Friday, May 20, 2016

How to buy and sell cars

We Americans value our automobiles perhaps more than most other nations because we usually have to drive several times a day to get work, the market, see our friends etc.  Public transportation in most areas is subpar and taking a bicycle only works within a 5 mile radius, unless you get an electric bike (which I recommend).  Whatever your reason is for owning a car, don't think it's the only way to commute; I try not to drive when possible and either walk or take my bike.  I even have a trailer for the kids too.

That said, the need for at least one car per household is pretty much a given.  Being a sports car buff, I've bought and sold more cars than most for my age.  I've even turned a profit on nearly every transaction because I've developed a method for buying and selling cars.  It's really quite simple.  The main objective is maximizing value in both the purchase and sell of the vehicle.  Value isn't a concrete term and really needs to be broken down into three branches when it comes to autos.

Value

1) Perhaps a car's most important valuation metric is the make, model, year, trim, and feature set.   While this is obvious to most readers, I'm spelling it out for my 15 year old self here.  Make and model are easy enough to understand, but trim and feature set is a bit harder to identify on car ads if the poster didn't put enough information in.  Your best bet is to look at the car's VIN number.  This unique ID is created as the car is built and can be used to lookup features and trim as well as model & make.  It's broken up into three parts, Manufacture + Model/Trim/Options + Serial number.  Edmunds explains how to decode these.

Every car is made to a specific generational build plan which can change even multiple times per year, so sometimes you need to reference the VIN number when determining which generation a car is.  The absolute value of car (min to max range) is set by these metrics and obviously can't be changed.   Resources such as Kelley Blue Book can help you determine the min and max value range.

A car's warranty is valued linearly; selling a car with 1 year left will fetch a much higher price than a car without a warranty.  But warranties are overrated; most independant mechanics do just as good of job as the dealerships at less than half the cost.  Out of pocket repairs are usually cheaper than the difference paid for a car with a warranty.  That said, if you really want the warranty, certified preowned cars come with a new warranty and offer peace of mind for those who can afford the convenience.  When selecting a car to purchase, the older the car is, the more reliability information and user reviews accumulate which makes things much more predictable in terms of cost of maintenance/repairs and what maintenance items to look for when buying a car.  You can find resources on reliability ratings for cars from Consumer Reports, EdmundsAutotrader, and MSN Autos.

2) The second most important component to a car's value is the wear/tear and previous maintenance.  For this, mileage is a bigger factor than age, but more importantly, what kind of miles are they.  Highway miles are better than stop and go daily commute miles, which are still better than city miles, which are obviously better than track miles.  And preventative maintenance is crucial in preventing bigger and more costly problems later down the line.  For these reasons, assessing the previous owner(s) is important to see how well the car has been driven and treated.  Because that isn't always possible and sellers can lie, it's best to get a vehicle history report on any prospective car you are seriously considering buying.  Think of Carfax, but not $25 a pop, I use CheckThatVIN which is only $3.50.

While this report should tell you about previous accidents, unreported ones will not be on a vehicle's history report.  It's always best to have a private party seller agree to have the car inspected by a mechanic who will be able to determine if the car was in a serious accident and if it was repaired satisfactorily.  They also should be able to tell if the car was maintained correctly, though they may not know about specific maintenance details for that year/make/model/trim.  I recommend looking up the maintenance schedule in a Chilton's manual (also might be able to get it from this online library) and finding a mechanic who specializes in that car's make/model.  If you are trying to sell your car, you should already own the specific Chilton's manual and if you are going to buy one, I'd also just pick it up on amazon as part of your research.  The more you understand the car, the better you can assess it's value and thus save you money.

3) The final metric in value is really more for selling cars than buying --aftermarket modifications.   Aftermarket upgrades include window tinting, custom interior and lighting, rims, body kits, head/tail lights, sound systems, performance upgrades, suspension modifications, aftermarket accessories, etc.  Unless you are the kind of person who is looking for a heavily modified racer or upgraded offroading vehicle, you likely are looking at stock (unmodified) cars to buy or have an unmodified car to sell. Most of the time, aftermarket mods don't add very much value to the car.  That said, many people (buyers) are attracted to certain upgrades on an emotional level, especially if the modifications take some work to install and are done correctly.  Here's my breakdown of the top upgrades I usually see, cost, perceived value (what a seller might think) vs real value (value to you).

