto Dealers Association (NADA) list of used car prices. Representing independent auto retailers across the United States for over 100 years, NADA collaborates with J.D. Power to provide solid statistical data on preowned vehicles. The sum of the KBB and NADA values yields the car's current market value, without, of course, taking damage into account.
Individual insurance companies apply a depreciation factor after assessing a car's condition; this number can fall in the 70 to 80 percent range. Once applied to the current market value, the factor conveys the salvage value of the car.
Is the Salvage Value Formula Binding?
Junk dealers pay what junk dealers will pay. They are not bound by insurance company appraisals or any other regime for calculating salvage value. As with most businesses, supply and demand govern their decision-making.
Many cities will have multiple junk dealers on the same street or at least in the same neighborhood. Therefore, it's certainly worth it to shop around a little to ensure you get the highest price.
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.