A line of used cars are shown at a used car dealership.

How Used Cars Are Priced and Valued

Can you guess one of the most common mistakes people make when buying a used car? They assume that the sticker price is non-negotiable or set in stone. The truth is that the team at your local used car dealership expects you to negotiate the price; it’s part of the car-buying process, and it’s in your best interest. Used cars are priced according to several factors such as market value, age, mileage, condition, trim, features, and even location. Knowing more about these factors can give you a better idea of the true value of the car and where to start your negotiation on the used car you’ve been eyeing or to get the most for your trade.

#1 – Market Value

According to the experts over at Edmunds.com, approximately 40 million used vehicles are sold each year. This healthy market establishes the baseline or the value of a used car. How so?

Let’s say that you want to trade your current vehicle in for a newer model. Would you drive straight to the dealership and accept whatever they offered without doing your homework? Hopefully not; you’d likely use tools like Kelley Blue Book or the National Automotive Dealers Association website to determine the value of your car based on its age, mileage, and condition. This is what’s known as the fair market value or a reasonable estimate of what consumers will pay for the vehicle in your area.

When you’re shopping for a used vehicle, take your time and do your research. Once you find the best used vehicle for your needs, write down its VIN or vehicle identification number and other details like color, year, make, and model. Then use online tools to search for the same vehicle and learn more about its fair market value. Compare that value to the sticker price and start the negotiation from there.

A mechanic is shown inspecting the underneath of a vehicle.

#2 – Age, Mileage, and Condition

There are three primary factors that go into valuing a used vehicle – age, mileage, and condition. Older models are usually priced lower because they’ve been on the road longer and their features (connectivity, safety, security, etc…) are older and perhaps out of date. Mileage is also another significant factor since many buyers prefer to get behind the wheel of a car with fewer miles. However, there is a caveat to this. Advancements in the automotive industry have made vehicles more reliable and capable of logging hundreds of thousands of miles, which means they have more life left in them even on the used lot. Trucks like the Toyota Tacoma, SUVs like the Toyota 4Runner, and off-road rigs like the Jeep Wrangler are known for fetching a high price on the used lot even with high mileage.

The other main factor is the condition of the vehicle. If you’re buying a used vehicle, you’ll likely spend some time looking over the vehicle’s exterior and interior to see how well it’s been maintained. Are there any dents, dings, or scratches? Is it modified in any way? Is the upholstery worn or stained? The better condition a vehicle is in, the more valuable it is, and that’s reflected in its sticker price.

#3 – Location

Your location and that of the vehicle can also play a factor in its price on the used lot. Notice the word “can.” Trucks and crossovers are popular from coast to coast, which means location isn’t a huge factor. However, this gets more complicated when you start looking at niche vehicles or specific features. For example, a four-wheel-drive SUV will be of higher value in areas that see a lot of snow, while convertibles are most valuable to those who live in warmer climates. In other words, demand drives price. Not many people in the northern United States want a convertible as their primary vehicle; it isn’t practical in a wintry wonderland of snow and ice.

#4 – Options, Add-Ons, and Features

A vehicle’s options and features also play a factor in its price or value. These options range from the transmission and powertrain to air conditioning and luxuries like leather seating and smartphone integration. There are also caveats or exceptions to this. Diesel trucks are typically more valuable than gas-powered trucks because of their ability to tow heavy loads. But, you can easily find a top-tier trim like the GMC Sierra Denali that, despite having a gas-powered engine, is priced higher because of its plush leather interior and expansive suite of conveniences.

Four-wheel drive and all-wheel drive models are often more valuable than front-wheel drive models because of their capability. Vehicles with automatic transmissions also fetch a higher price unless you’re looking at a sports car, in which case manual transmissions are more valuable. While features like air conditioning seem like a given in the modern automotive industry, automatic dual-zone or tri-zone climate control will drive the cost up. Similarly, used vehicles with newer technology like smartphone integration, an infotainment system, Bluetooth capability, and advanced driver-assist tools also add to the car’s sticker price.

A couple and a salesman are shown looking at vehicles at a used car dealership.

#5 – The Dealership

The last factor that goes into valuing a used car is the dealership. Dealerships have to make money and, to do that, they must make more than what they invested in the vehicle. To do this, dealerships pad the price of each used vehicle, knowing that you will negotiate the price. This gives them room to negotiate and still cover their investment and expenses. It’s not a trick or a gimmick but a starting point for negotiating the best deal for both parties.

This is especially true when you’re shopping from a dealership’s certified pre-owned inventory. Used models are typically sold “as-is,” which means the dealership sells them without significant reconditioning or a warranty. Certified pre-owned models require more work and must meet the original manufacturer’s strict standards to earn the CPO badge. This limits the models to a certain age or mileage and subjects each vehicle to a comprehensive inspection. To cover these expenses and to reflect the manufacturer’s confidence in the vehicle, the price of a CPO model is higher than the same vehicle on the used lot.

What It All Means

Whether you’re shopping for a used car or you’re valuing your trade, it’s important to do your homework and know the fair market value of the vehicle. You wouldn’t walk into a store and pay $100 for a dozen eggs without question, would you? The same is true when you’re looking at the price of a used car, truck, or SUV. You must determine what the vehicle is truly worth and if the asking price is fair.

The fair market value of the vehicle is a great starting point. It can tell you if the vehicle is fair or overpriced for the used lot or if the dealership is giving you a fair value for your trade-in. As you look at this value, you’ll also want to consider your location, the vehicle’s condition, age, mileage, and features, all of which play a part in determining its worth. While many of these factors can be subjective, they give you a baseline for what your vehicle or the vehicle you want to buy is truly worth.

Once you know the fair market value, you have a great starting point for negotiation. Remember that dealerships typically pad the price of used vehicles to cover their investment, which means there’s room to negotiate. The same is true when valuing your trade; you can always negotiate for a higher price based on your research.