Modification Cost Perceived value Actual value
Window Tint 200-500 75-100% of cost 25-50% of cost
Custom Sound System 200-2000 75-100% of cost 25-50% of cost
Rim + special tires 500-5000 75-100% of cost 0-25% of cost
Interior mods (seats, lights, mirror, pedals, floor mats, etc) 10-1000 0-50% of cost 0% of cost
Engine performance mods (intake, exhaust, cams, clutch, etc) 500+ 50% of cost 0-25% of cost
Suspension mods (coilovers, lowering springs, etc) 200+ 25-50% of cost 0
Body kits 200+ 25-50% of cost 0


More on Perceived vs Actual values: many mods actually decrease the life expectancy and reliability of other components, such as suspension lowering, engine modifications, rims/tires.  The subjectivity nature of aftermarket mods means you can't assume everyone will like the mods and will immediately want to remove them and revert back to stock.  I recommend saving the original parts for when you are looking to sell your car.  When buying a car, I recommend purchasing stock only cars or only slight mods.  Heavily modified cars tend to have many issues.


Selecting a car

So now that I've spelled out vehicle valuation, let's focus specifically on buying.  If you aren't sure what kind of car to get, you need to first figure out what aspects and functionality you need/want.  Is a big trunk important? How about visibility?  Reliability?  Off road handling? Fuel economy?  Determine your priorities and rank them in order.  Pick the top 3-5 and use those as your checklist when evaluating cars.

Note that I specifically left price and mileage off the list of priorities.  Price is determined by your budget --you should have a number in mind in what you can afford which includes insurance and fuel costs.  You can usually find total cost of ownership including expected maintenance in your research (used the links above as a starting point).   You will have to compromise on the car's age (year model generation) and mileage to get the price you want.  There is always a sweet spot and it takes some work to find that.  Generally, newer cars with higher miles are actually more reliable than older cars with lower miles.  This is because newer cars are usually more reliable in general, usually only have 1-2 previous owners, and someone who drives many miles per year are usually driving highway miles (good).  Those miles take a major toll on the perceived value (KBB) and allow you to get a good deal.

Narrow down your research to no more than three models and go test drive each of them.  There are several ways to do this.  Carmax is a great place to start since you can possibly see all three models there.  I would never buy from carmax as they charge a premium like all used car dealerships, but don't tell the sales associate that.  Go with a friend if you are worried about being strong-armed into a sale and walk away if they get pushy.

If you can't find the make/model/generation you are looking for, try to find a private seller who will let you test drive it.  Make sure tell her/him that you are looking at a few cars and you'll need to think about it, but really make sure you drive at least one car you aren't planning on buying of the same make/model/generation; this way you can make sure you have selected the car you want correctly.  If you can't decide on just one, pick up to three combinations which will work for you and search for them.  Try to narrow it down to just one if possible though, this will save you lots of time in searching.


Car Search

Once you have a good idea of the make/model/year/trim/options of the car you are looking to get, you can now start looking.  Ebay is usually overpriced and a bad idea.  I've had the best luck with Craigslist and Autotrader.  Sometimes even cars parked on the side of the road with for sale signs are very good value as the owner may not know the true value of their own car (they aren't tech savvy and haven't researched it).  In doing your research for your car, you'll know what price range you should expect to find.  Beware of cars priced far below your expected range, it usually means there is something wrong with the car.

Don't be afraid of buying from a far away seller, out of state even, however, you'll want a full money back guarantee from the seller (usually 2-4 weeks); most dealerships and even some private parties will do this; get it in writing.   If you are planning on getting a certified preowned car, you'll usually want to buy out of state because you'll typically get a better price than if you were to buy locally even after the price of shipping the car.  Car shipping is almost always cheaper than driving with a friend or flying out and driving back.  Some dealerships will even drive it to you; I bought a car from a dealership over 120 miles away and they drove it to us for free.

