Dubai: If you’re thinking of buying a pre-owned car, or even planning on selling your existing one, at some point you will either be required to know the value of your current car or that of the second-hand one, to figure out how much you can earn or afford to spend.
Generally, an initial estimate of a car’s market value can be arrived at by analysing make, model, year of manufacture, mileage, service history and accident reports, after which you must get the car examined closer to get a more realistic and fair value. This is how you’d ideally go about it.
However, the market value of a car is often loosely deduced by considering how much money like-for-like cars that are like your own are currently being sold for, or what is estimated to be a fair price. And it’s a given that market value is almost always lower than retail.
What type of value you want for your car?
If you’re selling your car, one type of valuation is the ‘trade’ or ‘book’ value, which represents the price a dealership would pay for your car. Another valuation category is the ‘private seller value’, which represents what a seller can expect to receive from selling the vehicle in an ‘as is’ condition.
“If you’re looking for the best possible purchase price, you’re likely to find it from a private seller rather than a dealer,” said Jacob Koshy, a Dubai-based automotive analyst specialising in retail pricing. “The reasoning for this is simple.
“While a dealer needs to make a profit on each vehicle, a private seller doesn’t have the same concern. Instead, private sellers are usually trying to sell an old vehicle so they can buy a new one, and that means they’re often more willing to negotiate just to ensure that the car is sold quickly.”
• ‘Pre-owned value’: Used cars that are still within warranty and pass inspection are certified to be sold as pre-owned vehicles.
• ‘Manufacturer’s recommended price’ (MSRP): The standard new car price set by the manufacturer for that model.
• ‘Asking price’ or ‘Sticker price’: This is the price that the seller advertises for the car.
• ‘Agreed-upon price’ or ‘Closing price’: This is what the car is sold for.
How else can you estimate a car’s value?
While you can get an estimate by calculating the rate at which the market value of car depreciates, these are industry averages and may not apply to some vehicles. To estimate how much value your car has lost, you can simply subtract the car's current fair market value from its purchase price.
“After one year, a new car depreciates by 20 per cent less than its original price. After the first year dip, car depreciation per year is 15 per cent every year, which means after five years, your car loses around 60 per cent of its value,” explained Koshy. “But after that depreciation slows drastically.”
Whether a used car or a new one, the value will depreciate, but the rate of depreciation is the fastest only in the first few years. It is why the first owner takes a bigger depreciation hit compared to subsequent owners. This is also why a used car is preferred as it will depreciate at a lower rate.
“A car insurance pay-out is determined by the value of the vehicle you are driving. A standard insurance policy does not pay you the cost of an equivalent new model, nor does it guarantee a payment equal to the amount you may still owe on the car.”
What else affects the value of a car?
According to Koshy, often what is overlooked when it comes to valuing one's car is that the vehicle’s value will also be influenced by market conditions, including supply and demand.
“For instance, when new vehicles became harder to find, shoppers turn to used cars, which will cause their prices to spike. This means car owners looking to sell or trade in a vehicle in its wake might get more money than expected even for older used cars,” added Koshy.
“Fuel prices also play a role in a used vehicle’s value. When fuel prices drop, demand for larger vehicles like full-size SUVs and pickup trucks rises, leading to increased value. Alternatively, as fuel prices climb, fuel-efficient cars become more desirable and valuable.”
After the first year dip, car depreciation per year is 15 per cent every year, which means after five years, your car loses around 60 per cent of its value
Bottom line?
If you’re looking to get the most for your existing vehicle or pay the least for your new car, auto retail experts reiterate that it’s worth opting to deal directly with the seller or buyer directly and skipping the dealership.
It’s worth knowing how quickly you want to complete the transaction. If you want cash now, selling your car to a dealership will likely be the fastest option – albeit at the cost of denting your car’s valuation. Selling it yourself could save you money, but not without it being more labour intensive.
As you research different cars you might want to buy, also ensure that you factor in their different rates of depreciation, which is simply the difference between how much your car was worth when you bought it and what the car is worth when you sell it.
Also, experts caution that’s it’s important to take into consideration that all new cars drop in value at an alarming rate. While some models hold their value better than others, and hence will be easier to resell for a higher price, they’re also more expensive to buy at the onset.
