Trade-in and retail are two values that car dealers apply to used vehicles. A car buyer can find these values on a number of vehicle valuation websites. The actual retail and trade-in value of cars vary depending on the website, so the best way to arrive at realistic values is by averaging the prices together from multiple websites. A car buyer can save money by using these valuations during negotiations at the dealership.
Basics of Trade-in Value
Trade-in value is the price that a car dealer is willing to give you for your old car when you buy another model, explains the Washington State Department of Revenue. The trade-in value is lower than the retail value. The reason for the lower amount is the dealer may need to repair or make other modifications to the car before placing it for sale on the used car lot.
In some cases, the dealer might give you more money than the car is worth, simply to get you to buy a new car, making up the loss that way. In other cases, a dealer might play hardball if it has a profitable used-car business it wants to keep strong.
Retail Value of Your Car
Retail value is the value of your car if you decide to sell it, via Craigslist, a local auto trader publication or other venue. The retail value of a car is higher than the trade-in value because the trade-in price a dealer is willing to pay must cover the costs of any repairs or modifications that must be made to the vehicle, as well as a sufficient profit for the dealer.
Retail value also refers to the price a dealer places on a vehicle it is selling. Depending on the final condition of a vehicle, the car dealer may add or subtract to the base retail value before placing it for sale. The dealer usually indicates the final retail value by writing it on the front windshield of the car.
Find the Values
Before you accept a trade-in value for your vehicle, go online to check out what you might be able to get for it retail. This will almost always be more than a dealer will pay for it. However, you might need to pay capital gains tax on the sale of your car, explains the IRS, so factor that in.
If your capital gains bump you into the next-higher tax bracket, that will affect your decision, as well. Check out your tax bracket using online tools, or talk to a tax advisor.
To find the retail value of a car, use a search engine to find two or more car valuation websites. Go to the first website and follow the prompts to determine the trade-in and retail values of the car you want to buy. Print the information and repeat the steps on at least one other valuation website. Average the prices together to arrive at a final trade-in price.
Repeat the process with the retail values. Use the numbers as a reference when you negotiate the purchase price for your next vehicle. Your goal is to pay an amount that is closer to the average trade-in value than the average retail value. The car salesperson you speak with at the dealership will try to get you to pay full retail to make a higher commission.
Negotiate the Purchase Price
Negotiating your trade-in value is common, and you shouldn't be intimidated about asking for more than the first offer. When you're ready to buy, offer the average trade-in amount you researched earlier. Offer less if you think the car is not worth the full trade-in value. The salesperson likely will come back with a counteroffer.
If the offer price is less than the average retail value you can either accept it or make a counteroffer of your own. Continue the negotiation process until you agree on a sales price, or look for a car at a different dealership if you cannot come to terms.
Jeff Todd, a former futures trader and banking and finance professional, started his writing career in 1997, producing content for The Motley Fool. He has since written for several trading websites and online media companies. He attended Wesley College, and received banking certificates from Louisiana State University and the University of Oklahoma.