Speaking of dealerships, I've found some of the best deals buying used cars from mismatched new car dealerships.  They too post ads on craigslist and autotrader which is really the only way to shop at dealerships.  I bought a Mitsubishi from a Chevy dealer, a Toyota from a Honda dealer, etc.  These cars are trade-ins and because the dealer pays so little to the new car buyer for their trade in, they are able to sell it really quick below market value because they want to get the car out of inventory asap. Don't confuse dealerships with used car lots, they are a horrible place to buy cars.  They usually accumulate lemons and they have to mark up the cars because they are purchased from private parties.

If you can't afford a certified preowned (or used) car from a dealership, look at private listings for cars with as few of owners as possible.  One owner is the best of course, especially if they have kept good records of maintenance and repairs (even better if there are no accidents).  If you aren't buying a certified car, insist on having a machine look at it as a condition of sale.   Try and find a mechanic who specializes in the car's make/model, especially if you are buying the car out of town over the phone.  I bought a car in Salt Lake City, UT from a Chevy dealer and had a Mitsubishi specialist that I found on craigslist go and inspect the car for me. I paid him $80 via paypal and he gave me a list of changes made (different from stock), issues, major maintenance items which had/hadn't been done.

One of the most important tests he did was the compression test, which is testing each cylinder for any leaking.  This is really crucial for older/high mileage cars as the seals wear down and require an engine rebuild ($$$$).  Drive train/transmission, brakes, suspension, steering, wheel wear, etc. are all important things to have your mechanic check.  Finally, ask them if you would buy this car themself based on the condition of the car.  Get a second opinion if you don't like his/her response or you feel like he/she wasn't being honest.

When you've found a car you wish to buy from a private seller, make sure registration is current and the VIN is clean.  Use a VIN checking service and ask to see registration.  Make sure the car will pass a smog check, even better if it has passed one in the past 3 months.  You'll have to smog it anyways when you register it with the DMV if it hasn't otherwise.  Most importantly, make sure the owner has the title to the car.  This is usually a pink paper which has the owner's name and address along with the VIN and mileage at last sale.  Double check the seller's license to make sure that he/she is the actual owner of the car.  Some people will try to sell you a stolen car.



Closing the Deal

While you are searching for your car, you should also figure out your financing.  If you are planning on paying in cash, make sure you go with someone else to make the transaction and meet at a neutral public place like a the parking lot of a grocery store, gas station, or coffee shop.  I'd also recommend a cashier's check as it's safer than carrying around cash.  You obviously don't want to get robbed.  Even better is meeting at the DMV; you'll have to go there afterwards to finalize the transaction officially anyways.

Make sure the prices you see are around the numbers you see on KBB.  Generally, there is some negotiating leeway with dealerships and you can almost always save 5-10%. First ask how long the car has been on sale for, then ask how much of a discount you can get if you take it off their hands right now.  With private parties, start at 10-15% lower and let them counter.  Try to meet halfway if possible.

If you are planning on financing, use a credit union for your loan if possible.  You'll get the best deal and they generally are very great to work with.  I highly recommend Penfed. Plan on having at least 10% down and enough to cover tax, title, and registration, usually about another 6-8%.  You'll have to pay these even if you are buying in cash at the DMV.

All that is needed when buying from a private party is getting the transfer of title filled out and exchanging funds.  There is a portion of the title which is removed that the seller keeps and mails in to the DMV or can submit it online.  The other portion you bring with the car to the DMV to handle the title transfer.  If you are planning on going to the DMV that day, ask that the seller submit the change of title online and print out the confirmation so you can bring it with you to the DMV.

If you are buying from a dealership, they'll handle the change of title for you, but you may still have to go to the DMV.  An unrelated pro-tip, if you are a AAA member, you can just go to an AAA branch office instead of the DMV for title transfer.  This is a much better and quicker experience than the DMV.

Once the car is yours, if it's not a certified preowned car, I recommend bringing it to your mechanic for a tuneup, oil change, brakes/tires if need.  If you do fine major issues with the car which were misrepresented by the seller (if the car is sold "AS-IS" then you have no legal recourse), lemon-law does cover private sellers and you can lawyer up.  I have never gone down this route before as I make sure I thoroughly inspect the car before I buy.



Selling

When it comes to selling your car, always sell privately.  Dealerships will never give you top dollar and will try and rip you off.  It's worth the time to sell it yourself, especially if you've made aftermarket modifications to it.  You want to spend time and detail your car, inside and out, even the engine bay. You can pay a carwash to steam clean your engine and make it look amazing.  Then take some really great photos of your car.  Make sure you get a photo of the mileage, engine, wheels, front, back, and sides.  You can never have too many photos.

Be very descriptive with your ads, get the original verbiage from the manufacturer's descriptions along with what the feature brand new would costs and list it in a table.  If your car doesn't have a warranty any longer, make sure you include "SOLD AS-IS" in the description.  This will save you from the buyer changing their mind later.  Get a KBB private party buyer estimate (don't use the private party sellers estimate, it's actually lower than the buyers).  Add on your aftermarket modifications.  Finally add 5-10% more as you'll need room to negotiate down.  I recommend making both a Craigslist and Autotrader ad, the $75 "list it until it sells" works wonders I find.

If you have all of the receipts for maintenance and aftermarket upgrades, put them in the ad and include them with the sell of the car.  This usually seals the deal in justifying a higher than market sale price. If you are selling a car you bought new, include all of the original paperwork from the dealership.  Include the Chilton's manual and any special tools specific to the car (like the rim lock lugnut).  List this in the ad and the buyer will know you took good care of the car and the add value is justified.

When showing the car, always meet in a public place and take a picture of the person's license before they drive the car, make sure they have insurance as well.  Always go with them and direct them where to drive.  If you are selling a manual transmission car, make sure the buyer knows how to drive stick.  If for any reason you feel uncomfortable with how the buyer is driving the car, ask them to pull over and switch seats.  I've had to do this once with a kid who lied about being able to drive stick.   I still ended up selling him the car aways, but I wasn't going to let him learn how to drive stick while it was my car.

Price negotiation generally starts out with the buyer making an offer lower than asking.  Usually they'll accept a counter offer half way between your asking price and their offer.   As the seller, you have the upperhand if you don't need to sell the car right away. If the buyer really wants it, they'll cave and let you take a few more hundred bucks from them.  I've generally been able to sell cars 10-20% over fair market because I don't cave.  Sometimes it takes weeks to sell, but this is why you should list your car early and high and only lower your price as it gets closer to the time when you need to sell it.



Side Income

The more you buy and sell cars privately, the better you'll become at it. If you learn how to fix repair simple things like basic body work, you can easily turn it into a side hobby which makes a little extra cash.  My own estimates are in the range of $25-200/hr depending on what kind of cars you are flipping.  If you get really good at identifying value and are first to act, you can usually get really sweet deals on cars at auction.  Also, rare and unique cars especially can be sold at a premium.  If you are thinking about making a business out of flipping cars, try and focus on a particular specialty, make/model, etc. so you can become very good at seeing the value and making a profit.  Don't forget to factor in taxes into your calculations.   If you sell more than 4 cars a year, you likely need to apply for a permit to sell used cars.

2 comments:

  1. I am always amazed that someone will try to sell a heavily modified Jeep worth $4k for $10k, saying that they have $8k in parts. How old are those parts? If you have been using the Jeep, the bushings on your lifted suspension are probably worn, or you bling rims are out-of-round. Are they good quality parts? If you just get the cheapest rock-rails that would fit they are probsbly made with thin metal and the welds won't hold. Were the mods installed correctly? If you just throw on a lift without knowing what you are doing the new owner is going to find themselves stranded somewhere. Do others actually want the mods you did? You might think that aftermarket sunroof is a "bitchen mod", but I see a roof leak just waiting to happen.

    If you want to try to get your money back, buy something that came they way you want it from the factory. If you really want to heavily modify a vehicle, do it without expecting to get all your "investment" back. I just build mine the way I want them and the use them.

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